10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-20882

Standard Management Corporation

(Exact name of registrant as specified in its charter)

Indiana (State or other jurisdiction of incorporation or organization)	35-1773567 (I.R.S. employer identification no.)
10689 North Pennsylvania Street, Indianapolis, Indiana 46280 (Address of principal executive offices)	(317) 574-6200 (Telephone)

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, No Par Value
	10.25% Trust Preferred Securities due 2031 of SMAN Capital Trust I

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o                     Accelerated filer o                    Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Registrant’s common stock as of June 30, 2005 as reported on The NASDAQ National Market, was approximately $13.7 million. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of April 3, 2006, Registrant had outstanding 9,095,208 shares of common stock.

Documents Incorporated by Reference: None

Table of Contents

	Page
Part I
Item 1.    Business of Standard Management		3
Item 1A. Risk Factors		7
Item 2.    Properties		13
Item 3.    Legal Proceedings		14
Item 4.    Submission of Matters to a Vote of Security Holders		14
Part II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		15
Item 6.    Selected Financial Data		17
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		29
Item 8.    Financial Statements and Supplementary Data		29
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		29
Item 9A. Controls and Procedures		29
Item 9B. Other Information		29
Part III
Item 10.  Directors and Executive Officers of the Registrant		30
Item 11.  Executive Compensation		33
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		38
Item 13.  Certain Relationships and Related Transactions		40
Item 14.  Principal Accountant Fees and Services		40
Part IV
Item 15.  Exhibits and Financial Statement Schedule		41
EX-3.1A AMENDMENT TO THE AMENDED AND RESTATED ARTICLES
EX-10.5 LEASE BY AND BETWEEN STANDARD LIFE AND STANDARD MANAGEMENT
EX-10.11 EMPLOYEMENT AGREEMENT
EX-10.20 EMPLOYMENT AGREEMENT
EX-10.21 EMPLOYMENT AGREEMENT
EX-10.22 EMPLOYMENT AGREEMENT
EX-21 LIST OF SUBSIDIARIES
EX-23.1 CONSENT OF BDO SEIDMAN, LLP.
EX-23.2 CONSENT OF ERNST & YOUNG LLP.
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32 SECTION 906 CERTIFICATION OF CEO & CFO

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Cautionary Notice Regarding Forward-Looking Statements

          This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1934. All statements, trend analyses, and other information contained in this Annual Report on Form 10-K relative to markets for our products, trends in our operations or financial results, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements relating to our business strategy and prospects, our acquisition strategy, including potential acquisitions discussed under “Future Acquisitions,” the operation and performance of acquired businesses post-acquisition, future financing plans, sources and availability of capital, governmental regulations and their effect on us and our competition. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, but are not limited to the Risk Factors set forth under Item 1A, as well as:

• Our having sufficient cash on hand, whether generated through operations or financings, to meet our operating needs and continue our acquisition program.

• The ability of our management team to successfully operate a pharmacy business with limited experience in that industry.

• Our ability to expand our pharmacy business both organically and through acquisitions, including our ability to identify suitable acquisition candidates, acquire them at favorable prices and successfully integrate them into our business.

• General economic conditions and other factors, including prevailing interest rate levels, and stock market performance, which may affect our ability to obtain additional capital when needed and on favorable terms.

• Our ability to achieve anticipated levels of operational efficiencies at recently acquired companies, as well as through other cost-saving initiatives.

• Customer response to new products, distribution channels and marketing initiatives.

• Increasing competition in the sale of our products.

          We caution you that, while forward-looking statements reflect our good faith beliefs, these statements are not guarantees of future performance. In addition, we disclaim any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

PART I

          As used in this report, unless the context otherwise clearly requires, “the Company” “we”, “our”, “us”, and “Standard Management” refer to Standard Management Corporation and its subsidiaries. All financial information contained in this report is presented in accordance with generally accepted accounting principles unless otherwise specified. Our website is located at www.sman.com, however, the information contained on the website is not to be considered incorporated by reference herein.

Item 1. Business of Standard Management

Overview

          Standard Management is an Indianapolis-based holding company that, through its operating subsidiaries, provides pharmaceutical products and services to the healthcare industry. We focus on providing pharmaceuticals to long-term care and infusion therapy patients. Through our regional pharmacies, we offer custom packaging for all long-term care facilities in addition to creating solutions for specialized healthcare facilities in a growing number of regions of the United States.

History

          In June 2005, in order to provide greater long-term value for our shareholders, we sold our financial services business, which we had operated since 1989, for a purchase price of approximately $80 million with net

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proceeds of approximately $52 million. As a result, we significantly reduced our debt levels and created capital for acquisitions.

          Since June 2005, we have sought to expand our business through both organic growth and an active, focused acquisition program, with the goal of increasing revenues to approximately $200 million by the end of 2006 and to approximately $300 million by the end of 2008. During 2005, we acquired four businesses with aggregate 2004 net sales of approximately $33.7 million.

Our Business

          Unlike hospitals, most long-term care facilities (such as skilled nursing or assisted living facilities) do not have on-site pharmacies to dispense prescription drugs, but depend instead on institutional pharmacies to provide the necessary pharmacy products and services and to play an integral role in monitoring patient medication. In addition to providing pharmaceuticals, institutional pharmacies provide consulting services, which include monitoring the control, distribution and administration of drugs within the long-term care facility and assisting in compliance with applicable regulations.

          Our institutional pharmacies are the primary focus of our business. We operate our pharmacies as regional hubs servicing a geographic subsection of the country. Our regional facilities are supported by smaller pharmacies that extend the reach of the pharmacy’s products and services. We currently operate pharmacies in the Pacific Northwest, Tennessee and Indiana, and are seeking to acquire existing pharmacies to serve as regional pharmacies in various areas of the United States.

          Each of our regional pharmacies employs a sales and business development staff whose primary responsibilities are to maintain good working relationships with its existing client base and to secure new long-term care, assisted living or other institutional clients. In addition, the regional hubs maintain their own consulting pharmacists on staff who work closely in a clinical setting with the facilities to provide continuing in-service education and to answer the questions of staff members and patients on a regular basis. We believe the high quality of our services and our responsiveness and flexibility to facility and patient needs help us to develop long-term customer loyalty and to attract new clients.

          We purchase pharmaceuticals through wholesale distributors. We entered into a prime vendor contract with AmerisourceBergen Drug Corporation (“ABDC”) in March 2006, pursuant to which we are required to make 95% of our wholesale pharmaceutical product purchases from ABDC. We also are a member of industry buying groups, which contract with manufacturers for discounted prices. We have numerous sources of supply available to us and have not experienced any difficulty in obtaining pharmaceuticals or other products and supplies used in the conduct of our business.

Customers

          Our customers consist primarily of chronically ill patients in skilled nursing and assisted living facilities, and in home care. During 2005, we filled approximately 500,000 prescriptions primarily for patients in Indiana, Tennessee and Washington.

The Industry

          Based on data from industry sources, we estimate that the U.S. market for long-term care, or institutional pharmacy services, is approximately $10-12 billion annually. In addition, we believe that several factors will have a positive impact on the industry, leading to annualized growth of the industry of approximately 8%-9% through 2010. Among these factors are:

• The first members of the “baby boom” generation are approaching retirement. As Americans age, healthcare costs continue to rise, the population in skilled nursing facilities and assisted living facilities increases and prescription drug utilization increases significantly.

• The new Medicare Part D prescription drug benefit is projected to have a positive effect on payor source, drug utilization and pricing.

• The use of generic drugs continues to increase as a percentage of total prescriptions. Although generic drugs are significantly less expensive than branded drugs, they carry higher gross margins, increasing profitability.

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          The institutional pharmacy industry is currently dominated by three major players accounting for approximately 65% of the market. The remainder of the market consists of highly fragmented, small regional operators like our regional pharmacies that represent appealing acquisition targets for us.

Our Growth/Acquisition Strategy

          Our strategy for growth is to acquire and integrate regional pharmacies that expand our footprint and increase the products and services we offer. We have identified several potential strategic acquisitions which, if completed, would allow us to build critical mass in terms of both customers served and human and technological capital. While we intend to grow our business quickly on a regional basis through acquisitions in the near term, we are also committed to creating operational efficiencies in our existing operations so that our businesses can grow organically as well.

          In the initial stages of our long-term growth plan, acquisitions have played, and will continue to play, a primary role. Our management team has substantial experience in identifying, initiating and closing acquisitions, having completed 20 acquisitions since 1989. Since the sale of our financial services business in June 2005, we have completed four acquisitions and we are currently negotiating additional acquisitions. Our objective is to pursue only acquisition targets that are both in harmony with current operations and accretive to earnings. Our commitment is to acquire institutional long-term care and infusion therapy pharmacies, and integrate them into our decentralized operations model (which offers national, centralized pricing). At the same time, we afford the target companies economies of scale and reduction of overhead by providing services such as legal, accounting, marketing and business development, human resources and information technology services which are easily applied across all operational units.

          We generally pursue acquisitions of businesses with strong historical revenue and earnings performance, and with a committed existing management team willing to actively participate in the continued operations of the company post-acquisition and to grow their operational unit revenues in excess of 10% per year. We expect target earnings before interest, taxes, depreciation, and amortization (“EBITDA”) post-acquisition for acquired entities to range from 7%-10% of revenues depending on the type of business acquired. Our intent is to maintain the integrity and heritage of the acquired business while providing resources to enable management to invest more time in generating operating revenue. In this way, the local business unit operators can improve patient satisfaction in addition to enhancing the development of their personnel and the refinement of their business processes.

          We generally finance our acquisitions with a combination of cash, equity and seller financing (usually through a promissory note). This structure enables us to align our long-term expectations and incentives with those of the existing management.

          To date, we have paid the cash portion of our pharmacy acquisitions from the proceeds of the sale of our financial services business and the proceeds of a private sale of a secured convertible note. We will need to find additional financing alternatives to fund future acquisitions. Although we believe that we can obtain necessary financing to continue to execute our acquisition plan, we can provide no assurance that we will be able to obtain financing in the future, or that if available, it will be on terms acceptable to us. In addition, no assurance can be provided that we will be able to identify suitable acquisition candidates or that, if identified, we will be able to complete the acquisitions on terms acceptable to us.

Recent Acquisitions

          In 2005, we completed four acquisitions providing us three regional hubs throughout the country and five distribution centers: Rainier Home Health Care Pharmacy, Inc., located in Seattle, Washington (“Rainier”); Precision Healthcare, Inc., located in Nashville, Tennessee (“Precision”); Long Term Rx, Inc. located in New Castle, Indiana (“Long Term Rx”); and certain assets from Holland Health Service Inc., located in the Sedro-Woolley, Washington area (“Holland”). Each of these acquisitions was immediately accretive to earnings.

          Rainier, which we acquired in July 2005 was founded in 1986, is a provider of pharmaceuticals and medical supplies to long-term care facilities such as skilled nursing facilities and assisted living facilities. We have established Rainier as our regional pharmacy for the Pacific Northwest. Rainier had 2004 revenues of approximately $16.5 million and has a well established market share in the Pacific Northwest.

          Precision, which we acquired in July 2005 was founded in 2000, is a provider of infusion therapy to chronically ill patients and is a wholesale pharmaceutical provider to physician practices and other end users, with a well established reputation in Tennessee. Precision had 2004 revenues of approximately $7.0 million. Precision serves as a regional pharmacy for the Tennessee Valley area.

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          Long Term Rx which we acquired in July 2005 was founded in 1990, is a provider of pharmaceutical products to long-term care facilities utilizing medication packaging systems assisting caregivers and patients. Long Term Rx had 2004 revenues of approximately $7.2 million.

          In September 2005, we acquired the operations, inventory and certain key assets of Holland, which was founded in 1894. As part of this transaction we also retained key members of Holland’s management and operations team. Holland’s assets and operations have been integrated into Rainier, our regional pharmacy for the Pacific Northwest. Holland had 2004 revenues of approximately $3.0 million.

          The aggregate original purchase price of the 2005 acquisitions described above was $17.2 million, representing $11.6 million in cash paid at closing (largely funded with cash on hand), 1,250,001 shares of our common stock valued at $4.1 million, and $1.5 million in a seller note. These purchase prices are subject to working capital adjustments. With respect to two of the recent acquisitions, we have agreed to post-closing purchase price adjustments related to contractual working capital requirements and have paid $22,000 in one instance and have a $76,000 receivable outstanding in the second; and, we are currently negotiating a purchase price adjustment in connection with one of these recent acquisitions. In addition to the above, an aggregate of $0.8 million of acquisition costs are reflected as additional purchase price. Additional upward purchase price adjustments may be paid out as contingent consideration for certain acquisitions if certain growth in earnings targets are reached (none of which were reached based on 2005 results). We have also guaranteed a market price of $3.28 per share of the common stock issued in these acquisitions at certain anniversary dates. Those guaranteed values are included in the purchase prices reflected above. Should our common stock price be below the guaranteed price on the applicable anniversary dates, we are required to pay the difference to the sellers in cash or in additional shares of common stock.

          The aggregate purchase price of the 2005 acquisitions was allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values at the date of acquisition. The original preliminary allocation was subject to adjustment primarily as a result of the pending conclusion of valuation analyses regarding identifiable intangible assets (which include customer lists, trademarks and non-competition provisions) and the ultimate settlement of acquired accounts receivable. Most of these adjustments were made during 2005, and any additional adjustments will be made before the respective acquisition’s first anniversary in 2006. The preliminary allocation as of December 31, 2005 is as follows (dollars in thousands):

Cash	$	1,330
Accounts receivable		2,740
Inventories		2,050
Other current assets		87
Property and equipment		703
Intangible assets		3,670
Goodwill		10,472
Accounts payable and accrued expenses		(2,956	)
Total purchase price	$	18,096

          If we completed these four acquisitions on January 1, 2005 our pro forma net revenues and net loss from continuing operations for 2005, would have been $50.7 million and ($21.2 million), respectively.

Future Acquisitions

          Our growth strategy depends significantly on our ability to continue to identify appropriate acquisition targets. We are actively negotiating for the acquisition of several companies, although definitive agreements have not been entered into with any such companies. Based on the current status of negotiations, management is reasonably confident that it will be able to negotiate a definitive agreement with one of these targets. Negotiations with other companies are currently in the preliminary due diligence stage.

Regulatory Factors

          Our pharmacy business is subject to extensive and often changing federal, state and local regulations, and our pharmacies are required to be licensed in the states in which they are located or do business. While we continuously monitor the effects of regulatory activity on our operations and believe we currently have all necessary pharmacy licenses, the failure to obtain or renew any required regulatory approvals or licenses could adversely

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affect the continued operation of our business. The long-term care facilities that contract for our services are also subject to federal, state and local regulations and are required to be licensed in the states in which they are located. The failure by these long-term care facilities to comply with these or future regulations or to obtain or renew any required licenses could result in our inability to provide pharmacy services to these facilities and their residents.

          The long-term care pharmacy and infusion therapy business also operates under regulatory cost containment pressures through legislation (primarily through Medicaid and Medicare). Any future changes in such reimbursement programs, or in regulations related thereto, such as reductions in allowable reimbursement levels or the timing of processing of payments, could adversely affect our business.

          On December 8, 2004, President Bush signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2004 (the “Act”), a comprehensive voluntary prescription drug benefit administered under Medicare Part D effective January 1, 2006. The new Act provides certain cost-sharing government subsidies for individuals who might otherwise qualify for drug coverage under Medicaid or similar government-funded aid programs. Since a portion of our future long-term care pharmacy business will be made available to Medicare-qualified patients who may qualify for this new benefit, this new law may have an adverse effect on our business in the long term.

          We are subject to Medicare fraud and abuse and anti-self-referral laws which preclude, among other things, (a) persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a patient for treatment or for inducing the ordering or purchasing of items or services that are in any way paid for by Medicare or Medicaid, and (b) physicians from making referrals to certain entities with which they have a financial relationship. The fraud and abuse laws and regulations are broad in scope and are subject to frequent modification and varied interpretation. Violation of these laws can result in loss of licensure, civil and criminal penalties and exclusion from Medicaid, Medicare and other federal healthcare programs.

          As of December 31, 2005, approximately 36% of our pharmacy revenues were from government sponsored programs. Government sponsored programs include Medicaid and, to a lesser extent, Medicare. Our remaining billings are currently paid or reimbursed by individual residents, long-term care facilities and other third-party payors, including private insurers. A portion of these revenues are indirectly dependent on government programs. We anticipate that direct reimbursement from government sponsored programs will become a larger part of our pharmacy billings.

Competitive Factors

          We are not a pharmaceutical distributor. We are a provider of pharmacy products and services. The pharmaceutical industry is a highly competitive and fragmented industry, both regionally and nationally. We compete with local, regional and national organizations focused on similar customer groups. In the direct dispensing of pharmaceutical products, we compete with local and national retail, mail order and institutional pharmacies as well as pharmacies owned by long-term care facilities. We compete in this market based on competitive pricing, localized services, a broader product offering, value-added technologies and partnering initiatives that drive shared revenue.

Employees

          As of April 3, 2006, we had 262 employees. We believe our future success will depend, in part, on our ability to attract and retain highly-skilled technical, marketing, support and management personnel. None of our employees are represented by unions. We believe we have excellent relations with our employees.

Item 1A. Risk Factors

          In addition to the other information in this report and our other filings with the U. S. Securities and Exchange Commission (“SEC”), the following risk factors should be carefully considered in evaluating Standard Management and our businesses. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, not presently known to us or otherwise, may also impair our business operations or the trading of our common stock. If any of the risks described below or such other risks actually occur, our business, financial condition or results of operations could be materially and adversely affected.

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Our pharmacy business has not been profitable and we expect it to continue to incur losses for at least the next year.

          Since we began operating our pharmacy business in 2002, it has incurred substantial net losses each year. For the years 2005, 2004 and 2003, net losses from our continuing operations were $20.3 million, $20.6 million and $16.7 million, respectively. We expect net losses to continue until we generate significant revenues and achieve economies of scale in our operations through acquisitions and organic growth. There can be no assurance that we will ever be able to successfully develop and operate a profitable pharmacy business. Our future profitability will depend on several factors including:

• our ability to identify and acquire appropriately priced and profitable businesses that provide cash flow and synergies to our current business;

• our ability to execute a planned strategy that will provide for cash flow from operations which will fund growth and service debt; and

• our ability to access reasonably priced capital that will provide long-term flexibility for the Company.

Unless we receive a significant cash infusion or significantly increase cash flow from operations, we may not have sufficient cash to meet our cash requirements at some point during 2006.

          Our pharmacy business alone has not generated sufficient revenues to support our operations and service our debt obligations. We implemented a growth plan, subsequent to the sale of our financial services business in June 2005, focused on acquiring profitable existing businesses to increase our revenues and cash flows. The funding of this growth plan and our ability to meet our working capital and other cash requirements generally, depend on, among other things, current cash and cash equivalents and proceeds from outside financing activities. At December 31, 2005, we had approximately $2.2 million in cash and cash equivalents. On April 13, 2006, we received $2.8 million of debt financing from one of our officers. Nevertheless, based on current estimates of cash flow, management believes that, absent significant additional cash infusion or significantly increased cash flow from operations, at some point during 2006, we may not have sufficient cash to meet our cash requirements. Management is currently negotiating a series of transactions it believes would alleviate the potential liquidity shortfall. There can be no assurance, however, that outside financing activities will generate sufficient net proceeds or that the other initiatives currently being negotiated by management can be consummated in full or at sufficient levels to provide us with sufficient cash to meet our cash requirements.

Our independent auditors have expressed substantial doubt regarding the Company’s ability to continue as a going concern.

          In their report, our independent auditors stated that our financial statements for the years ended December 31, 2005 and 2004 were prepared assuming that the Company would continue as a going concern. The auditors expressed “substantial doubt” about the Company’s ability to continue as a going concern based on a lack of liquidity combined with recurring losses from continuing operations. The fact that we have received this “going concern opinion” from our auditors will likely make it more difficult for us to raise capital on favorable terms and could hinder, to some extent, our operations and acquisition program.

We will require additional financing, which may be difficult to obtain. Any such financing in the form of debt will contain restrictive covenants and will require us to utilize cash to service it.

          Our pharmacy business has had negative cash flows and net losses since its inception in 2002. We expect negative cash flows from operations to continue until we achieve critical mass through acquisitions and organic growth. Our business has significant cash needs for operations and for acquisitions. As a result, we will likely need to seek additional capital, which we may do through public or private equity or debt financing. In addition to seeking equity financing, we are currently negotiating with various potential lenders to provide senior debt financing. There can be no assurance that we can reach agreement with any lenders for such financing. The terms of any such debt financing, will likely restrict our ability to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments in certain situations, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer,

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lease, convey or otherwise dispose of all or substantially all of our assets. The terms of such indebtedness would also likely require us to meet certain financial tests and comply with certain other reporting, affirmative and negative covenants. Finally, if we obtain such debt financing, a substantial portion of our cash flow from operations would be dedicated to debt service requirements.

Our management team has a limited history of operating a pharmacy business.

          Because we have only operated our pharmacy business since 2002, our management team does not have a significant operating history upon which an investor can easily evaluate our future potential. In attempting to execute our business model, we may need to significantly change our operating model, sales and implementation practices, customer service and support operations and management focus. We are also facing new risks and challenges, including a lack of meaningful historical financial data upon which to plan future budgets and the need to develop strategic relationships.

We are subject to various risks relating to our acquisition strategy.

          A significant component of our growth strategy contemplates our making selected acquisitions that will help expand our pharmacy offerings. Acquisitions involve inherent uncertainties. These uncertainties include the ability to identify suitable acquisition candidates and negotiate acceptable terms for their acquisition, the ability to integrate the acquired businesses into a larger organization and the availability of management resources to oversee the operations of these businesses. The successful integration of acquired businesses will require, among others:

• consolidation of financial functions and elimination of redundancies;

• achievement of purchasing efficiencies;

• the integration of key personnel; and

• the maintenance and growth of existing business.

          We also may acquire businesses with unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations. We have procedures in place to conduct detailed due diligence reviews of potential acquisition candidates for compliance with healthcare laws and to conform the practices of acquired businesses to our standards and applicable laws, but there can be no assurance that our procedures will detect all potential problems. If such procedures fail, we may incur material liabilities for past activities of acquired businesses.

          We cannot be sure that an acquisition will not have an adverse impact on our results of operations or financial condition.

We face uncertainties relating to ongoing litigation that, if decided adversely to us, would have a material adverse impact on our liquidity and financial position.

          We are currently engaged in binding arbitration with our former President/Chief Financial Officer. This former executive resigned all positions with us effective May 31, 2005 and has initiated legal proceedings to recover certain severance amounts to which he alleges he is entitled. The aggregate of his demands is approximately $13 million. We believe that the executive’s claims are entirely without merit. We are vigorously defending this action. While we are confident in the merits of our legal position in the arbitration, we cannot predict the outcome of this action nor the amount the arbitrators will ultimately rule is due to the executive, if anything. A decision by the arbitrators requiring us to pay a significant amount to the executive would have a substantial negative impact on our liquidity and financial position.

Our profitability and ability to conduct business could be negatively impacted by a change in our relationships with our largest institutional clients.

          A large portion of the present and future growth of our institutional pharmacy business currently is contingent upon our ability to acquire and retain institutional care facilities. Currently we have more than 80 contractual relationships with institutional clients. We are presently attempting to expand the number of these contracts. The financial condition and profitability of our institutional clients can impact our profitability and opportunities for future growth. In addition, although we believe our current relationships with our institutional clients are strong, the loss of key institutional clients would materially affect the operation of our business.

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We face intense competition.

          We operate in a highly competitive environment. The institutional pharmacy industry is dominated by three companies, which together control approximately 65% of the market. If we are unable to compete with our competition due to our size, failure to develop innovative distribution methods or failure to satisfy our customers, our financial results will be immediately and significantly affected.

We are subject to significant governmental regulation, and changes in such regulation could have a substantial impact on our profitability.

          We are subject to substantial regulations at both the state and federal levels regarding payment or reimbursement for pharmacy services, financial relationships with our clients and manufacturers of pharmaceuticals, and licensure and certification of our operations, and changes in these regulations may have a material and adverse effect on our profitability as more fully described below.

We are dependent on payment or reimbursement from government reimbursement programs, principally Medicare and Medicaid, and the constant changes in the government reimbursement programs pose substantial risk to our results of operations.

          The provision of pharmaceuticals and pharmacy benefits is a highly dynamic and evolving business that is tied closely to changes in government reimbursement programs at both the state and federal levels and is in a constant state of flux. As of December 31, 2005, approximately 36% of our pharmacy billings were directly reimbursed by government sponsored programs. Government sponsored programs include Medicaid and, to a lesser extent, Medicare. Our remaining billings are currently paid or reimbursed by individual residents, long-term care facilities and other third-party payors, including private insurers. A portion of these revenues are indirectly dependent on government programs. We anticipate that direct reimbursement from government sponsored programs will become a material portion of our pharmacy billings.

          There are currently a number of active state and federal initiatives that could materially and adversely affect our profitability, the most important of which is the Medicare Prescription Drug Improvement and Modernization Act of 2004, which created a comprehensive voluntary prescription drug benefit administered under Medicare Part D and became effective on January 1, 2006. This Act provides certain cost-sharing government subsidies for individuals who might otherwise qualify for drug coverage under Medicaid or similar government-funded aid programs. Since a substantial portion of our future institutional pharmacy business will involve the provision of prescription drugs to Medicare beneficiaries who may qualify for this new benefit, it may have a material and adverse effect on the profitability of our business. Since important elements of this Act relating to issues such as formulary development, drug pricing, and drug discount cards have yet to be finalized, the precise impact of implementation of Medicare Part D on our industry is unknown.

          We also expect significant reforms to be proposed in 2006 regarding the Medicare Part B drug payment methodology. The United States Department of Health and Human Services, Centers for Medicare and Medicaid Services has indicated that the pharmacy reimbursement methodology will change to either an “average sales price” or “competitive acquisition program” payment methodology, and this change may have a material and adverse effect on our profitability.

          Many state Medicaid programs use the “average wholesale price” reimbursement methodology (“AWP”) and the “maximum allowable costs” reimbursement methodology (“MAC”), but many states, including states in which we operate or may operate, have indicated an intention to discontinue or modify these payment methodologies, and such changes may have a material and adverse effect on our profitability. Currently, virtually all of our contracts with major facility customers use these methodologies as a basis for calculating the prices charged for drugs ordered through our pharmacy. In the event state reimbursement programs decide to use alternative methods for calculating these prices, our reimbursement may suffer.

If we or our client institutions fail to comply with Medicaid and Medicare reimbursement regulations, our revenue could be reduced, we could be subject to penalties and we could lose our eligibility to participate in these programs.

          The Medicaid and Medicare programs are highly regulated. The failure, even if inadvertent, by either us or our client institutions to comply with applicable reimbursement regulations could adversely affect reimbursement under these programs and our or our clients’ ability to continue to participate in these programs. In addition, our

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failure to comply with these regulations could subject us and our clients to allegations of filing false claims to the governmental reimbursement programs, which could subject us to substantial financial damages and exclusion from the governmental reimbursement programs.

If we fail to comply with licensure requirements, fraud and abuse laws, or other applicable laws, we may need to curtail operations, and we could be subject to significant penalties.

          Our pharmacies are required to be licensed in the states in which they are located or do business. While we continually monitor the effects of regulatory activity on our operations and believe we currently have all necessary pharmacy licenses, the failure to obtain or renew any required regulatory approvals or licenses could adversely affect the continued operation of the business. The long-term care facilities that contract for our services are also subject to federal, state and local regulations and are required to be licensed in the states in which they are located. The failure by these long-term care facilities to comply with these or future regulations or to obtain or renew any required licenses could result in our inability to provide pharmacy services to these facilities and their residents. We are also subject to federal and state laws that prohibit some types of direct and indirect payments between healthcare providers. These laws, commonly known as the fraud and abuse laws, prohibit payments or any other remuneration intended to induce or encourage the referral of items or services payable by Medicare or Medicaid, including prescription drugs. For example, payment by pharmaceutical manufacturers of access or performance rebates to institutional pharmacies that are designed to prefer, protect, or maintain that manufacturer’s product selection by the pharmacy or to increase the volume of that manufacturer’s products that are dispensed by the pharmacy under its formulary are currently under scrutiny and may violate the fraud and abuse laws. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion from the Medicaid, Medicare and other federal and state healthcare programs.

Our failure to comply with federal or state health care privacy standards could subject us to civil and criminal liability.

          The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) requires us to comply with the electronic transaction, privacy and security standards relating to the health care information of individuals who receive drugs and pharmaceuticals through our operations. Although we have taken and intend to continue to take all steps necessary to ensure that we comply with all HIPAA standards, if we fail to comply with the HIPAA regulations, we could suffer significant civil and criminal penalties. We may also become subject to various state legislative and regulatory privacy initiatives that will restrict the use of private medical records, and, if these regulations are implemented, we may incur additional expense and may be required to change certain of our business practices.

We are also subject to other state and federal laws that govern the distribution of pharmaceuticals, the enforcement of which could have a material and adverse effect on our profitability.

          We are also subject to the risk of changes in various local, state, federal and international laws relating to pharmaceuticals, which include the operating and security standards of the United States Drug Enforcement Administration, the United States Food and Drug Administration, various state boards of pharmacy and comparable agencies. These changes may affect our operations, including distribution of prescription pharmaceuticals (including certain controlled substances), operation of pharmacies and packaging of pharmaceuticals. A review of our business by regulatory authorities may result in determinations that could adversely affect the operations of the business.

We are also subject to cost controls imposed by non-government reimbursement program payors and pricing changes from our suppliers that could have a material and adverse effect on our profitability.

          Cost controls imposed by other third-party payors, such as managed care companies and insurance companies, in an attempt to exercise control over increasing health care costs and changes in pharmaceutical manufacturers’ pricing or distribution policies could also have a material and adverse effect on our profitability by substantially reducing our revenues.

There are few barriers to entry in the institutional pharmacy market, and we may experience unforeseen competition in our markets.

          There are relatively few barriers to entry in the local markets that we serve, and we may encounter substantial competition from new local market entrants as well as increasing competition from pharmacies operating

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outside the United States which ship drugs to U.S. residents over the Internet and through other distribution channels. This competition could have a material and adverse effect on our business.

Future sales of common stock could depress the price of our common stock.

          We have previously announced that we are attempting to raise additional capital. The planned financings may include, but not be limited to, a combination of privately placed common stock, senior debt and subordinated debt. The amounts may vary depending upon the structure of each financing instrument. Sales of significant amounts of common stock in the public market, or the perception that sales will occur, could materially depress the market price of our common stock. We expect that any common stock sold in any of this private financing will be registered for resale under the Securities Act within 120 days following the closing of such offering and thus would be freely tradable.

          We also have outstanding three series of convertible notes, which, as of December 31, 2005 are convertible into an aggregate of 2,927,483 shares of common stock. We have registered these shares for resale so that, upon conversion, such shares will be freely tradable. Further, we have outstanding warrants to purchase an aggregate of 748,130 shares of common stock. The shares of common stock underlying such warrants are subject to registration rights or are otherwise currently freely tradable.

          In addition, as of December 31, 2005 we have an aggregate of 2,222,180 shares of common stock issuable in our two stock option plans upon the exercise of stock options currently outstanding. Those shares, if issued, will be eligible for immediate resale in the market (other than 1,427,614 shares underlying exercisable options held by our executive officers and directors).

          Finally, we have announced our intention to commence an exchange offer for all or a portion of our outstanding trust preferred securities, in which holders will be offered the opportunity to exchange their trust preferred securities for shares of our common stock. We have not yet determined the terms of the exchange offer, including the exchange ratio. As a result, while the exchange offer will likely result in the issuance of a significant number of additional shares of our common stock, we cannot presently quantify how many new shares will be issued.

The market price of our common stock is volatile.

          The market price of our common stock historically has experienced and may continue to experience significant volatility. This volatility may or may not be related to our operating performance. Some of this volatility may be related to our recent shift to operating solely in the healthcare business and as a much smaller company, and may reflect the market’s difficulty in valuing our business until we establish a longer operating history. In addition, announcements of our quarterly operating results, changes in recommendations by financial analysts, fluctuations in the stock price and operating results of our competitors and similar events could cause the market price of our common stock to fluctuate substantially.

We cannot guarantee that our securities will continue to meet the listing and maintenance criteria for the Nasdaq Stock Market.

          Our common stock is currently traded on the Nasdaq National Market. Continued inclusion on the Nasdaq National Market currently requires, among other things, a minimum stockholder’s equity of $10 million. As of December 31, 2005, our stockholder’s equity was $4.9 million. In addition, Nasdaq requires that the minimum bid price for listed companies exceed $1.00 per share. Recently, our shares of common stock have traded consistently under the $1.00 minimum bid price. In a letter dated April 3, 2006, we were notified by Nasdaq that our stock price traded under $1.00 per share for the last 30 consecutive business days. The letter advised that we have until October 2, 2006 to regain compliance with this minimum bid price requirement. We intend to monitor the bid price of our common stock between now and October 2, 2006, and consider various options available to us in the event our common stock does not trade at a level that is likely to regain compliance. If we fail to maintain the minimum threshold requirements to maintain our inclusion on the Nasdaq National Market, our securities would lose their listing which could further negatively impact the price and marketability of our shares, and trading would be conducted, if we qualify, on the Nasdaq Capital Market or if we do not qualify for such market, then in the over-the-counter market known as the NASD OTC Electronic Bulletin Board. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our securities.

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          In addition, the SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share subject to certain exceptions. If our securities are removed from listing on the Nasdaq Market, and are traded at a price below $5.00, they may become subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of the securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market and the risks of investing in our securities. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may affect your ability to sell our securities in the secondary market.

You may experience dilution as a result of future issuances of shares of our common stock.

          As of December 31, 2005, we had 9,095,208 shares of common stock outstanding. Additionally, as of December 31, 2005, we had stock options, warrants and convertible securities outstanding that were convertible or exercisable into up to 5,897,793 shares of our common stock. Furthermore, in connection with our acquisition strategy, we may issue shares of our common stock as consideration in certain future acquisition transactions. We are also likely to issue a significant number of shares in the planned exchange offer for our trust preferred securities. We may also issue additional shares as warrants to purchase additional shares in the future through various financing or restructuring transactions, although, there are no firm plans for such transactions at this time. In the event that we issue additional common stock in the future, our shareholders will experience dilution the significance of which will depend on the number of shares issued.

Item 2. Properties

          We own our home office building consisting of 56,000 square feet and located at 10689 North Pennsylvania Street, Indianapolis, Indiana. We occupy all of this building, except for approximately 22,000 square feet of the building which is leased to Standard Life Insurance Company of Indiana (“Standard Life”), our previously owned financial services business, pursuant to a three year lease agreement entered into on June 8, 2005.

          Our other properties include:

• approximately 30,000 square feet under a lease that expires in August 2010 in an office and warehouse building located at 6210 N. Technology Center Drive, Indianapolis, Indiana;

• approximately 2,000 square feet under a lease that expires in June 2015 in an office and warehouse building located at 5415 Rainier Ave. S., Seattle, Washington;

• approximately 2,400 square feet under a lease that expires in January 2010 in an office and warehouse building located at 536/538 N. Memorial Drive, New Castle, Indiana;

• approximately 4,000 square feet under a lease that expires in October 2010 in an office and warehouse building located at 810 Metcalf, Sedro Woolley, Washington;

• approximately 1,260 square feet under a lease that expires in May 2010 in an office and warehouse building located at 10590 N. Meridian Street, Indianapolis, Indiana;

• approximately 9,840 square feet under a lease that expires in March 2010 in an office building located at 441 Donelson Pike, Nashville, Tennessee; and

• approximately 21,115 square feet under a lease that expires in March 2010 in an office building located at 1600 & 1618 S. Lane Street, Seattle, Washington

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          We consider all of our facilities to be in good operating condition and generally to be adequate for our present and anticipated needs.

Item 3. Legal Proceedings

          We are involved in various legal proceedings in the normal course of business. Except for the proceeding described below, the outcome of these legal proceedings are not expected to have a material adverse effect on the consolidated financial position, liquidity, or future results of our operations based on our current understanding of the relevant facts and law.

          Effective May 31, 2005, P.B. (“Pete”) Pheffer resigned his positions as President and Chief Financial Officer of Standard Management. As a result of this resignation, Mr. Pheffer has terminated his employment agreement with the Company dated January 1, 2003 (the “Employment Agreement”). In his letter of termination, Mr. Pheffer asserts that his termination was based upon a “change of control” of the Company, as defined in the Employment Agreement, as a result of the sale of Standard Life. Mr. Pheffer also asserts that as a result of such sale, he has experienced a change in his “authority, power, function, duties and responsibility” and that he is invoking the “good reason” clause in the Employment Agreement. Mr. Pheffer claims that under the Employment Agreement, as a result of his resignation “for good reason,” he is owed, no later than ten days following his resignation, a lump-sum cash severance payment of approximately $3.8 million.

          The severance payment sought by Mr. Pheffer under the Employment Agreement includes amounts for: a) accrued, but unpaid, paid time-off and the pro rata share of his bonus for 2005; b) a lump sum payment of three times the sum of his current base salary and average bonus paid in the preceding three years; and c) a lump sum stock option value payment equal to the number of shares of the Company’s common stock subject to unexercised stock options held by Mr. Pheffer (regardless of the exercise price thereof) multiplied by the highest sales price of the Company’s common stock during the six months prior to his resignation. Mr. Pheffer also claims he is entitled to receive all of his current employee benefits under medical, insurance and other employee benefit plans for 36 months following the date of his termination.

          The Company disputes Mr. Pheffer’s assertion that he had “good reason” to terminate his employment under the terms of the Employment Agreement. Rather, it is the Company’s position that Mr. Pheffer terminated his employment “without cause,” as defined in the Employment Agreement, and, as a result, the Company owed Mr. Pheffer only approximately $50,000 for accrued, but unpaid, paid time off and his pro rata share of his bonus for 2005 which was paid in 2005.

          A provision of the Employment Agreement provides that any amounts payable upon termination of the Employment Agreement constitute wage payments under the Indiana Wage Payment Statute (the “Wage Statute”). The Wage Statute allows a party to recover liquidated damages for each day wages remain unpaid in an amount not to exceed double the amount of wages due (in addition to the base amount), and costs and reasonable attorneys’ fees if suit is filed. It is the Company’s position that Mr. Pheffer cannot invoke the Wage Statute and that this provision of the Employment Agreement is otherwise unenforceable.

          Under the Employment Agreement, if it is determined that any payments made to Mr. Pheffer as a result of his termination would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any penalties or interest are incurred by Mr. Pheffer with respect to such excise tax, then the Company is required to make an additional gross-up payment to Mr. Pheffer to fully compensate him for the amount of such excise tax. If the Company is required to pay Mr. Pheffer the full severance amount he is claiming under the Employment Agreement, the Company believes such amount would be subject to the federal excise tax and, as such, the Company would be required to make an additional gross-up payment to Mr. Pheffer of approximately $1.7 million.

          The aggregate of Mr. Pheffer’s demands is approximately $13 million, which includes the severance payment, liquidated damages under the Wage Statute, if applicable, and gross-up payment for federal excise taxes. The Company is vigorously contesting these claims. This matter is subject to binding arbitration, which is currently in the discovery phase.

          Standard Management agreed to indemnify Capital Assurance Corporation (“Capital Assurance”) and Standard Life for any litigation losses pursuant to the terms of the Stock and Asset Purchase Agreement dated February 9, 2005, between the Company and Capital Assurance. The Company maintained $1.0 million of litigation liabilities as of December 31, 2005. This liability includes provisions for certain litigation matters brought against Standard Life.

Item 4. Submission of Matters to a Vote of Security Holders

          None during the 4^th quarter of 2005.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

          Our common stock trades on the NASDAQ National Market under the symbol “SMAN”. The following table sets forth, for the periods indicated, the range of the high and low sales prices of our common stock as reported by NASDAQ. We have never paid cash dividends on our common stock. As of April 3, 2006 there were approximately 2,000 holders of record of the outstanding shares of our common stock. Although our common stock is traded on NASDAQ, no assurance can be given as to the future price of or the markets for the stock.

	Common Stock
	High		Low
2005
Quarter ended March 31, 2005	$	4.93	$	2.70
Quarter ended June 30, 2005		3.19		1.50
Quarter ended September 30, 2005		2.45		1.79
Quarter ended December 31, 2005		2.25		1.34
2004
Quarter ended March 31, 2004	$	4.12	$	3.49
Quarter ended June 30, 2004		4.18		3.39
Quarter ended September 30, 2004		3.64		3.05
Quarter ended December 31, 2004		3.98		2.71

Equity Compensation Plan Information

          The following provides tabular disclosure of the number of securities that may be issued upon the exercise of outstanding options, the weighted average exercise price of outstanding options, and the number of securities remaining available for future issuance under our equity compensation plans as of December 31, 2005. All of our equity compensation plans have been approved by our shareholders.

					Number of
					securities
	Number of				remaining
	securities to be				available for
	issued upon		Weighted-average		future issuance
	exercise of		exercise price of		under equity
	outstanding		outstanding		compensation
Plan Category	options		options		plans
Equity compensation plans approved by security holders:
1992 Stock Option Plan		1,325,180	$	5.62		—
2002 Stock Incentive Plan		897,000		2.71		794,702

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Issuer Purchases of Equity Securities

          The following table provides information about the Company’s repurchase of its common stock during the quarter ended December 31, 2005.

					Total Number of		Maximum Number
	Total				Shares Purchased		of Shares that May
	Number of				as Part of Publicly		Yet Be Purchased
	Shares		Average Price Paid		Announced Plans		Under the Plans or
Period	Purchased		Per Share		or Programs		Programs(1)
October 1, 2005 through October 31, 2005		10,000	$	1.92		10,000		509,927
November 1, 2005 through November 30, 2005		2,500	$	2.11		2,500		507,427
December 1, 2005 through December 31, 2005		—		—		—		507,427
Total		12,500	$	1.96		12,500		507,427

(1) On June 21, 2005 the Company announced the continuation of its stock repurchase plan originally commenced in 1998 which authorized the repurchase of up to 600,000 shares of the Company’s common stock.

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Item 6. Selected Financial Data

          The following historical financial data was derived from our Consolidated Financial Statements. This historical financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related Notes (dollars in thousands, except per share amounts and shares outstanding).

	Year Ended December 31
	2005 (a)			2004			2003			2002			2001
STATEMENT OF OPERATIONS DATA:
Net revenues	$	28,922		$	7,120		$	2,948		$	1,850		$	—
Cost of sales		20,735			5,822			2,445			1,554			—
Gross profit		8,187			1,298			503			296			—
Loss from continuing operations		(20,283	)		(20,612	)		(16,734	)		(11,580	)		(9,170	)
Income (loss) from discontinued operations (b)		(33,981	)		9,744			6,263			10,450			10,950
Net income (loss)		(54,264	)		(10,868	)		(10,471	)		(1,130	)		1,780
PER SHARE DATA:
Loss from continuing operations, assuming dilution in 2001		(2.40	)		(2.59	)		(2.08	)		(1.52	)		(1.18	)
Income (loss) from discontinued operations		(4.02	)		1.23			0.78			1.37			1.41
Net income (loss), assuming dilution in 2001		(6.42	)		(1.36	)		(1.30	)		(0.15	)		0.23
Weighted average common shares outstanding, assuming dilution in 2001		8,455,869			7,973,029			8,031,749			7,623,690			7,765,378
Common shares outstanding		9,095,208			7,921,113			8,114,196			7,854,674			7,546,493
BALANCE SHEET DATA (at year end):
Cash and cash equivalents	$	2,232		$	1,121		$	1,337		$	3,569		$	439
Assets of continuing operations		51,009			26,340			28,891			26,000			58,490
Assets of discontinued operations (b)		—			1,921,405			1,945,880			1,690,294			1,587,115
Total assets		51,009			1,947,745			1,974,771			1,716,294			1,645,605
Debt		39,309			54,311			49,046			40,962			47,852
Shareholders’ equity		4,943			60,032			72,447			87,734			70,189

(a)	During 2005, the Company completed four acquisitions which significantly increased net revenues. See Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operation” for further discussion.
(b)	During 2005, the Company sold its financial services subsidiary, Standard Life. The related operations have been reclassified as discontinued operations. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” for further discussion.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following discussion highlights the principal factors affecting the results of our operations and the significant changes in our balance sheet items on a consolidated basis for the periods listed, as well as liquidity and capital resources. This discussion should be read in conjunction with the accompanying Consolidated Financial Statements, related Notes and “Selected Financial Data.”

          This Management Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events. In light of the risks, uncertainties and assumptions discussed under Item 1A, “Risk Factors” of this Annual Report on Form 10-K and other factors discussed in this section, there are risks that our actual experience will differ materially from the expectations and beliefs reflected in the forward-looking statements in this section. See “Cautionary Notice Regarding Forward-Looking Statements.”

Pharmacy Business Acquisitions

          Effective September 16, 2005, we acquired certain assets from Holland Health Services, Inc. (“Holland”), a Washington retail pharmacy. The purchase price was $300,000 in cash.

          Effective July 29, 2005, we acquired Long Term Rx, Inc. (“Long Term Rx”), a New Castle, Indiana direct provider of pharmaceutical products to long-term care facilities. The purchase price was $2.2 million consisting of a

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combination of cash and our common stock including a post-closing purchase price adjustment related to minimum working capital requirements.

          Effective July 28, 2005, we acquired Precision Healthcare, Inc. (“Precision”), a Nashville, Tennessee provider of infusion therapy to chronically ill patients and a wholesale pharmaceutical provider to physician practices and other end users. The purchase price was $2.7 million consisting of a combination of cash and our common stock including a post-closing purchase price adjustment related to minimum working capital requirements. In addition, included in the agreement is a contingent performance bonus based on specific earnings targets for 2005 which were not met.

          Effective July 21, 2005, we acquired Rainier Home Health Care Pharmacy, Inc. (“Rainier”), a Seattle, Washington provider of pharmaceuticals and medical supplies to long-term care facilities. The purchase price was $12 million consisting of a combination of cash, our common stock and a subordinated seller note and our estimate of a post-closing purchase price adjustment related to minimum working capital requirements which we are currently negotiating with the seller. Also included in the agreement is a contingent performance bonus based on specific earnings targets over each of the next three years.

          The original aggregate purchase price of the 2005 acquisitions described above was $17.2 million, representing $11.6 million in cash paid at closing (largely funded with cash on hand), 1,250,001 shares of our common stock valued at $4.1 million, and $1.5 million in a seller note. These purchase prices are subject to working capital adjustments. With respect to two of the recent acquisitions, we have agreed to post-closing purchase price adjustments related to contractual working capital requirements and have paid $22,000 in one instance and have a $76,000 receivable outstanding in the second; and, we are currently negotiating a purchase price adjustment in connection with one of these recent acquisitions. Additional upward purchase price adjustments may be paid out as contingent consideration for certain acquisitions if certain growth in earnings targets are reached (none of which were reached based on 2005 results). We have also guaranteed a market value of $3.28 per share of the common stock issued in these acquisitions at certain anniversary dates. Those guaranteed values are included in the purchase prices reflected above. Should our common stock price be below the guaranteed price on the applicable anniversary dates, we are required to pay the difference to the sellers in cash or in additional shares of common stock. In addition to the above, an aggregate of $0.8 million of acquisition costs are reflected as additional purchase price.

          The original aggregate purchase price of the 2005 acquisitions was allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values at the date of acquisition. This original preliminary allocation was subject to adjustment primarily as a result of the pending conclusion of valuation analyses regarding identifiable intangible assets (which include customer lists, trademarks and non-competition provisions) and the ultimate settlement of acquired accounts receivable. Most adjustments were made during 2005 and any additional adjustments will be made before the respective acquisition’s first annual anniversary in 2006.

Discontinued Operations

          Our Discontinued Operations — Financial Services consisted of revenues earned and expenses incurred from our insurance operations, principally conducted by our former subsidiary Standard Life and its subsidiary, Dixie National Life Insurance Company (“Dixie Life”). Our primary insurance products included deferred annuities, single premium immediate annuities and equity-indexed annuities. The profitability was primarily a function of net investment spread (the difference between the investment income earned on our investments less the interest we credit to our policyholders), persistency of our in force business, mortality experience and management of our operating expenses.

          As previously disclosed, the board and management of the Company considered a variety of strategic alternatives to provide the Company with adequate financing to pursue its growth strategies for the pharmacy business it embarked on in 2002 and to maximize long-term shareholder value. After considering various options, management, in early 2005, committed to the sale of Standard Life, including Dixie Life.

          On June 9, 2005, the Company completed the sale of all outstanding capital stock of Standard Life, and $27 million aggregate principal amount of surplus debentures issued by Standard Life in favor of the Company, to Capital Assurance Corporation (“Capital Assurance”). The sale was completed pursuant to the terms of the Stock and Asset Purchase Agreement dated February 9, 2005, between the Company and Capital Assurance (the “Agreement”). The purchase price was approximately $79.8 million, consisting of $52.5 million in cash, $5 million in a new class of 7% cumulative exchangeable preferred stock of Capital Assurance and the assumption by Capital Assurance of approximately $22.3 million of indebtedness of the Company. In addition, Standard Management purchased certain assets from Standard Life at closing for approximately $5.3 million, resulting in net cash proceeds to Standard Management of $47.2 million. The sale price is subject to post closing adjustment to reflect actual versus estimated results of Standard Life through the closing date. We currently have a purchase price adjustment

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dispute with Capital Assurance whereby we estimate the amount due to Capital Assurance to be $43,000 (which we paid in 2005) and they estimate the amount due to be $0.7 million.

          Standard Management agreed to indemnify Capital Assurance and Standard Life for any losses arising form breaches of any representation, warranty or covenant made by Standard Management in the Agreement subject to the applicable survival periods, if such losses exceed $500,000 in the aggregate. If such indemnification threshold is exceeded, Standard Management would be responsible for paying $250,000 plus the amount of such loss in excess of $500,000, up to a maximum amount equal to the purchase price for losses related to the breach of certain representations and warranties, and up to a maximum amount equal to 50% of the purchase price for breaches of certain other specified representations and warranties. In addition, Standard Management agreed to indemnify Capital Assurance for all pending litigation of Standard Life without respect to the indemnification threshold.

          The Company maintained $1.1 million of liabilities as of December 31, 2005 as its current estimate of; a) litigation and other indemnification exposures related to its sale of Standard Life, and b) trailing severance and sale transaction costs. This liability includes third and fourth quarter 2005 provisions for certain litigation matters brought against Standard Life, based on refined estimates for several ongoing matters and currently available information.

          Related to the sale of Standard Life, we estimate that, for federal income tax purposes, we will recognize a capital loss on the sale of approximately $22 million, equal to the difference between our adjusted tax basis in Standard Life and the amount realized from the sale. We may realize a tax benefit in future periods from this capital loss provided that we recognize capital gains within five years. However, as it is currently more likely than not that these benefits will not be realized, we have fully offset any potential benefit with a valuation allowance as of December 31, 2005.

          The Company used a portion of the $47.2 million of cash proceeds to a) pay off $17.7 million of bank debt, including prepayment penalties, b) pay $1.0 million related to obtaining a consent from the holders of the trust preferred securities described in Note 5 of the Notes to the Consolidated Financial Statements to effectively allow the Company to complete the sale of Standard Life and c) pay $3.5 million of professional fees (investment bankers, attorneys and accountants) and miscellaneous other costs related to the sale (printing and mailing of proxy materials and severance payments). The remaining cash proceeds were added to general working capital and have been used for general corporate purposes and acquisitions.

          In addition, Standard Life, after the sale, continues to lease space from us at our corporate headquarters for three years for $480,000 per year. We also anticipate receiving $350,000 of annual dividends under the $5 million of newly issued 7% cumulative exchangeable preferred stock we received as partial consideration in our sale of Standard Life. All such amounts earned through December 31, 2005 have been collected by the Company.

Critical Accounting Policies

Overview

          The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In connection with the preparation of these financial statements, management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenues and expenses, and the related disclosure of commitments and contingencies. On a regular basis, the Company evaluates the estimates used, including those related to bad debts, contractual allowances, inventory valuation, impairment of intangible assets, income taxes, stock-based compensation, legal contingencies and other operating allowances and accruals. Management bases its estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable at the time and under the current circumstances. The Company’s significant accounting policies are summarized in Note 1 of the Notes to Consolidated Financial Statements.

          In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require significant management judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. An accounting policy is considered to be critical if it is important to the Company’s financial position and operating results, and requires significant judgment and estimates on the part of management in its application. The Company’s critical accounting estimates and the related assumptions are evaluated periodically as conditions require revision. Application of the critical accounting policies requires management’s significant judgments, often as the result of the need to make estimates of matters that are inherently and highly uncertain. If actual results were to differ materially from the judgments and estimates made, the Company’s reported financial position and/or operating results could be materially affected. Management continually reviews these estimates and assumptions to ensure that the financial statements are presented fairly and are materially correct. The Company believes the following

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critical accounting policies and estimates involve more significant judgments and estimates used in the preparation of the consolidated financial statements.

Revenue Recognition

          Revenue is recognized by the Company when products or services are delivered or provided to the customer. The Company monitors its revenues and receivables and records the estimated net expected sales and receivable balances to properly account for anticipated reimbursed amounts. Accordingly, the total net sales and receivables reported in the Company’s financial statements are recorded at the amount ultimately expected to be received. Since a majority of our billing functions are computerized, enabling on-line adjudication (i.e., submitting charges to Medicaid, Medicare, or other third-party payors electronically, with simultaneous feedback of the amount to be paid) at the time of sale to record net revenues, exposure to estimating contractual allowance adjustments is limited primarily to unbilled and/or initially rejected claims (which oftentimes are eventually approved once additional information is provided to the payor). Accounts receivables and revenues are adjusted to actual as cash is received and claims are settled.

          Patient co-payments are associated with certain state Medicaid programs, Medicare Part B and certain third party payors and are typically not collected at the time products are delivered or services are rendered, but are billed to the individual as part of the Company’s normal billing procedures. These co-payments are subject to the Company’s normal accounts receivable collections procedures.

          A patient may be dispensed prescribed medications (typically no more than a 2-3 day supply) prior to insurance being verified in emergency situations, or for new facility admissions after hours or on weekends. Shortly thereafter, specific payor information is typically obtained to ensure that the proper payor is billed for reimbursement.

Allowance for Doubtful Accounts

          Collection of accounts receivable from customers is the Company’s primary source of operating cash flow and is critical to the Company’s operating performance. The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Company utilizes the “Aging Method” to evaluate the adequacy of its allowance for doubtful accounts. This method is based upon applying estimated standard allowance requirement percentages to each accounts receivable aging category for each type of payor. The Company has developed estimated standard allowance requirement percentages by utilizing historical collection trends and its understanding of the nature and collectibility of receivables in the various aging categories and the various payors of the Company’s business. The standard allowance percentages are developed by payor type as the accounts receivable from each payor type have unique characteristics. The allowance for doubtful accounts is determined utilizing the Aging Method described above while also considering accounts specifically identified as doubtful. Accounts receivable that Company management specifically estimates to be doubtful, based upon the age of the receivables, the results of collection efforts, or other circumstances, are reserved for in the allowance for doubtful accounts until they are collected or written-off.

          Management reviews this allowance on an ongoing basis for appropriateness. Judgment is used to assess the collectibility of account balances and the economic ability of customers to pay.

          The majority of our current accounts receivable relates to recently acquired businesses. Therefore we have limited historical collection experience on those businesses.

          The Company has policies and procedures for collection of its accounts receivable. The Company’s collection efforts generally include the mailing of statements, followed up when necessary with delinquency notices, personal and other contacts, in-house collections or outside collection agencies, and potentially litigation when accounts are considered material and unresponsive. The Company’s collection efforts primarily relate to its facility and private pay customers. When the Company becomes aware that a specific customer is potentially unable to meet part or all of its financial obligations, for example, as a result of bankruptcy or deterioration in the customer’s operating results or financial position, the Company includes the balance in its allowance for doubtful accounts requirements. When a balance is deemed uncollectible by management, collections agencies and/or outside legal counsel, the balance is manually written off against the allowance for doubtful accounts.

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          Management believes that the allowances for potential losses are adequate, but if several of the Company’s larger customers were to unexpectedly default on their obligations, the Company’s overall allowances for potential losses may prove to be inadequate. If economic conditions worsen, the payor mix shifts significantly, or the Company’s customers’ reimbursement rates are adversely affected, impacting the Company’s customers’ ability to pay, management may adjust the allowance for doubtful accounts accordingly, and the Company’s accounts receivable collections, cash flows, financial position and results of operations could be affected.

Goodwill and Intangible Assets

          The balance of our goodwill and intangible assets was $15.7 million at December 31, 2005. The recovery of goodwill is dependent on the fair value of the businesses to which it relates. Pursuant to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill is subject to at least annual impairment tests based on the estimated fair value of the business units. There are numerous assumptions and estimates underlying the determination of the estimated fair value of these businesses. The Company’s assessment of goodwill impairment requires estimates including estimates of future cash flows. The estimates of future cash flows are based on assumptions and projections with respect to future revenues and expenses believed to be reasonable and supportable at the time the annual impairment analysis is performed. Further, they require management’s subjective judgments and take into account assumptions about overall growth rates and increases in expenses. Changes in these estimates due to unforeseen events and circumstances could cause the Company’s analysis to indicate that goodwill is impaired in subsequent periods, and could result in the write-off of a portion or all of the Company’s goodwill, which could be material to the Company’s financial position, results of operations or cash flows. Different valuation methods and assumptions can produce significantly different results that could affect the amount of any potential impairment charge that might be required to be recognized. The Company uses an independent valuation firm to assist in determining the estimated fair market value of its reporting units. If that estimated value is not sufficient to cover the recorded balance of goodwill, an impairment charge is recognized. Charges of $2.8 million and $1.0 million resulting from the impairment of goodwill were recorded in 2005 and 2004, respectively.

          We amortize the cost of our other intangibles over the asset’s estimated useful life of three to seven years. Amortizable intangible assets are tested for impairment whenever events or circumstances indicate that the assets may not be fully realizable. The carrying value of the assets would then be compared to the undiscounted cash flows projected from the use of the assets and if impaired, written down to fair value based on either discounted cash flows or appraised values.

Stock-Based Compensation

          Through December 31, 2005 we recorded compensation expense for all employee and director stock-based compensation plans using the intrinsic value method. Under the intrinsic value method, stock compensation expense is defined as the difference between the amount payable upon exercise of an option and the quoted market value of the underlying common stock on the date of grant or measurement date, or in the case of issuances of restricted stock, the quoted market value of unrestricted shares of common stock on the date of grant. Any resulting compensation expense is recognized ratably over the vesting period, or over the period that the restrictions lapse. We then compute an estimated fair value of granted options using a Black-Scholes option valuation model for purposes of disclosing pro forma information regarding granted options.

          We record compensation expense for all stock options granted to non-employees who are not directors in an amount equal to their estimated fair value at the earlier of the performance commitment date or the date at which performance is complete, determined using the Black-Scholes option pricing model. The compensation expense is recognized ratably over the vesting period. We then compute an estimated fair value of granted options using a Black-Scholes option valuation model for purposes of disclosing pro forma information.

          The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

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Income Taxes

          Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax basis of assets and liabilities and capital and net operating loss carryforwards. In assessing the realization of our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and capital gains before our capital loss carryforwards expire. We evaluate the recoverability of our deferred income tax assets by assessing the need for a valuation allowance on a quarterly basis. If we determine that it is more likely than not that our deferred income tax assets will not be recovered, a valuation allowance will be established against some or all of our deferred income tax assets. This could have a significant effect on our future results of operations and financial position.

          A $21.3 million valuation allowance has been provided on our full net deferred income tax assets at December 31, 2005. We reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards. If or when the Company becomes profitable, management may determine that all or a portion of this valuation allowance is not required and, if so, the Company will record benefits, which could be substantial, in the period such determinations are made.

Liabilities for Loss Contingencies Related to Legal Proceedings

          We are involved in various legal proceedings in the normal course of business. The ultimate outcome of these legal proceedings cannot be predicted with certainty. We recognize an estimated loss from these loss contingencies when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated as well as our estimate of legal fees which will be required to settle the respective matters. However, it is difficult to measure the actual loss that might be incurred related to legal proceedings. Except for the matter described in Part I, Item 3, Legal Proceedings above, we do not expect the ultimate outcome of these lawsuits to have a material adverse effect on our consolidated results of operations and financial position based on our current understanding of the relevant facts and laws.

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Results of Operations for the three years ended December 31, 2005:

Consolidated Statements of Operations:

	Year Ended December 31
	2005			2004			2003
Net revenues	$	28,922		$	7,120		$	2,948
Cost of sales		20,735			5,822			2,445
Gross profit		8,187			1,298			503
Selling, general and administrative expenses		20,135			13,489			11,199
Depreciation and amortization		2,192			2,152			1,743
Goodwill impairment charges		2,839			963			—
Loss related to sale of a business		—			964			—
Operating loss		(16,979	)		(16,270	)		(12,439	)
Other income, net		1,078			182			179
Interest expense		4,382			4,524			4,474
Net loss from continuing operations before income tax expense (benefit)		(20,283	)		(20,612	)		(16,734	)
Income tax expense (benefit)		—			—			—
Net loss from continuing operations		(20,283	)		(20,612	)		(16,734	)
Income (loss) from discontinued operations, net of income taxes of $262, $395 and ($627), respectively		(33,981	)		9,744			6,263
Net loss	$	(54,264	)	$	(10,868	)	$	(10,471	)

General:

Our revenues earned and expenses incurred are from our pharmaceutical operations. Our primary customer base consists of academic institutions, skilled nursing facilities, assisted living facilities, home health care agencies, mental health facilities, correctional facilities and consumers. The profitability is primarily a function of gross margin on sales (the difference between sales and cost of sales) and management of our operating expenses.

Net revenues

• During 2005, sales increased $21.8 million or 306% to $28.9 million, primarily due to $18.9 million of net revenues from our 2005 acquisitions, with the remaining increase attributable to a full 2005 year from businesses we acquired in 2004 and growth in those businesses and in our existing base of business started in 2002.

• During 2004, sales increased $4.2 million or 142% to $7.1 million, primarily due to the acquisition of Apothecary Solutions during the early part of 2004.

Gross profit

• During 2005, gross profit increased $6.9 million or 531% to $8.2 million, primarily due to $6.1 million of gross profit from our 2005 acquisitions and the remaining increase primarily attributable to increased gross profit due to the acquisition of Apothecary Solutions during the early part of 2004.

• During 2004, gross profit increased $.8 million or 158% to $1.3 million, primarily due to the acquisition of Apothecary Solutions during the early part of 2004.

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Selling, general and administrative expenses

• During 2005, selling, general and administrative expenses increased $6.6 million or 49% to $20.1 million, primarily due to $4.9 million of expenses from our 2005 acquisitions, with the remaining increase attributable to the growth in our existing base of business we conducted prior to our 2005 acquisitions.

• During 2004, selling, general and administrative expenses increased $2.3 million or 20% to $13.5 million, primarily due to the acquisition of Apothecary Solutions during the early part of 2004.

Depreciation and amortization

• During 2005, depreciation and amortization was comparable to 2004 at $2.2 million.

• During 2004, depreciation and amortization increased $0.4 million to $2.2 million due to the acquisition of Apothecary Solutions in early 2004.

Goodwill impairment charges

• During 2005, goodwill impairment increased by $1.9 million to $2.8 million due to the estimated fair value of one of our reporting units being below its carrying value as indicated in the Company’s year end assessment related to businesses acquired in 2002-2004. The remaining carrying value of this specific reporting unit is $.9 million as of December 31, 2005. The same reporting unit was impaired during 2004 for $.9 million.

• During 2004, goodwill impairment increased by $1.0 million to $1.0 million primarily due to the fair value of one of our reporting units being below its carrying value.

Loss related to sale of a business

• Loss related to sale of a business in 2004 represents the loss on the sale of a business as more fully disclosed in Note 4 of the Notes to the Consolidated Financial Statements.

Other income, net

• During 2005, other income increased $.9 million to $1.1 million primarily due to rental income and dividend income received from Standard Life after its sale in June 2005. Additionally the increase is also attributable to interest income earned from the net cash proceeds from the sale of Standard Life.

• During 2004, other income remained comparable to 2003 at $.2 million.

Interest expense

• During 2005, interest expense decreased $0.1 million or 3% to $4.4 million, primarily due to the repayment of our senior secured credit facility after the sale of Standard Life in June 2005, offset partially by a full year of interest in 2005 on $6.1 million of convertible debt issued in 2004 and $4.8 million of convertible debt issued in March 2005.

• During 2004, interest expense increased $0.1 million or 3% to $4.5 million primarily due to increased borrowing related to our $3.3 million in outstanding 7% convertible notes issued in February 2004.

Income tax provision

• Provision for income taxes remained zero due to continued net losses in 2003, 2004 and 2005 and a 100% valuation allowance against all resulting net deferred income tax assets.

Discontinued Operations

          Other than $0.3 million of loss in 2003 which related to a sales price adjustment on the 2002 sale of our international financial services business, the reported results from discontinued operations related to our previous domestic financial services business which was sold in June 2005. The 2005 loss includes a $36.6 million

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impairment charge resulting from that sale for which no tax benefit has been recorded. Operating income for our discontinued operations was $ 2.6 million, $9.7 million and $6.3 million in 2005, 2004 and 2003, respectively.

          Financial services consisted of revenues earned and expenses incurred from our insurance operations, principally conducted by our former subsidiary Standard Life. Our primary insurance products included deferred annuities, single premium immediate annuities and equity-indexed annuities. The profitability was primarily a function of net investment spread (the difference between the investment income earned on our investments less the interest we credit to our policyholders), persistency of our in force business, mortality experience and management of our operating expenses.

Liquidity and Capital Resources

          As disclosed in more detail below, our independent auditors have expressed “substantial doubt” about our ability to continue as a going concern based on our recurring losses from continuing operations and the possibility that we may not have adequate financing to meet all of our near term cash requirements.

          Our net cash used in operating activities of continuing operations during the year ended December 31, 2005 was $20.8 million compared to cash used of $17.0 million in the year ended December 31, 2004. The net cash used in operating activities of continuing operations in 2005 and 2004 is mainly attributable to expenses associated with the continued development of our pharmacy operating platform, as well as interest expense and salary expense at the holding company level.

          Our net cash provided by investing activities of continuing operations during the year ended December 31, 2005 was $36.5 million compared to cash used of $3.4 million in the year ended December 31, 2004. The increase in 2005 is primarily related to the proceeds from the sale of Standard Life, partially offset by cash used as part of the consideration of our recent acquisitions.

          Our net cash used in financing activities of continuing operations during the year ended December 31, 2005 was $14.6 million compared to net cash provided of $20.2 million in the year ended December 31, 2004. The 2005 net cash used in financing activities of continuing operations was mainly attributable to the repayment and termination of our senior credit facility upon the sale of Standard Life partially offset by increased borrowings under convertible notes issued in 2005. The 2004 net cash provided by financing activities of continuing operations was mainly attributable to borrowings and cash received from our discontinued operations and increased borrowings under convertible notes issued in 2004.

          Our principal cash requirements are for cost of goods sold, operating expenses, debt service obligations, and consideration needed to fund potential future acquisitions. Our primary sources of such cash are cash flow from pharmaceutical sales, external borrowings, sales of equity securities and, in 2005, proceeds from the sale of our financial services business.

          At December 31, 2005, our cash and cash equivalents were $2.2 million compared to $1.1 million at December 31, 2004. Our cash position was negatively impacted by an unexpectedly high use of cash at one of our operating subsidiaries. Management believes it has identified the causes of the excessive use of cash and has implemented a plan to correct them, principally by reducing operating costs through reducing head count and controlling operating expenses. While we believe these measures will have a positive impact on our cash position going forward, there can be no assurance that these measures will be successful or that our cash position will not continue at unacceptably low levels.

          In February 2006, we announced a comprehensive capital plan to address a concern that arose in early 2006 that, unless we received a significant cash infusion, our available cash might not be sufficient to meet our anticipated operational needs as early as the second quarter of 2006. The plan contemplated raising cash through a variety of financing transactions designed to supplement working capital and to fund the cash portion of a number of strategic acquisitions being pursued by us. As part of this plan:

• On April 13, 2006, we entered into a senior loan agreement with one of our officers for $2.8 million.

• On March 8, 2006, we announced that we elected to defer distributions, beginning March 31, 2006, on the 10.25% preferred securities (the “Trust Preferred Securities”) of our subsidiary SMAN Capital Trust I for up to two years. As a result of this deferral, we will retain for corporate use approximately

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	$530,000 per quarter until distributions are resumed. All unpaid distributions will accrue interest at the rate of 10.25% annually until paid.
•	Also on March 8, 2006, we announced that we intended to commence an exchange offer for all or a portion of the outstanding $20.7 million of Trust Preferred Securities. In the proposed exchange, holders of Trust Preferred Securities would be offered the right to exchange such securities for shares of our common stock. While the definitive terms of the proposed exchange offer, including the exchange ratio, have not been determined, we believe that it would benefit the Company by significantly reducing our outstanding indebtedness and related debt service obligations.
•	During the 1st quarter 2006 the Company announced its intention to issue up to 15 million shares in a private placement of the Company’s common stock.

          In addition, Standard Life, after the sale, continues to lease space from us at our corporate headquarters for three years for $480,000 per year through June 2008. We also anticipate receiving $350,000 of annual dividends under the $5 million of newly issued 7% cumulative exchangeable preferred stock we received as partial consideration in our sale of Standard Life.

          Based on current estimates of cash flow, management believes that, absent a significant additional cash infusion or significantly increased cash flow from operations, at some point during 2006, we may not have sufficient cash to meet our cash requirements. Our independent auditors have expressed “substantial doubt” about our ability to continue as a going concern based on our recurring losses from continuing operations and the possibility that we may not have adequate financing to meet all of our near-term operating needs. Management believes, but cannot guarantee, that it can adequately address these issues by (i) significantly reducing the rate of cash use at one of our operating subsidiaries, (ii) raising additional capital, and (iii) using a portion of such capital to continue to acquire profitable businesses that will provide cash flow from operations. We must caution, however, that the fact that we received a “going concern opinion” from our independent auditors will likely make it more difficult to raise capital on favorable terms and could hinder, to some extent, our operations and acquisition program.

Estimated Cash Required in 2006 (data provided as of December 31, 2005)

          The Company has estimated required interest payments of $2.6 million (excluding the deferral of the subordinated debentures discussed below) and estimated required principal payments of $.9 million for 2006 related to the following currently outstanding indebtedness:

          Mortgages Payable:

• outstanding balance of $5.9 million due in installments through 2008;

• weighted interest rate of 6.72% per annum;

• principal and interest payments of $53,000 per month through December 2008.

          Promissory Notes:

• outstanding balance of $2.4 million;

• weighted average interest rate of 5.88% per annum;

• principal and interest payable of $.6 million in 2006.

          Convertible Notes Payable:

          6% Convertible Notes:

• outstanding balance of $2.75 million all due in 2008;

• interest rate of 6%;

• interest payments of $.2 million in 2006;

• mandatory conversion to equity at end of term;

• conversion price of $3.28 per share of Standard Management common stock.

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          7% Convertible Notes:

• outstanding balance of $3.3 million all due in 2009;

• interest rate of 7%;

• interest payments of $.2 million in 2006;

• conversion price of $4.20 per share of Standard Management common stock.

          Other Convertible Notes:

• outstanding balance of $4.3 million due in installments through 2008;

• interest rate of 9.25%;

• principal and interest payments of $2.2 million in 2006;

• conversion price of $3.28 per share of Standard Management common stock.

          Senior Debt: (as of April 13, 2006)

• outstanding balance of $2.8 million due in 2008

• interest rate of 8.25%

• interest payments of $.2 million in 2006;

Subordinated debentures:

          These securities represent an undivided beneficial interest in the assets of SMAN Capital Trust I, a Delaware business trust and wholly owned subsidiary of the Company (the “Trust”) organized to purchase our junior subordinated debentures and to issue the Trust Preferred Securities to outside investors. On August 9, 2001, the Trust completed a public offering of $20.7 million of the Trust Preferred Securities. The Trust used the proceeds of this offering to purchase our 10.25% junior subordinated debentures.

          The following are characteristics of the Trust Preferred Securities at December 31, 2005:

• outstanding balance of $20.7 million, all due in 2031;

• annual distribution rate of 10.25%; distributions may be deferred up to 20 consecutive quarters;

• may be redeemed on or after August 9, 2006 at face value plus accumulated and unpaid distributions;

• scheduled distributions required in 2006 based on current balances would be $2.1 million;

• distributions are classified as interest expense.

          As discussed above, on March 8, 2006, we announced that we intend to defer distributions on the Trust Preferred Securities. The deferral, which will begin with the distribution date scheduled for March 31, 2006, is expected to continue for up to two years. We will make a decision each quarter as to the continuation of the deferral of the distributions. All unpaid distributions will accrue interest at the rate of 10.25% per annum until paid by the Company.

          We also announced that we intend to commence an exchange offer for all or a portion of the Trust Preferred Securities. The exchange offer, which the Company expects to commence in early April 2006, would allow all Trust Preferred Security holders to exchange their Trust Preferred Securities for shares of our common stock. The terms of the exchange offer, including the exchange ratio, have not yet been determined yet by the Company.

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          The debentures issued by Standard Management to the Trust have similar terms as the Trust Preferred Securities, including a 10.25% interest rate. Although the Trust is wholly-owned by Standard Management, Standard Management does not consolidate the Trust because all of the income and cash flows of the Trust benefit the preferred security holders rather than Standard Management. As such, the subordinated debentures and related interest expense are reflected in our consolidated results.

Future Acquisitions:

          As part of our growth plan, we continue to pursue strategic acquisitions as discussed under “Business of Standard Management — Our Growth/Acquisition Strategy.” We generally finance our acquisitions with a combination of cash, stock and seller promissory notes. We will require cash to consummate acquisitions, but cannot at this time predict how much cash will be needed because of the unknown nature of acquisition targets and purchase prices.

Contractual Obligations:

          In our day-to-day business activities, we incur certain commitments to make future payments under contracts such as operating leases and purchase orders. Maturities under these and other contracts are set forth in the following table as of December 31, 2005 (in thousands):

			Payment due by period (1)
			Less than 1						More than
	Total		Year		1-2 Years		3-4 Years		5 Years
Long-Term Debt Obligations	$	96,389	$	5,912	$	18,398	$	7,659	$	64,420
Capital Lease Obligations		366		271		94		1		—
Operating Lease Obligations		8,056		959		1,531		1,367		4,199
Purchase Order Obligations		1,500		1,500		—		—		—
Total	$	106,311	$	8,642	$	20,023	$	9,027	$	68,619

(1) Payments include principal and interest

Potential Litigation Exposure:

          As is more fully described under Part I. Item 3 — Legal Proceedings, our former President and Chief Financial Officer resigned in May 2005 and has initiated legal proceedings against us to recover certain severance amounts to which he alleges he is entitled. The aggregate of his demands, which are the subject of a currently ongoing arbitration proceeding, is approximately $13 million. The Company believes that the claims of the former executive are entirely without merit. While we are confident in the merits of our legal position, we cannot predict the outcome of this action nor the amount the arbitrators will ultimately rule is due to the executive, if anything. A decision by the arbitrators requiring us to pay a significant amount to the executive would have a substantial negative impact on our liquidity and financial position.

          Standard Management agreed to indemnify Capital Assurance and Standard Life for any litigation losses pursuant to the terms of the Stock and Asset Purchase Agreement dated February 9, 2005, between the Company and Capital Assurance. The Company maintained $1.0 million of litigation liabilities as of December 31, 2005. This liability includes provisions for certain litigation matters brought against Standard Life, based on refined estimates for several ongoing matters and currently available information.

Off-Balance Sheet Arrangements:

          We have guaranteed the market value of the common stock we issued in several of our acquisitions at certain anniversary dates through June 2008. Those guaranteed values are included in the purchase prices of these acquisitions. The guaranteed value related to our 2005 acquisitions was $4.1 million representing 1,250,001 shares at a $3.28 stock price. The guaranteed value related to our 2003 acquisitions was $.1 million representing 16,666 shares at a $7.00 stock price. As of March 1, 2006, our stock price was $.80 per share which equates to a potential deficiency related to our 2003 and 2005 acquisitions of $3.1 million. Should our common stock price continue to be below the guaranteed price on the applicable anniversary dates, we are required to pay the difference to the sellers in cash or in additional shares of common stock at our option. Also included in several of our acquisitions is

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a contingent performance bonus that we may be required to pay in the event that specific earnings targets over the next one to three years are met.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

          The Company’s primary market risk exposure relates to interest rate risk exposure through its borrowings. The Company’s debt obligations at December 31, 2005 include $4.3 million outstanding under our Other Convertible Notes. These notes bear interest at a rate equal to the prime rate plus 2%, with a floor of 7.25%. A 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $43,000 per year. All other material debt has fixed interest rates.

Item 8. Financial Statements and Supplementary Data

          The financial statements and supplementary data required with respect to this Item 8 are listed on page F-1 and included in a separate section of this report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Item 9A. Controls and Procedures

          Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934) as of December 31, 2005 (the “Evaluation Date”). They have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and effective. There were no significant changes in our internal controls or in other factors that could significantly affect disclosure controls and procedures subsequent to the Evaluation Date.

Item 9B. Other Information

          None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The executive officers and directors of Standard Management are as follows:

Name	Age		Position
Ronald D. Hunter		54	Chairman of the Board, Chief Executive Officer, President and Director
Stephen M. Coons		64	Executive Vice President, General Counsel and Director
Michael B. Edwards		36	Chief Financial Officer
Martial R. Knieser, M.D.		63	President, Health Services
Michael B. Berry		40	Senior Vice President, Treasurer and Corporate Development Officer
Mark B.L. Long		43	Executive Vice President of Pharmacy Operations and President, HomeMed Pharmacy
John T. H. Tran		54	President, Rainier
Michael G. Browning		59	Director
Dainforth (“Dan”) B. French, Jr.		39	Director
James H. Steane II		61	Director

Ronald D. Hunter. Mr. Hunter has been our Chairman of the Board and Chief Executive Officer and Director since our formation in June 1989. He served as Chairman of the Board and Chief Executive Officer of our former financial services subsidiary, Standard Life Insurance Company of Indiana, from December 1987 until its sale in June 2005. From June 1989 until 2002, Mr. Hunter also served as our President. In June 2005, he was reappointed President of Standard Management. Mr. Hunter was Chairman and Chief Executive Officer of our International Operations, Standard Management International S.A. from 1993 until its sale in 2002. Previously, Mr. Hunter held several management and sales positions in the life insurance industry with a number of companies. Mr. Hunter has been widely recognized for his vision and leadership qualities, earning him the distinction of being a finalist four times for the Ernst & Young Entrepreneur of the Year award and becoming a winner in 2004 in the financial services category. He has also become well-known as the author of the book, Vision Questing: Turning Dreams into Realities.

Stephen M. Coons. Mr. Coons has been a director since August 1989. Mr. Coons has been our General Counsel and Executive Vice President since March 1993 and has been our Secretary since March 1994. He was of counsel to the law firm of Coons, Maddox & Koeller from March 1993 to December 1995. Prior to March 1993, Mr. Coons was a partner with the law firm of Coons & Saint. He has been practicing law for over 30 years. Mr. Coons served as Indiana Securities Commissioner from 1978 to 1983.

Michael B. Edwards, CPA. Mr. Edwards has been our Chief Financial Officer since June 2005 and has served in various accounting and reporting roles at the Company over the last three years. Prior to joining Standard Management, Mr. Edwards spent eight years in the audit and advisory practice of the public accounting firm Ernst & Young, LLP. Mr. Edwards received his B.S. degree in Accounting from Indiana University and obtained his CPA designation in 1997.

Martial R. Knieser, M.D. Dr. Knieser has served as President of our Health Services operations since January 2004 and served as a director of Standard Management from 1990 until August 2005. He was Director of Laboratories of Community Hospital, Indianapolis from 1978 to 1991 and was Medical Director of Stat Laboratory Services from 1989 to 1999. Dr. Knieser also served as Medical Director of Standard Life Insurance Company from December

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1987 until its sale in June 2005. Dr. Knieser served as Director of Laboratories of St. Vincent Mercy Hospital, Elwood, Indiana until January 2005.

Michael B. Berry. Mr. Berry has served in various capacities with the Company since 2000. He has been our Senior Vice President, Treasurer and Corporate Development Officer, responsible for our Corporate Development activities including mergers, acquisitions, divestitures, as well as the traditional treasury, corporate finance and investor relations, since July 2005. Mr. Berry received his B.S. degree from Purdue University, is a CPA and has 17 years of diversified investment and financial knowledge, which includes national and international acquisition and divestiture experience.

Mark B.L. Long. Mr. Long has been our Executive Vice President of Pharmacy Operations and President of HomeMed Pharmacy since July 2004. In such capacity, Mr. Long leads and directs the operational activities of our pharmacy operations. Mr. Long is a pharmacist and has more than 18 years experience in the pharmaceutical distribution and healthcare industries. Before joining the Company, Mr. Long was the Regional Vice President of Operations for PharMerica, a leading national provider of pharmaceuticals to long-term care and infusion therapy patients. Mr. Long received his degrees in Pharmacy and Business Administration from Temple University and LaSalle University, respectively.

John T. H. Tran. Mr. Tran formed Rainier in 1986 and has served as President of our Rainier subsidiary since its acquisition in June 2005. Mr. Tran is a pharmacist with nearly 30 years of experience in the pharmaceutical industry. Prior to forming Rainier, Mr. Tran served as pharmacy manager for Baxter Travenol Laboratories, Inc. Mr. Tran received his MBA degree from City University (Seattle, Washington) and B.S. degree in Pharmacy from the University of Washington. He is also a member of the Washington State Pharmaceutical Association.

Michael G. Browning. Mr. Browning has been a director since October 2004. He has served as Chairman and President of Browning Investments, Inc. a real estate developer in Indianapolis, Indiana, since 1981. Mr. Browning serves on the board of Cinergy Corp., Indianapolis Indians, Inc. and is a member of the State of Indiana, Public Officer Compensation Commission. Mr. Browning received his B.S. degree from the University of Notre Dame.

Dainforth B. French, Jr. Mr. French has been a director since October 2004. Mr. French has served as President of Leonard Capital Markets, an investment banking firm in Grosse Pointe, Michigan, since October 2004. From 2000 to 2004, he served as Managing Director of Donnelly Penman & Partners, an investment banking firm in Grosse Pointe, Michigan. Mr. French received his B.A. degree from Georgetown University and obtained his M.B.A. degree from the University of Detroit.

James H. Steane II. Mr. Steane has been a director since 2002. In 1999 Mr. Steane retired from Fleet Bank after 29 years in corporate banking, where he held a number of positions, including Senior Vice President and Senior Lending Officer in the Insurance and Mutual Fund Group. Mr. Steane is also the past President of Junior Achievement of Hartford, Connecticut and the American School for the Deaf. Mr. Steane received his MBA degree from Adelphi University.

Board of Directors

          Our Board of Directors currently consists of five directors and is divided into three classes, each of whose members serves a three-year term. Mr. Coons serves as a Class II director until the 2006 annual meeting of shareholders. Messrs. Browning, Hunter and Steane serve as Class III directors until the 2007 annual meeting of shareholders, and Mr. French serves as a Class I director until the 2008 annual meeting of shareholders.

          The rules of the Nasdaq Stock Market require that the boards of directors of companies listed on Nasdaq be comprised of a majority of “independent” directors. The Nasdaq rules set forth a detailed definition of “independence.” Of the five current members of our Board of Directors, three meet the Nasdaq definition of independence (the other two directors being members of management).

          The Company’s Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.

          The Audit Committee reviews the results and scope of the audit and other services provided by our independent public accounting firm and recommends the appointment of an independent registered public accounting firm to the Board of Directors. In addition, the committee also monitors the effectiveness of the audit effort and financial reporting and the adequacy of financial and operating controls. Members of the Audit Committee are Messrs. Steane (Chairman), Browning and French. The Board of Directors has determined that Mr. Steane satisfies the criteria for being an “audit committee financial expert” as such term is defined in Item 401(h) of Regulation S-K promulgated by the SEC.

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          The Compensation Committee approves compensation objectives and policies for all employees and is responsible for developing and making recommendations to the Board of Directors with respect to our executive compensation policies. In addition, the Compensation Committee determines periodically and recommends to the Board of Directors the base cash compensation for our Chief Executive Officer and other executive officers. The committee reports to shareholders on executive compensation items as required by the SEC and are responsible for granting stock options to eligible members of management under, and otherwise administering the 2002 Stock Incentive Plan and the Amended and Restated 1992 Stock Option Plan. Members of the Compensation Committee are Messrs. Browning (Chairman), French and Steane.

          The Corporate Governance and Nominating Committee recommend to the full Board of Directors qualified candidates for election as directors and officers of the Company. In addition, the committee develops and implements policies and procedures to ensure that the Board of Directors is appropriately constituted and organized to meet its fiduciary obligations to the Company and its shareholders. Members of the Corporate Governance and Nominating Committee are Messrs. French (Chairman), Browning and Steane.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

          Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and reporting persons who own more than ten percent (10%) of our common stock (“Reporting Persons”), to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by the SEC regulation to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and written representations from certain Reporting Persons, we believe that during 2005 our Reporting Persons complied with all filing requirements applicable to them.

Code of Ethics

          We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer, and the principal accounting officer. A copy of this Code of Business Conduct and Ethics is available without charge upon request from the Chief Financial Officer at Standard Management Corporation, 10689 N. Pennsylvania, Indianapolis, Indiana 46280 or on our website at www.sman.com. If we make any substantive amendments to this Code of Business Conduct and Ethics or grant any waiver from a provision of it, we will disclose the nature of such amendment or waiver on our website at www.sman.com or in a Current Report on Form 8-K.

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Item 11. Executive Compensation

          The following table sets forth the annual and certain other components of the compensation for the last three fiscal years earned by Mr. Hunter, Chairman, Chief Executive Officer and President of the Company, and the four most highly compensated executive officers other than Mr. Hunter who were serving as executive officers at the end of 2005 and one former executive officer who was no longer serving as an executive officer at the end of 2005 whose salary and bonus exceeded $100,000 during 2005. Mr. Pheffer resigned as an executive officer during 2005 and he is included in the disclosure on the basis of salary and bonus earned by him during the portion of 2005 prior to resignation.

SUMMARY COMPENSATION TABLE

									LONG TERM
									COMPENSATION
									AWARDS
									Securities		All Other
	Fiscal		ANNUAL COMPENSATION						Underlying		Compensation
Name and Principal Position	Year		Salary		Bonus		Other (1)		Options		(2)
Ronald D. Hunter		2005	$	564,780	$	—	$	33,657		183,000	$	53,605
Chairman of the Board, Chief		2004		498,696		49,870		19,220		—		57,695
Executive Officer and President		2003		475,008		148,700		13,020		250,000		63,695
Stephen M. Coons		2005		288,340		—		—		50,000		20,648
Executive Vice President,		2004		229,638		22,964		—		—		19,173
General Counsel and Secretary		2003		224,256		—		—		—		16,819
Martial R. Knieser		2005		351,571		—		30,200		10,000		—
President		2004		204,167		—		277,813		100,000		998
U.S. Health Services		2003		—		—		60,940		—		—
Michael B. Berry		2005		181,940		24,500		—		10,000		5,708
Sr. Vice President, Treasurer &		2004		107,996		12,500		—		7,500		4,320
Corporate Development Officer		2003		88,139		—		—		—		3,596
Mark B. L. Long		2005		205,073		12,500		—		13,000		—
Executive Vice President		2004		75,000		—		—		25,000		—
Pharmacy Operations		2003		—		—		—		—		—
P.B. (“Pete”) Pheffer (3)		2005		210,057		45,806		—		—		2,284
Former President and		2004		364,560		36,456		—		—		25,052
Chief Financial Officer		2003		350,016		135,602		—		125,000		28,052

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(1)	Mr. Hunter’s amounts include imputed interest on an interest-free loan made to him in 1997. The balance of the loan at December 31, 2004 and 2005 is $775,500. Dr. Knieser’s amounts include medical consulting fees for Standard Life of $30,200, $57,640, and $60,940 in 2005, 2004 and 2003, respectively, and consulting fees for U.S. Health Services of $220,173 in 2004.
(2)	Amounts reported for 2005 were as follows:

			Key Man		Disability				Total
	401K		Insurance		Insurance		Travel		Other
Name	Contribution		Premiums		Premiums		Allowance		Compensation
Ronald D. Hunter	$	8,000	$	35,650	$	6,955	$	3,000	$	53,605
Stephen M. Coons		8,000		2,408		2,240		8,000		20,648
Martial R. Knieser		—		—		—		—		—
Michael B. Berry		5,708								5,708
Mark B. L. Long		—		—		—		—		—
P.B. (“Pete”) Pheffer		784		—		—		1,500		2,284

(3) Mr. Pheffer resigned as an officer effective June 1, 2005.

INDIVIDUAL GRANTS

	Number of		% of Total							Potential Realizable Value
	Securities		Options			Exercise				at Assumed Annual Rates
	Underlying		Granted to			or Base				of Stock Appreciation for
	Options		Employees in			Price		Expiration		Option Term (1)
Name	Granted		Fiscal Year			($/Share)		Date		5%		10%
Ronald D. Hunter		183,000		38.9	%		2.05		8/17/2015	$	235,930	$	597,892
Stephen M. Coons		50,000		10.6	%		2.05		8/17/2015	$	64,556	$	163,598
Martial R. Knieser		10,000		2.1	%		2.05		8/17/2015	$	12,892	$	32,672
Michael B. Berry		10,000		2.1	%		2.05		8/17/2015	$	12,892	$	32,672
Mark B. L. Long		13,000		2.8	%		2.05		8/17/2015	$	16,760	$	42,473

(1) The potential realizable value illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the common stock over the terms of the options. These numbers do not take into account plan provisions providing for termination of the options following termination of employment of non-transferability.

          No stock options were exercised by Named Executive Officers during 2005. The following table sets forth information with respect to Named Executive Officers concerning unexercised options held as of the end of 2005.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

	Number of Securities				Value of Unexercised
	Underlying Unexercised				In the Money
	Options at FY-End				Options at FY-End ($)
Name	Exercisable		Unexercisable		Exercisable		Unexercisable
Ronald D. Hunter		922,645		—	$	—	$	—
Stephen M. Coons		262,760		—		—		—
Martial R. Knieser		121,667		33,333		—		—
Michael B. Berry		19,500		2,500		—		—
Mark B. L. Long		29,667		8,333		—		—

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Report on Repricing of Options

          In August 2005, based on the recommendation of the Compensation Committee, the Board approved a stock option exchange for certain of the stock options held at that time by Mr. Hunter in order to improve the possibility of exercise of such options by reducing the option per share exercise price from $6.06 to $2.05 per share. The Committee agreed that by reducing the exercise price of the options, that it would be more of a meaningful performance incentive for Mr. Hunter. The new options vested on grant.

          The following table sets forth the details concerning repricing during 2005.

OPTION REPRICINGS

			Number of		Market						Length of
			Securities		Price						Original
			Underlying		at		Exercise				Option
			Options		Time of		Price				Term
			Repriced		Repricing		at Time		New		Remaining at
			or		or		of		Exercise		Date of Repricing
Name	Date		Amended		Amendment		Repricing		Price		or Amendment
Ronald D. Hunter Chairman, CEO and President		8/17/05		180,000	$	2.05	$	6.06	$	2.05	46 months

          The foregoing report has been furnished by the Compensation Committee.

Michael G. Browning, Chairman
Dainforth B. French, Jr.
James H. Steane II

Compensation of Directors

          Each of our non-employee directors receives a $22,500 annual cash retainer, $2,500 for each committee chaired and $1,000 per Board or committee meeting participated in. Additionally, during 2005 each of our non-employee directors received 25,000 options. All non-employee directors are reimbursed for expenses incurred in connection with their services as directors. Our executive officers who are also directors do not receive compensation for service as a director or for service on committees of the Board of Directors.

Employment Agreements

          We have employment agreements with each of our executive officers. For complete terms of these agreements, we refer you to the appropriate agreement listed in the List of Exhibits in Part IV and incorporated herein by reference.

          These employment agreements terminate as follows:

• Mr. Hunter’s employment agreement will initially run for a five-year period terminating on January 1, 2008, and it shall automatically renew annually for successive five-year periods on January 1 of each year, unless either party elects not to renew in accordance with the terms of the agreement.

• The employment agreements for Messrs. Edwards, Berry and Long each terminate on July 1, 2006 and shall renew automatically for one year periods, unless either party elects not to renew in accordance with the terms of the agreement.

• Messrs. Coons’ and Tran’s employment agreement each terminates on July 1, 2008 and shall renew automatically for one year periods unless either party elects not to renew in accordance with the terms of the agreement.

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• Dr. Knieser’s employment agreement terminates on June 1, 2006 and shall renew automatically for one year periods, unless either party elects not to renew in accordance with the terms of the agreement.

          If Mr. Hunter’s employment is terminated, for a period of two years thereafter, he shall not:

• Within Indiana, render any services as an agent, independent contractor, consultant or otherwise become employed in the business of selling or providing products or services sold by us or our subsidiaries.

• Within Indiana, in any manner compete with us or with any of our subsidiaries.

• Solicit or attempt to convert to other entities providing similar products or services provided by us, and our customers or any of our subsidiaries.

          If Mr. Coons’ employment is terminated, for a period of two years thereafter, he shall not:

• Sell or attempt to sell, within Indiana, any products marketed by us.

• Sell or attempt to sell any types of our products that we market to our customers.

• Within Indiana, own, be employed by, or be connected in any manner with any business similar to our type of business.

          If Dr. Knieser’s employment is terminated, for a period of two years thereafter, he shall not:

• Engage in any business which of the type so engaged in by U.S. Health Services or any of its subsidiaries, within the geographical area that he has been performing services for U.S. Health Services.

          If Mr. Tran’s employment is terminated, for a period of one year thereafter, he shall not:

• Directly or indirectly invest in, own or operate or engage in any business that is directly competitive with the business of Rainier in the State of Washington.

          Following a termination of Mr. Hunter’s employment with us, in the event of a change-in-control, Mr. Hunter would be entitled to receive a lump-sum payment equal to five times the sum of his then-current base salary, and the average amount of the bonuses paid to him for the five preceding fiscal years. Mr. Hunter would also be entitled to receive a lump-sum payment equal to the amount determined by multiplying the number of shares of common stock subject to unexercised stock options previously granted by us and held by Mr. Hunter on the date of termination, whether or not such options are then exercisable, by the greater of (1) the highest sales price of the common stock during the preceding six-month period, and (2) the highest price paid to the holders of our common stock whereby the change in control takes place.

          Following a termination of Messrs. Edwards, Berry, Long or Tran’s employment with us in the event of a change-in-control, each of Messrs. Edwards, Berry, Long and Tran would be entitled to receive a lump sum payment equal to 12 months’ salary.

          Following a termination of Mr. Coons’ employment with us in the event of a change-in-control, Mr. Coons would be entitled to receive a lump sum payment equal to 2.99 times his average annual compensation payable by us to him for the five preceding calendar years.

          Following a termination of Dr. Knieser’s employment with us in the event of a change-in-control, Dr. Knieser would be entitled to receive a lump sum payment equal to 2.99 times his then-current base salary, plus a severance payment equal to 12 months’ salary.

          We are or may be obligated to pay a bonus to the executive officers as follows:

• Mr. Hunter receives a bonus equal to 3% of our annual earnings, before interest and taxes.

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•      Messrs. Edwards, Berry and Long may receive a bonus for his performance at the discretion of the Chairman of the Board and upon approval of the Compensation Committee.

•      Mr. Coons receives a bonus equal to 1 1/2% of our annual earnings, before interest and taxes.

•      Dr. Knieser receives a bonus equal to 1% of the earnings, before interest and taxes, of U.S. Health Services.

•      Mr. Tran’s agreement provides that his bonus shall be determined by the amount that Rainier’s actual EBITDA exceeds target EBITDA, but in no event to exceed $150,000 in any year during the term of the agreement. If Rainier’s target EBITDA exceeds the actual EBITDA, then no bonus shall be paid to Mr. Tran.

Compensation Committee Interlocks and Insider Participation

          During 2005, the Company’s Compensation Committee was comprised of Messrs. Browning, French and Steane. None of the members is an executive officer, employee or former employee of the Company, and no interlocking relationship exists between the Board or Compensation Committee and the board of directors or compensation committee of any other company.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters

          The following table sets forth certain information as of March 1, 2006 with respect to ownership of our outstanding common stock by:

• all persons known to us to own more than 5% of the outstanding shares of our common stock;

• each of our directors;

• Mr. Hunter, our Chief Executive Officer, and each of our four most highly compensated executive officers other than Mr. Hunter for the last fiscal year; and

• all of our executive officers and directors as a group.

	Number of
Name	Shares Owned (1)		Percent
Ronald D. Hunter (2)		1,994,058		19.91
Michael B. Berry (3)		23,000		*
Michael G. Browning (4)		89,374		*
Stephen M. Coons (5)		382,286		4.10
Dainforth B. French, Jr. (6)		86,400		*
Martial R. Knieser (7)		425,835		4.62
Mark B.L. Long (8)		47,257		*
James H. Steane II (9)		28,500		*
John T. Tran (10)		534,624		5.88
All current directors and executive officers as a group (11) (10 Persons)		3,056,142		29.08
P.B. (Pete) Pheffer (12)		297,500		3.17
Dimensional Fund Advisors, Inc. (13)		458,955		5.05
Henry George Luken, III (14)		565,845		6.22

* Represents less than one percent.

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(1)	The information set forth in this table with respect to our common stock ownership reflects “beneficial ownership” as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. “Beneficial ownership” includes shares for which an individual, directly or indirectly, has or shares voting or investment power or both and also includes options which are exercisable within sixty days of the date hereof. The percentages are based upon 9,095,208 shares outstanding as of March 1, 2006. The percentages for each of those parties who hold options exercisable within 60 days of March 1, 2006 are based upon the sum of 9,095,208 shares plus the number of shares subject to such options held by each such party, as indicated in the following notes.
(2)	Includes 7,445 shares beneficially owned by Mr. Hunter’s spouse/child, as to which Mr. Hunter disclaims beneficial ownership, 52,234 shares held on Mr. Hunter’s behalf pursuant to the Standard Management 401(k) Plan as to which Mr. Hunter has investment power and 762,195 shares owned by the former shareholders of Rainier Home Health Care Pharmacy, Inc. pursuant to a voting trust agreement dated July 21, 2005, as to which Mr. Hunter has voting authority. Also includes 922,645 shares subject to options exercisable within 60 days of March 1, 2006. Mr. Hunter’s address is 10689 North Pennsylvania Street, Indianapolis, Indiana 46280.
(3)	Includes 22,000 shares subject to options exercisable within 60 days of March 1, 2006.
(4)	Includes 5,700 shares held by Mr. Browning’s spouse and 3,200 shares pursuant to which Mr. Browning has shared voting power, in both cases, as to which Mr. Browning disclaims beneficial ownership. Also includes 25,000 shares subject to options exercisable within 60 days of March 1, 2006.
(5)	Includes 119,551 shares held under the Standard Management 401(k) Plan as to which Mr. Coons shares voting power as a result as his service as a trustee under the plan (which share amount includes the shares beneficially held under the plan for Messrs. Hunter and Knieser, as indicated elsewhere). Also includes 228,635 shares subject to options exercisable within 60 days of March 1, 2006.
(6)	Includes 10,000 shares held by Mr. French’s family, as to which Mr. French disclaims beneficial ownership. Also includes 25,000 shares subject to options exercisable within 60 days of March 1, 2006.
(7)	Includes 121,667 shares subject to options exercisable within 60 days of March 1, 2006.
(8)	Includes 29,667 shares subject to options exercisable within 60 days of March 1, 2006.
(9)	Includes 25,500 shares subject to options exercisable within 60 days of March 1, 2006.
(10)	Mr. Tran’s shares were acquired in the Agreement and Plan of Merger between Standard Management and Rainier Home Health Care Pharmacy, Inc. dated July 21, 2005. Also includes 16,667 shares subject to options exercisable within 60 days of March 1, 2006. Mr. Tran’s address is 10689 North Pennsylvania Street, Indianapolis, Indiana 46280.
(11)	Includes a total of 1,415,113 shares subject to options exercisable within 60 days of March 1, 2006 and 119,551 shares held under the Standard Management 401(k) Plan as to which the directors/officers share voting and/or investment power.
(12)	Includes 292,500 shares subject to options exercisable within 60 days of March 1, 2006. Mr. Pheffer resigned as President and Chief Financial Officer of the Company on May 31, 2005.
(13)	Information with respect to Dimensional Fund Advisors, Inc. is based solely on a Schedule 13G filed by this entity with the SEC on February 6, 2006. Standard Management makes no representation as to the accuracy or completeness of the information reported by this entity. Dimensional Fund Advisors’ address is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(14)	Information with respect to Henry George Luken, III is based solely on a Schedule 13D filed by Mr. Luken with the SEC on May 14, 2003. Standard Management makes no representation as to the accuracy or completeness of the information reported by Mr. Luken. Mr. Luken’s address is 900 Fairway Lane, Soddy Daisy, Tennessee 37379.

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Item 13. Certain Relationships and Related Transactions

          Our Articles of Incorporation and Bylaws provide for indemnification of our officers and directors to the maximum extent permitted under the Indiana Business Corporation Law (“IBCL”). In addition, we have entered into separate indemnification agreements with some of our directors which may require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors to the maximum extent permitted under the IBCL.

          In October 1997, we made an interest free loan to Mr. Hunter, Chairman, President and Chief Executive Officer, in the amount of $775,500. The loan is repayable within 10 days of Mr. Hunter’s voluntary termination or resignation as our Chairman and Chief Executive Officer. In the event of a termination of Mr. Hunter’s employment following a change in control, the loan is deemed to be forgiven. As of December 31, 2005, all $775,500 remained outstanding under this loan.

Item 14. Principal Accountant Fees and Services

          The following table sets forth the fees paid to the Company’s independent registered public accounting firm, BDO Seidman, LLP:

	2005		2004
Audit fees	$	320,395	$	340,000
Audit-related fees		—		—
Tax fees		25,000		2,800
All other fees		—		—

          Audit Fees are fees for professional services rendered by our independent registered public accountants for the audit of our annual financial statements, review of our quarterly financial statements and services related to our 2005 filing of various proxy and registration statements.

          Audit-Related Fees are fees for assurance and related services reasonably related to the performance of the audit or review of our financial statements.

          Tax Fees are fees for professional services rendered by our independent registered public accountants for tax compliance, tax advice and tax planning. Services performed in this category included the review of our federal income tax returns.

          All Other Fees are fees for professional services not included in the first three categories.

          Each of the above services was approved by the Audit Committee. Each engagement of the independent registered public accounting firm to perform audit or non-audit services must be approved in advance by our Audit Committee or by its Chairman pursuant to delegated authority.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) and (2) The response to this portion of Item 15 is listed on page F-1 of this report.

(a)(3) List of Exhibits:

Exhibit
Number	Description of Document

2.1	Stock and Asset Purchase Agreement dated February 9, 2005, by and between Standard Management and Capital Assurance Corporation (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on February 14, 2005).
3.1	Amended and Restated Articles of Incorporation, as amended (incorporated by reference to Annual Report on Form 10-K (File No. 0-20882) for the year ended December 31, 1996).
3.1a	Amendment to the Amended and Restated Articles of Incorporation, as amended March 10, 2006.
3.2	Amended and Restated Bylaws as amended (incorporated by reference to Registration Statement on Form S-1 (Registration No. 33-53370) as filed with the Commission on January 27, 1993 and to Exhibit 3 of Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter ended September 30, 1994).
4.1	Certificate of Trust of SMAN Capital Trust I (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.2	Trust Agreement of SMAN Capital Trust I (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.3	Form of Amended and Restated Trust Agreement of SMAN Capital Trust I among Standard Management, Bankers Trust Company and Bankers Trust (Delaware) (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.4	Form of Preferred Securities Certificates (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.5	Form of Junior Subordinated Indenture between Standard Management and Bankers Trust Company (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.6	Form of Junior Subordinated Debenture (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.7	Form of Preferred Securities Guarantee Agreement between Standard Management and Bankers Trust Company (incorporated by reference to Registration Statement on Form S-1 (Registration No. 333-60886)).
4.8	Indenture dated November 30, 2005 by and between Standard Management and U.S. Bank National Association (includes the form of 6% Convertible Note due 2008) (incorporated by reference to the Current Report on Form 8-K (File No. 0-20882) date of report November 30, 2005).
4.9	Supplemental Indenture dated June 7, 2005 by and between Standard Management and Deutsche Bank Trust Company Americas (incorporated by reference to the Current Report on Form 8-K (File No. 0-20882) filed on June 13, 2005).

- 41 -

Exhibit
Number	Description of Document
10.1*	Employment Agreement by and between Standard Management and Ronald D. Hunter, dated and effective January 1, 2004 (incorporated by reference to Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter ended March 31, 2004).
10.2*	Employment Contract by and between Standard Management and Stephen M. Coons dated and effective, as amended, January 1, 2005 (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on August 26, 2005).
10.3*	Indemnification Agreement between Standard Management and Stephen M. Coons and Coons & Saint, dated August 1, 1991 (incorporated by reference to Registration Statement on Form S-1 (Registration No. 33-53370) as filed with the Commission on January 27, 1993).
10.4*	Standard Management Amended and Restated 1992 Stock Option Plan (incorporated by reference to Registration Statement on Form S-4 (Registration No. 333-35447) as filed with the Commission on September 11, 1997).
10.5	Lease by and between Standard Life and Standard Management, dated June 8, 2005.
10.6	Promissory Note from Ronald D. Hunter to Standard Management in the amount of $775,500 executed October 28, 1997 (incorporated by reference to Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter ended September 30, 1997).
10.7*	Employment Agreement between Standard Management and P.B. (Pete) Pheffer dated and effective January 1, 2004, (incorporated by reference to Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter ended March 31, 2004).
10.8	Promissory Note for $6.9 million between Standard Management and Republic Bank dated December 28, 2001 (incorporated by reference to Annual Report on Form 10-K (File No. 0-20882) for the year ended December 31, 2001).
10.9*	Standard Management Corporation 2002 Stock Incentive Plan (incorporated by reference to Standard Management’s Registration Statement on Form S-8 (Registration No. 333-101359)).
10.10*	Deferred Compensation Plan of Standard Management dated and effective December 31, 2001 (incorporated by reference to Annual Report on Form 10-K (File No. 0-20882) for the year ended December 31, 2001).
10.11*	Employment Agreement by and between Standard Management and Dr. Martial R. Knieser, dated and effective June 1, 2005.
10.12	Securities Purchase Agreement, dated March 21, 2005, between Standard Management and Laurus Master Fund, Ltd., including the form of Secured Convertible Term Note and Warrant (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on March 25, 2005).
10.13	Registration Rights Agreement, dated March 21, 2005, between Standard Management and Laurus Master Fund, Ltd., including the form of Secured Convertible Term Note and Warrant (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on March 25, 2005).
10.14	Agreement and Plan of Merger, dated July 22, 2005, among Standard Management, Rainier Acquisition Corporation, Rainier Home Health Care Pharmacy, Inc., John T.H. Tran, Cynthia J. Wareing-Tran and The Jonathan Tran Irrevocable Trust u/a/d August 23, 2004, (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on July 27, 2005).
10.15	Agreement and Plan of Merger, dated July 28, 2005, among the Standard Management, Precision Health Care Acquisition Corporation, Precision Healthcare, Inc., Jose A. Trespalacios, as Voting Trustee, Teresa Fox-Morgan, Robert R. Buehler, Krista K. Trespalacios, and Jose A. Trespalacios, in his individual

- 42 -

Exhibit
Number	Description of Document
	capacity (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on August 3, 2005).
10.16	Agreement and Plan of Merger, dated July 29, 2005, among Standard Management, Long Term Rx Acquisition Company, Long Term Rx, Inc., The Craig W. Trobaugh Revocable Trust, dated September 7, 2000, The Lorenda K. Trobaugh Revocable Trust, dated September 7, 2000, Craig W. Trobaugh, and Lorenda K. Trobaugh (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on August 3, 2005).
10.17*	Employment Agreement dated August 25, 2005 between Standard Management and Michael B. Edwards (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on August 26, 2005).
10.18*	Amendment to Employment Agreement dated December 29, 2005 between Standard Management and Michael B. Edwards (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on December 30, 2005).
10.19*	Amendment to Employment Agreement dated August 25, 2005 between Standard Management and Ronald D. Hunter (incorporated by reference to Current Report on Form 8-K (File No. 0-20882) filed on August 26, 2005).
10.20*	Employment Agreement dated July 1, 2005 between Standard Management and Michael B. Berry.
10.21*	Employment Agreement dated July 1, 2005 between Standard Management and Mark B. L. Long.
10.22*	Employment Agreement dated July 1, 2005 between Rainier Home Health Care Pharmacy, Inc. and John T. Tran.
21	List of Subsidiaries of Standard Management.
23.1	Consent of BDO Seidman, LLP.
23.2	Consent of Ernst & Young LLP.
24	Powers of Attorney (included on the signature page to this Form 10-K).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.

* Management contract or compensation plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to Item 15(c) of Form 10-K.

- 43 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 17, 2006

STANDARD MANAGEMENT CORPORATION

/s/ Ronald D. Hunter

Ronald D. Hunter
Director, Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 30, 2006 by the following persons on behalf of the Registrant and in the capacities indicated.

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald D. Hunter and Stephen M. Coons and each of them (with full power of each of them to act alone), his attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K or any other instruments he deems necessary or appropriate, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue thereof.

/s/ Ronald D. Hunter
Ronald D. Hunter	Director, Chairman, Chief Executive Officer and President (Principal Executive Officer)
/s/ Michael B. Edwards
Michael B. Edwards	Executive Vice President, and Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)
/s/ Stephen M. Coons
Stephen M. Coons	Director
/s/ Michael G. Browning
Michael G. Browning	Director
/s/ James H. Steane II
James H. Steane II	Director
/s/ Dainforth B. French, Jr.
Dainforth B. French, Jr.	Director

- 44 -

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) AND (2),(c) AND (d)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LIST OF FINANCIAL STATEMENTS

and

FINANCIAL STATEMENT SCHEDULES

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

Year Ended December 31, 2005

STANDARD MANAGEMENT CORPORATION

INDIANAPOLIS, INDIANA

- F1 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

	Page
Audited Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm		F-3
Reports of Independent Auditors		F-4
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-5
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003		F-6
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003		F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		F-8
Notes to Consolidated Financial Statements		F-9

Financial Statement Schedules

The following consolidated financial statement schedule is included in this report and should be read in conjunction with the Audited Consolidated Financial Statements.

     Schedule IV – Reinsurance for the years ended December 31, 2005, 2004 and 2003

Schedules not listed above have been omitted because they are not applicable or are not required, or because the required information is included in the Audited Consolidated Financial Statements or related Notes.

- F2 -

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Standard Management Corporation
Indianapolis, Indiana

          We have audited the accompanying consolidated balance sheets of Standard Management Corporation and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. Our audits also included the 2005 and 2004 information included in the financial statement schedule. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule information based on our audits.

          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Standard Management Corporation and subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations and cash flows for the years then ended, in conformity with the accounting practices generally accepted in the United States of America.

          Also, in our opinion, the related 2005 and 2004 information included in the financial statement schedule presents fairly, in all material respects, that information set forth therein.

          The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 15 to the consolidated financial statements, the Company has suffered recurring losses from continuing operations and may not have adequate financing to meet all of its near-term operating needs. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 15. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO Seidman, LLP

Chicago, Illinois
April 14, 2006

- F3 -

Report of Independent Auditors

Shareholders and Board of Directors of
Standard Management Corporation

          We have audited the accompanying consolidated statements of operations and cash flows of Standard Management Corporation and subsidiaries for the year ended December 31, 2003. Our audit also included the 2003 information included in the financial statement schedule listed in the Index at Item 15 (a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

          We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

          In our opinion, the financial statements referred to above present fairly, in all material respects, the Company’s consolidated results of operations and cash flows for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the 2003 information included in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

          As discussed in Note 1 to the consolidated financial statements, in 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

/s/ Ernst & Young LLP

Indianapolis, Indiana
March 2, 2004

- F4 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

	December 31
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	2,232		$	1,121
Accounts receivable, net of allowances of $1,194 and $331, respectively		6,543			1,109
Inventories		3,880			748
Prepaid and other current assets		828			1,009
Assets of discontinued operations		—			1,921,405
Total current assets		13,483			1,925,392
Property and equipment, net		10,950			11,715
Assets held for sale		1,506			738
Deferred financing fees, net		2,009			1,767
Officer and other notes receivable, less current portion		842			912
Investments in unconsolidated subsidiaries		5,160			160
Intangible assets, net		4,305			1,312
Goodwill		11,366			3,725
Other noncurrent assets		1,388			2,024
Total assets	$	51,009		$	1,947,745
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,201		$	401
Accrued expenses		2,392			2,536
Current portion of long-term debt		2,533			3,597
Liabilities of discontinued operations		1,069			1,829,306
Total current liabilities		8,195			1,835,840
Long-term debt, less current portion		36,776			50,714
Other long-term liabilities		1,095			1,159
Total liabilities		46,066			1,887,713
Shareholders’ equity:
Common stock, no par value, and additional paid in capital, 40,000,000 shares and 20,000,000 shares authorized, 10,712,859 shares and 9,446,191 shares issued in 2005 and 2004, respectively		68,537			64,369
Retained deficit		(55,793	)		(1,529	)
Treasury stock, at cost, 1,617,651 shares and 1,525,078 shares in 2005 and 2004, respectively		(7,901	)		(7,703	)
Accumulated other comprehensive income from continuing operations		100			68
Accumulated other comprehensive income from discontinued		—			4,827
Total shareholders’ equity		4,943			60,032
Total liabilities and shareholders’ equity	$	51,009		$	1,947,745

See accompanying notes to consolidated financial statements.

- F5 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

	Year Ended December 31
	2005			2004			2003
Net revenues	$	28,922		$	7,120		$	2,948
Cost of revenues		20,735			5,822			2,445
Gross profit		8,187			1,298			503
Selling, general and administrative expenses		20,135			13,489			11,199
Depreciation and amortization		2,192			2,152			1,743
Goodwill impairment charges		2,839			963
Loss related to sale of a business		—			964			—
Operating loss		(16,979	)		(16,270	)		(12,439	)
Other income, net		1,078			182			179
Interest expense		4,382			4,524			4,474
Net loss from continuing operations before income tax expense (benefit)		(20,283	)		(20,612	)		(16,734	)
Income tax expense (benefit)		—			—			—
Net loss from continuing operations		(20,283	)		(20,612	)		(16,734	)
Income (loss) from discontinued operations, net of income taxes of $262, $395 and ($627), respectively		(33,981	)		9,744			6,263
Net loss	$	(54,264	)	$	(10,868	)	$	(10,471	)
Loss per share — basic and diluted
Loss from continuing operations	$	(2.40	)	$	(2.59	)	$	(2.08	)
Income (loss) from discontinued operations		(4.02	)		1.23			0.78
Net loss	$	(6.42	)	$	(1.36	)	$	(1.30	)
Weighted average shares outstanding		8,455,869			7,973,029			8,031,749

See accompanying notes to consolidated financial statements.

- F6 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(dollars in thousands)

				Common stock			Retained						Accumulated other
				and Additional			earnings						comprehensive
	Total			Paid in Capital			(deficit)			Treasury stock			income
Balance at December 31, 2002		87,734		$	63,856		$	19,810		$	(7,671	)	$	11,739
Comprehensive loss:
Net loss		(10,471	)		—			(10,471	)		—			—
Other comprehensive loss:
Change in unrealized loss on securities, net taxes of $4,563		(9,037	)		—			—			—			(9,037	)
Comprehensive loss		(19,508	)
Issuance of common stock in business acquisitions and common stock warrants		243			243			—			—			—
Exercise of common stock options		(22	)		(22	)		—			—			—
Purchase of MCO		4,000			4,000			—			—			—
Balance at December 31, 2003		72,447			68,077			9,339			(7,671	)		2,702
Comprehensive loss:
Net loss		(10,868	)		—			(10,868	)		—			—
Other comprehensive income:
Change in unrealized gain or securities, net taxes of $1,130		2,193			—			—			—			2,193
Comprehensive loss		(8,675	)
Purchase of treasury stock		(32	)		—			—			(32	)		—
Issuance of common stock in business acquisitions		293			293			—			—			—
Exercise of common stock options		(1	)		(1	)		—			—			—
Sale of MCO		(4,000	)		(4,000	)		—			—			—
Balance at December 31, 2004		60,032			64,369			(1,529	)		(7,703	)		4,895
Comprehensive loss:
Net loss		(54,264	)		—			(54,264	)		—			—
Other comprehensive loss:
Change in unrealized gain on securities, net of taxes of $1,130		(4,795	)		—			—			—			(4,795	)
Comprehensive loss		(59,059	)
Adjustment due to stock price contingency		(84	)		(84	)		—			—			—
Purchase of treasury stock		(198	)		—			—			(198	)		—
Issuance of common stock in business acquisitions		4,100			4,100			—			—			—
Exercise of common stock options		(14	)		(14	)		—			—			—
Issuance of warrants		166			166			—			—			—
Balance at December 31, 2005	$	4,943		$	68,537		$	(55,793	)	$	(7,901	)	$	100

See accompanying notes to consolidated financial statements.

- F 7 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

	Year Ended December 31
	2005			2004			2003
OPERATING ACTIVITIES:
Net loss	$	(54,264	)	$	(10,868	)	$	(10,471	)
Net income (loss) from discontinued operations		(33,981	)		9,744			6,263
Net loss from continuing operations		(20,283	)		(20,612	)		(16,734	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,192			2,152			1,687
Amortization of deferred financing costs and debt discount		452			148			(833	)
Provision for bad debts		829			680			16
Loss related to sale of a business		—			964			—
Goodwill impairment charges		2,839			963			—
Change in operating assets and liabilities, net of effect of business acquisitions and dispositions:
Accounts receivable		(3,600	)		360			(992	)
Inventories		(1,082	)		(182	)		(155	)
Prepaid and other current assets		268			(603	)		(69	)
Accounts payable		(724	)		(594	)		905
Accrued expenses		(987	)		637			(595	)
Other		(470	)		(885	)		(365	)
Net cash used in operating activities of continuing operations		(20,566	)		(16,972	)		(17,065	)
INVESTING ACTIVITIES:
Capital expenditures		(596	)		(1,301	)		(876	)
Proceeds from the sale of Standard Life		47,171			—			—
Cash paid for pharmacy acquisitions, net of cash acquired		(11,088	)		(823	)		(145	)
Cash paid for business sold		—			(800	)		—
Change in other noncurrent assets, net		654			(518	)		153
Net cash provided by (used in) investing activities of continuing operations		36,141			(3,442	)		(868	)
FINANCING ACTIVITIES:
Borrowings		4,750			6,050			26,915
Net cash received from discontinued operations		2,459			15,808			6,937
Purchase of common stock for treasury		(198	)		4			16
Exercise of common stock options		(14	)		(1	)		33
Deferred financing costs paid		(385	)		(395	)		1,079
Repayments of long-term debt		(21,076	)		(1,268	)		(19,378	)
Net cash provided by (used in) financing activities of continuing operations		(14,464	)		20,198			15,602
Net cash provided by operating activities of discontinued operations		21,051			70,464			43,853
Net cash provided by (used in) investing activities of discontinued operations		25,438			(1,630	)		(280,100	)
Net cash provided by (used in) financing activities of discontinued operations		(54,925	)		(76,557	)		195,676
Net increase (decrease) in cash and cash equivalents of discontinued operations		(8,436	)		(7,723	)		(40,571	)
Total increase (decrease) in cash and cash equivalents		(7,325	)		(7,939	)		42,902
Net increase (decrease) in cash and cash equivalents of discontinued operations		(8,436	)		(7,723	)		40,571
Net increase (decrease) in cash and cash equivalents of continuing operations		1,111			(216	)		(2,331	)
Cash and cash equivalents of continuing operations at beginning of period		1,121			1,337			3,668
Cash and cash equivalents of continuing operations at end of period	$	2,232		$	1,121		$	1,337

See accompanying notes to consolidated financial statements.

- F 8 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005

Note 1 — Basis of Presentation

          Standard Management Corporation and subsidiaries (the “Company”) distributes pharmaceutical products and services through its pharmacy subsidiaries. As more fully described in Note 3, the Company sold a substantial portion of its Financial Services business and has reflected the business as discontinued operations in the accompanying consolidated financial statements. As a result of the discontinuance, the Company now reports within a single operating segment, which includes all of its previously separately reported corporate services functions. All significant intercompany transactions and balances have been eliminated in consolidation.

          Unlike hospitals, most long-term care facilities (such as skilled nursing or assisted living facilities) do not have on-site pharmacies to dispense prescription drugs, but depend instead on institutional pharmacies to provide the necessary pharmacy products and services and to play an integral role in monitoring patient medication. In addition to providing pharmaceuticals, institutional pharmacies provide consulting services, which include monitoring the control, distribution and administration of drugs within the long-term care facility and assisting in compliance with applicable regulations.

          Our institutional pharmacies are the primary focus of our business. We operate our pharmacies as regional hubs servicing a geographic subsection of the country. Our regional facilities are supported by smaller pharmacies that extend the reach of the pharmacy’s products and services. We currently operate pharmacies in the Pacific Northwest, Tennessee and Indiana, and are seeking to acquire existing pharmacies to serve as regional pharmacies in the Midwest, Southwest and in Southern California.

          Each of our regional pharmacies employs a sales and business development staff whose primary responsibilities are to maintain good working relationships with its existing client base and to secure new long-term care, assisted living or other institutional clients. In addition, the regional hubs maintain their own consulting pharmacists on staff who work closely in a clinical setting with the facilities to provide continuing in-service education and to answer the questions of staff members and patients on a regular basis. We believe the high quality of our services and our responsiveness and flexibility to facility and patient needs help us to develop long-term customer loyalty and to attract new clients.

          We have reclassified certain amounts from the prior periods to conform to the 2005 presentation and to reflect our discontinued operations separately from our continuing operations. These reclassifications have no effect on net loss or shareholders’ equity.

Note 2 – Summary of Significant Accounting Policies

Revenue Recognition / Contractual Allowances

          Revenues are recognized at the time services or products are provided or delivered to the customer. Upon delivery of products or services, the Company has no additional performance obligations to the customer. The Company receives payments through reimbursement from private third-party insurers, long-term care facilities, Medicaid and Medicare programs and directly from individual residents (private pay).

          The Company records an estimated contractual allowance against non-private pay revenues and accounts receivable. Accordingly, the net revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the amount expected to be received. Contractual allowances are adjusted to actual as cash is received and claims are reconciled. The Company evaluates the following criteria in developing the estimated contractual allowance percentages each month: historical contractual allowance trends based on actual claims paid by third party payors; reviews of contractual allowance information reflecting current contract terms; consideration and analysis of changes in customer base, product mix, payor mix reimbursement levels or other issues that may impact contractual allowances.

- F 9 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 — Summary of Significant Accounting Policies (continued)

Cash Equivalents

          Short-term investments that have a maturity of 90 days or less at acquisition are considered cash equivalents. Investments in cash equivalents are carried at cost, which approximates fair value.

Allowance for Doubtful Accounts

          The Company utilizes the “Aging Method” to evaluate the adequacy of its allowance for doubtful accounts. This method is based upon applying estimated standard allowance requirement percentages to each accounts receivable aging category for each type of payor. The Company has developed estimated standard allowance requirement percentages by utilizing historical collection trends and its understanding of the nature and collectibility of receivables in the various aging categories and the various payors of the Company’s business. The standard allowance percentages are developed by payor type as the accounts receivable from each payor type have unique characteristics. The allowance for doubtful accounts is determined utilizing the Aging Method described above while also considering accounts specifically identified as doubtful. Accounts receivable that Company management specifically estimates to be doubtful, based upon the age of the receivables, the results of collection efforts, or other circumstances, are reserved for in the allowance for doubtful accounts until they are collected or written-off.

          Management believes the assumptions used in the Aging Method suggest the allowance for doubtful accounts is adequate. However, because the assumptions underlying the Aging Method are based upon historical data, there is a risk that the Company’s current assumptions are not reflective of future collection patterns. Changes in overall collection patterns can be caused by market conditions and/or budgetary constraints of government funded programs such as Medicare and Medicaid. Such changes can adversely impact the collectibility of receivables, but may not be addressed in a timely fashion when using the Aging Method, until updates to the Company’s periodic historical collection studies are completed and implemented.

          At least annually, the Company updates its historical collection studies in order to evaluate the propriety of the assumptions underlying the Aging Method. Any changes to the underlying assumptions or impact of adverse events are implemented immediately. Changes to these assumptions can have a material impact on the Company’s bad debt expense, which is reported in the consolidated statements of operations as a component of selling, general and administrative expenses.

Concentration of Credit Risk

          Financial instruments that potentially subject the Company to credit risk consist principally of interest-bearing cash and cash equivalents and accounts receivable.

          The Company is exposed to credit risk in the event of default by the financial institutions or issuers of cash and cash equivalents to the extent recorded on the balance sheet. At any given point in time, the Company has cash on deposit with financial institutions, and cash invested in high quality short-term money market funds and U.S. government-backed repurchase agreements, generally having original maturities of three months or less, in order to minimize its credit risk.

          The Company establishes allowances for doubtful accounts based on historical credit losses and specifically identified credit risks. Management reviews this allowance on an ongoing basis for appropriateness, and such losses have been within management’s expectations. For the year ended December 31, 2005, no single customer accounted for 10% or more of revenues. The Company generally does not require collateral.

- F 10 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 — Summary of Significant Accounting Policies (continued)

          Approximately one-third of our pharmacy services billings are directly reimbursed by government-sponsored programs. These programs include state Medicaid and the Federal Medicare programs. The remainder of our billings are paid or reimbursed by individual residents or their responsible parties (private pay), long-term care facilities and other third-party payors, including private insurers. A portion of these revenues also is indirectly dependent on government programs. The table below represents the Company’s approximate payor mix as of December 31, 2005:

Private pay and long-term care facilities (a)	48	%
Federal and state programs (b)	36	%
Other private sources	16	%
Total	100	%

(a)	Includes payments from skilled nursing facilities on behalf of their Federal Medicare program-eligible residents (Medicare Part A) and for other services and supplies, as well as payments from third-party insurers and private pay.
(b)	Includes direct billing for medical supplies.

Inventories and Cost of Revenues

          Inventories, consisting of pharmaceuticals, medical supplies and equipment, are stated at the lower of cost or market. Cost is determined primarily on the first-in, first-out method.

          Counts of inventories on hand are performed at least on a quarterly basis. Because the Company does not utilize a perpetual inventory system on a significant percentage of its inventory, cost of goods sold, a component of cost of revenues, is estimated using the latest acquisition cost and adjusted to actual by recording the results of the quarterly count of actual physical inventories.

          Recorded obsolescence allowances are not significant since the Company writes off all expired inventories and the Company has the ability to return a majority of its inventory before expiration.

          Cost of revenue include the net product costs of pharmaceuticals sold and direct charges attributable to providing revenue-generating services.

Property and Equipment and Intangible Assets

          Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method in amounts considered sufficient to amortize the cost of the assets to operations over their estimated service lives or lease terms which range from three to ten years for equipment and leasehold improvements and 40 years for our headquarters building which represents our most significant asset in this category. Intangible assets are all amortized over their estimated useful lives of seven years for customer lists, seven years for trademarks and three years for non-compete agreements.

          Long-lived assets or groups of assets are tested for recoverability whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. When events or changes in circumstances dictate an impairment review of a long-lived asset or group, the Company will evaluate recoverability and determine whether the undiscounted cash flows expected to result from the use and eventual disposition of that asset or group cover the carrying value at the evaluation date. If the discounted cash flows are not sufficient to cover the carrying value, the Company will measure any impairment loss as the excess of the carrying amount of the long-lived asset or group over its fair value (generally determined by a discounted cash flows model or independent appraisals).

- F 11 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 — Summary of Significant Accounting Policies (continued)

Assets Held For Sale

          Assets held for sale represent investment properties and improvements carried at the lower of cost or fair value.

Deferred Financing Costs

          Financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method, over the terms of the related debt.

Investments in Unconsolidated Subsidiaries

          Investments in unconsolidated subsidiaries primarily represents the $5 million of 7% cumulative exchangeable preferred stock the Company was issued by the buyer of our Financial Services business as partial consideration in that sale. (See Note 3 below.)

Other Noncurrent Assets

          Other noncurrent assets primarily represent fixed maturity securities and equity investments in support of insurance policy liabilities the Company continues to retain after the sale of its Financial Services operations. Gross unrealized gains and losses are not material. Changes in the fair value of these available for sale securities, other than impairments deemed to be other than temporary, are reported as other comprehensive income (loss). The fixed maturity securities mature in 2008.

Other Long-Term Liabilities

          Other long-term liabilities primarily represent insurance policy liabilities the Company retained after the sale of its financial services business.

Legal fees

          Upon identification of litigation matters against the Company that are likely to result in significant defense costs, the Company, based on discussions with internal and external counsels, estimates and provides for the expected defense costs.

Income Taxes

          Income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for estimated tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in income in the period in which the change is enacted. A valuation reserve is recognized based on the evidence available, if it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

          We file a consolidated return for federal income tax purposes.

Net Loss Per Common Share

          Basic net loss per common share is based upon weighted average common shares outstanding. Diluted net loss per common share is based upon the weighted average number of common shares outstanding, including the dilutive effect, if any, of stock options, warrants and convertible securities. However, due to net losses in each of the periods presented, the Company has no dilutive stock options, warrants or convertible securities. Common stock

- F 12 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 — Summary of Significant Accounting Policies (continued)

equivalents outstanding as of December 31, 2005 and 2004 were convertible or exercisable into 5,897,793 and 3,662,339 shares, respectively.

Stock Option Plans

          Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosures”, allows companies to either expense the estimated fair value of stock options or to continue the earlier practice of accounting for stock options at intrinsic value and disclose the pro forma effects on net income and earnings per share had the fair value of the options been expensed. The Company has elected to continue its practice of recognizing compensation expense using the intrinsic value based method of accounting and to provide the required pro forma information through 2005. The compensation cost based on fair value at the grant date, which is consistent with the provisions of SFAS No. 123, as amended by SFAS No. 148, would result in pro forma net loss and pro forma loss per share of the following for the year ended December 31 (dollars in thousands, except per share amounts):

	2005			2004			2003
Reported net loss from continuing operations	$	(20,283	)	$	(20,612	)	$	(16,734	)
Less: Total stock-based employee compensation expense determined under fair value based method for all grants		919			165			332
Pro forma net loss from continuing operations		(21,202	)	$	(20,777	)	$	(17,066	)

Loss per share from continuing operations:
Basic and diluted — as reported	$	(2.40	)	$	(2.59	)	$	(2.08	)
Basic and diluted — pro forma	$	(2.51	)	$	(2.61	)	$	(2.12	)

          The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-valuation model with the following weighted-average assumptions:

	2005			2004			2003
Risk-free interest rates		4.1	%		3.1	%		3.1	%
Volatility factors		0.44			0.44			0.52
Weighted average expected life	5 years			5 years			6 years
Dividend yield		0.0	%		0.0	%		0.0	%

          During the third quarter of 2005, the Company repriced the stated exercise price on certain options from $6.063 to $2.05, which was the market price on the date of adjustment. Pursuant to current accounting provisions, this repricing constitutes a new stock option grant and requires variable plan accounting for the related options. As these stock options had no instrinsic value at the repricing date or at December 31, 2005, no compensation expense was recorded for 2005. However, the Company will be making future adjustments through its statement of operations related to these options for the increase or decrease in the fair value of these options from one period end date to another.

- F 13 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 — Summary of Significant Accounting Policies (continued)

          In December 2004, the Financial Accounting Standards Board issued SFAS 123 (revised 2004), Share-Based Payment (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Upon adoption of SFAS 123R, pro forma disclosure is no longer an alternative. SFAS 123R became effective for the Company on January 1, 2006. The Company has not determined the impact of SFAS 123R in 2006 as it will depend on whether additional options are granted; however, the pro forma adjustments in the preceding table represents a historical view of the potential negative impact for stock-based employee compensation expense given the Company’s current stock-based compensation programs.

Use of Estimates

          The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

          The carrying value of all financial instruments such as accounts and notes receivable, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items. (See Note 5 for estimates of fair value of the Company’s debt instruments).

Note 3 – Discontinued Operations – Financial Services

          Discontinued Operations — Financial Services consisted of revenues earned and expenses incurred from the Company’s insurance operations, principally conducted by its former subsidiary Standard Life Insurance Company of Indiana (“Standard Life”) and its subsidiary, Dixie National Life Insurance Company (“Dixie Life”). The primary insurance products included deferred annuities, single premium immediate annuities and equity-indexed annuities. The profitability of this segment was primarily a function of net investment spread (the difference between the investment income earned on the Company’s investments less the interest the Company credits to its policyholders), persistency of the Company’s in force business, mortality experience and management of the Company’s operating expenses.

          As previously disclosed, the board and management of the Company considered a variety of strategic alternatives to provide the Company with adequate financing to pursue its growth strategies for the Pharmacy business it embarked on in 2002 and to maximize long-term shareholder value. After considering various options, management, in early 2005, committed to the sale of Standard Life, including Dixie Life.

          On June 9, 2005, the Company completed the sale of all outstanding capital stock of Standard Life, and $27 million aggregate principal amount of surplus debentures issued by Standard Life in favor of the Company, to Capital Assurance Corporation (“Capital Assurance”). The sale was completed pursuant to the terms of the Stock and Asset Purchase Agreement dated February 9, 2005, between the Company and Capital Assurance (the “Agreement”). The purchase price was approximately $79.8 million, consisting of $52.5 million in cash, $5 million in a new class of 7% cumulative exchangeable preferred stock of Capital Assurance and the assumption by Capital Assurance of approximately $22.3 million of indebtedness of the Company. In addition, Standard Management purchased certain assets from Standard Life at closing for approximately $5.3 million, resulting in net cash proceeds to Standard Management of $47.2 million. The sale price is subject to post closing adjustment to reflect actual versus estimated results of Standard Life through the closing date. The Company currently has a purchase price adjustment dispute with Capital Assurance whereby the Company estimates the amount due to Capital Assurance of $43,000 (which the Company paid in 2005) and they estimate the amount due of $0.7 million.

- F 14 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 3 — Discontinued Operations — Financial Services (continued)

Standard Management agreed to indemnify Capital Assurance and Standard Life for any losses arising from breaches of any representation, warranty or covenant of Standard Management made in the Agreement subject to the applicable survival periods, if such losses exceed $500,000 in the aggregate. If such indemnification threshold is exceeded, Standard Management would be responsible for paying $250,000 plus the amount of such loss in excess of $500,000, up to a maximum amount equal to the purchase price for losses related to the breach of certain representations and warranties, and up to a maximum amount equal to 50% of the purchase price for breaches of certain other specified representations and warranties. In addition, Standard Management agreed to indemnify Capital Assurance for all pending litigation of Standard Life without respect to the indemnification threshold.

          The Company maintains $1.1 million of liabilities as of December 31, 2005 as its current estimate of a) litigation and other indemnification exposures related to its sale of Standard Life and b) trailing severance and sale transaction costs.

          Related to the sale of Standard Life, the Company estimates that, for federal income tax purposes, the Company will recognize a capital loss on the sale of approximately $22 million, equal to the difference between its adjusted tax basis in Standard Life and the amount realized from the sale. The Company may realize a tax benefit in future periods from this capital loss provided that it recognizes capital gains within five years. However, as it is currently more likely than not that these benefits will not be realized, we have fully offset any potential benefit with a valuation allowance as of December 31, 2005.

          The Company used a portion of the $47.2 million of cash proceeds to a) pay off $17.7 million of bank debt, including prepayment penalties, b) pay $1.0 million related to obtaining a consent from the holders of the trust preferred securities described in Note 5 to effectively allow the Company to complete the sale of Standard Life and c) pay $3.5 million of professional fees (investment bankers, attorneys and accountants) and miscellaneous other costs related to the sale (printing and mailing of proxy materials and severance payments). The remaining cash proceeds were added to general working capital and have been used for general corporate purposes and pharmacy acquisitions.

          In addition, Standard Life, after the sale, continues to lease space from the Company at its corporate headquarters for three years for $480,000 per year through June 2008. The Company also anticipates receiving $350,000 of annual dividends under the $5 million of newly issued 7% cumulative exchangeable preferred stock it received as partial consideration in the sale of Standard Life. All such amounts earned through December 31, 2005 have been collected by the Company.

- F 15 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 3 — Discontinued Operations — Financial Services (continued)

          The following tables summarize the financial position and operating results of the discontinued operations as of and for the periods ended on the dates indicated:

Standard Life
Condensed Consolidated Balance Sheets
(unaudited, dollars in thousands)

	December 31		December 31
	2005		2004
Assets:
Total investments	$	—	$	1,686,396
Deferred policy acquisition costs and present value of future profits		—		174,172
Other assets		—		60,837
Assets of discontinued operations	$	—	$	1,921,405
Liabilities:
Insurance policy liabilities	$	—	$	1,824,736
Accounts payable and accrued expenses		1,069		4,570
Liabilities of discontinued operations	$	1,069	$	1,829,306

Standard Life
Condensed Consolidated Statements of Operations
(unaudited, dollars in thousands)

	For the Year Ended
	December
	2005			2004		2003
Revenues	$	40,796		$	111,586	$	64,898
Benefits, claims, interest credited and amortization		33,307			91,789		(63,210	)
Operating and other expenses		4,652			9,658		5,202
Impairment charge and loss on sale		36,606			—		—
Income tax expense (benefit)		212			395		(627	)
Income (loss) from discontinued operations	$	(33,981	)	$	9,744	$	6,263

- F 16 -

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 4 – Pharmacy Business Acquisitions

     Effective September 16, 2005, the Company acquired certain assets of Holland Health Services, Inc. (“Holland”), a Washington retail pharmacy. The purchase price was $300,000 in cash.

     Effective July 29, 2005, the Company acquired Long Term Rx, Inc. (“Long Term Rx”), a New Castle, Indiana direct provider of pharmaceutical products to long-term care facilities. The purchase price was $2.2 million consisting of a combination of cash and the Company’s common stock including a post closing purchase price adjustment related to minimum working capital requirements.

     Effective July 28, 2005, the Company acquired Precision Healthcare, Inc. (“Precision”), a Nashville, Tennessee provider of infusion therapy to chronically ill patients and a wholesale pharmaceutical provider to physician practices and other end users. The purchase price was $2.7 million consisting of a combination of cash and the Company’s common stock including a post closing purchase price adjustment related to minimum working capital requirements. In addition, included in the agreement is a contingent performance bonus based on specific earnings targets for 2005 which were not met. No contingent performance bonus is expected to be paid.

     Effective July 21, 2005, the Company acquired Rainier Home Health Care Pharmacy, Inc. (“Rainier”), a Seattle, Washington provider of pharmaceuticals and medical supplies to long-term care facilities. The original purchase price was $12 million consisting of a combination of cash, the Company’s common stock and a subordinated seller note and our estimate of post closing purchase price adjustments related to minimum working capital requirements. Also included in the agreement is a contingent performance bonus based on specific earnings targets over each of the next three years; however, the 2005 target was not met.

     Effective May 13, 2004, the Company acquired the business assets of RoyalMed, LLC (“RoyalMed”) for 50,000 shares of the Company’s common stock.

     Effective February 6, 2004, the Company’s subsidiary, Apothecary Solutions Corporation (“Apothecary Solutions”), acquired certain assets of Alliance Center, Inc. Apothecary Solutions is an institutional pharmacy. The purchase price was $3.7 million and was paid in the form of cash of $0.8 million and the assumption of $2.9 million of debt and a seller note.

     During 2003, the Company acquired the business assets of MyDoc.com for $645,000 paid in the form of cash of $145,000 and a seller note of $500,000. Additionally, in 2003, the Company acquired the stock of Medical Care & Outcomes, LLC (“MCO”) with $4 million of the Company’s common stock. The Company later sold MCO back to the original owners (other than a 5% interest valued at $160,000) in April 2004. The Company recognized a loss on the sale and related severance costs for a prior owner/employee of $964,000. This divestiture resulted in the return of the Company’s common stock and therefore a direct decrease to equity in April 2004 of $4 million.

     The original aggregate purchase price of the 2005 acquisitions described above was $17.2 million, representing $11.6 million in cash paid at closing (largely funded with cash on hand), 1,250,001 shares of the Company’s common stock valued at $4.1 million, and $1.5 million in a seller note. The aggregate purchase price of the 2004 acquisitions described above was $4.0 million, representing $0.8 million in cash paid at closing, 50,000 shares of the Company’s common stock valued at $0.3 million, and $2.9 million of assumed debt and a seller note. Additional upward purchase price adjustments may be paid out as contingent consideration for certain acquisitions if certain growth in earnings targets is reached. The Company has guaranteed the market value of $3.28 per share of the common stock issued in these 2005 acquisitions and $7.00 per share for the RoyalMed acquisition at certain anniversary dates. Those guaranteed values are included in the purchase prices reflected above. Should the Company’s common stock price be below the guaranteed price on the applicable anniversary dates, the Company would have to pay the difference to the sellers in cash or in additional shares of common stock at that date. Based on the Company’s common stock price on the first anniversary date, the Company paid an additional $84,000 to the sellers of RoyalMed and made a corresponding adjustment of its additional paid in capital. In addition to the above, an aggregate of $0.8 million of 2005 acquisition costs are reflected as additional purchase price.

-F 17-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 4 – Pharmacy Business Acquisitions

     The aggregate purchase price of the 2005 and 2004 acquisitions was allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values at the date of acquisition. This original preliminary allocation was subject to adjustment primarily as a result of the pending conclusion of valuation analyses regarding identifiable intangible assets (which include customer lists, trademarks and non-competition provisions) and the ultimate settlement of acquired accounts receivable.

     Most of these adjustments were made during 2004 and 2005, and any additional adjustments for the 2005 acquisitions will be made before the respective acquisition’s first annual anniversary in 2006. The allocations as of December 31, 2005 are as follows (dollars in thousands):

	2005			2004
	Acquisitions			Acquisitions
Cash	$	1,330		$	333
Accounts receivable		2,740			1,329
Inventories		2,050			227
Other current assets		87			222
Property and equipment		703			339
Intangible assets		3,670			523
Goodwill		10,472			1,256
Accounts payable and accrued expenses		(2,956	)		(234	)
Total purchase price	$	18,096		$	3,995

     If the Apothecary Solutions, RoyalMed, Rainier, Precision, Long Term Rx, and Holland Health Service, Inc. acquisitions and MCO divestiture been consummated on January 1, of the presented year, pro forma results of operations for the years ended December 31, 2005 and 2004 would have been as follows (dollars in thousands, except per share amounts):

	2005			2004
Net revenues	$	50,728		$	41,815
Gross profits		14,869			12,803
Operating loss		(11,724	)		(14,200	)
Net loss from continuing operations		(21,190	)		(19,424	)
Net loss per share from continuing operations	$	(2.31	)	$	(2.11	)
Weighted average shares outstanding		9,111,874			9,223,050

     The pro forma operating results include each acquiree’s pre-acquisition result of operations for the indicated periods with adjustments primarily to reflect amortization of intangible assets, reduced interest income resulting from not having acquisition cash available for short-term investing and increased shares of stock resulting from the issuance of common shares as part of the aggregate purchase price paid. The pro forma information does not purport to be indicative of the results that actually would have been obtained if the transactions had occurred at an earlier date and is not intended to be a projection of future results or trends.

-F 18-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 5 — Indebtedness

     Our long-term debt was as follows (dollars in thousands):

	Interest			December 31		December 31
	Rate(1)			2005		2004
Mortgages payable		6.72	%	$	5,905	$	6,607
Senior secured credit facility		—			—		18,500
Promissory notes		5.88	%		2,355		1,883
6% convertible notes		6.00	%		2,750		2,750
7% convertible notes		7.00	%		3,300		3,300
Other convertible notes		9.25	%		4,275		—
Subordinated debentures		10.25	%		20,700		20,700
Capital lease obligations					287		571
Total indebtedness					39,572		54,311
Less debt discount on other convertible notes					263		—
Less current portion					2,533		3,597
Total long-term debt, less current portion				$	36,776	$	50,714

(1) Current weighted average rate at December 31, 2005.

     Mortgages payable balance primarily represents a promissory note in the amount of $5.7 million due June 30, 2008, secured by the Company’s corporate headquarters. The note bears interest at 6.75% per annum and is payable in equal monthly installments of $51,728, with a final payment of $5.1 million in June 2008. The note may be prepaid in whole or in part, at a redemption price equal to 102% of the principal amount (plus accrued interest) declining to 101% in 2007 with no penalty in the final year. A $500,000 prepayment of principal on the note was made in March 2005 related to the sale of Standard Life.

     The senior secured credit facility included a revolving loan and a term loan and was terminated and fully repaid upon the sale of Standard Life. Borrowing under the facility carried interest rates ranging from 5.2% to 6.6% per annum during 2004 and 2005.

     As of December 31, 2005 the Company has five unsecured promissory notes totaling $2.4 million primarily related to the acquisitions of various healthcare companies. Principal payments in 2006 through 2008 are $.5 million, $.3 million and $1.6 million, respectively.

     On February 10, 2004, the Company issued $3.3 million of 7% unsecured convertible notes due in full in 2009. The notes are convertible into shares of the Company’s common stock at a price equal to $4.20 per share at any time at the holder’s option subject to certain conditions.

     On November 30, 2004, the Company issued $2.75 million of 6% mandatory unsecured convertible notes due 2008. The notes are convertible into shares of the Company’s common stock at a price equal to an adjusted $3.28 per share at any time at the holder’s option subject to certain conditions.

     On March 21, 2005, the Company issued $4.75 million of other convertible notes. Principal payments are due in monthly installments beginning October 1, 2005 through March 2008 and bear interest at the prime rate plus 2% with a floor of 7.25%, unless such rate is reduced in the event that the trading price of the Company’s common stock increase above certain levels. Also, the Company may pay interest and principal in shares of its common stock instead of cash under certain circumstances. All principal and interest to date have been paid in cash. These notes are convertible into shares of the Company’s common stock at any time at the holder’s option at a rate of $3.28 per share, subject to certain conditions. As with the 7% and 6% convertible notes, because the Company’s common shares were trading at less than the effective conversion price upon issuance of the notes, no value was assigned to the conversion feature. The notes were issued with a detachable warrant that allows the holder to purchase 532,511 shares of common stock at an exercise price of $3.90 per share. This warrant was valued at $351,000 and resulted in a discount on the issuance of the convertible debt which is being amortized into interest

-F 19-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 5 – Indebtedness (continued)

expense over the term of the notes. The warrant expires, if unexercised, in March 2010. This warrant carries registration rights whereby the Company was obligated to register the shares underlying the warrant and to keep such registration effective for a certain period of time or pay certain damages to the holder. Due to these potential damages, although none have been incurred to date, the warrant is classified as an other long term liability and is adjusted to its current estimated value on each balance sheet date. Changes in estimated value from issuance to December 31, 2005 resulted in $271,000 of income for that period.

     Additional warrants were issued to advisors in the above transaction that allows the holders to purchase 50,000 shares and 30,619 shares of our common stock at an exercise price of $3.28 and $3.90 per share, respectively. These warrants are classified as permanent equity, were valued at $62,000 and resulted in additional deferred financing costs on the issuance of the convertible debt which is being amortized into interest expense over the term of the notes.

     On August 9, 2001, SMAN Capital Trust I (the “Trust”), a wholly owned subsidiary of Standard Management, completed a public offering of $20.7 million of its 10.25% preferred securities, which mature on August 9, 2031, at $10 per preferred security. The proceeds from the offering were immediately loaned to Standard Management by the Trust in the form of an equal amount of subordinated debentures. The debentures have similar terms as the preferred securities, including a 10.25% interest rate. Although the Trust is wholly-owned by Standard Management, Standard Management does not consolidate the Trust because all of the income and cash flows of the Trust benefit the preferred security holders rather than Standard Management. As such, the subordinated debentures and related interest expense are reflected in our consolidated results.

     The preferred securities may be redeemed at any time on or after August 9, 2006, at a redemption price of $10 plus accumulated and unpaid distributions. If the Trust redeems the preferred securities or is liquidated and the debentures are not redeemed, debentures will be distributed to the holders of the preferred securities rather than cash. Standard Management guarantees the payments on these securities to the extent that the Trust has available funds. The Trust’s preferred securities are traded on the NASDAQ National Market under the symbol “SMANP”. See Note 16 for additional information regarding these securities.

     Interest paid for the year ended December 31, 2005, 2004 and 2003 was $3.9 million, $4.4 million, and $4.4 million, respectively.

     The fair values of debt instruments shown below are estimated using discounted cash flow analyses and interest rates currently being offered for similar loans to borrower with similar credit ratings at December 31 (dollars in thousands).

	2005				2004
	Fair		Carrying		Fair		Carrying
	Value		Amount		Value		Amount
Mortgages payable	$	6,615	$	5,905	$	6,987	$	6,607
Senior secured credit facility		—		—		18,048		18,500
Promissory notes		1,946		2,355		1,864		1,883
6% convertible notes		2,750		2,750		2,750		2,750
7% convertible notes		3,002		3,300		3,110		3,300
Other convertible notes		3,962		4,275		—		—
Subordinated debentures		12,213		20,700		18,630		20,700
Capital lease obligations		239		287		456		571
Total indebtedness	$	30,727	$	39,572	$	51,845	$	54,311

-F 20-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 6 – Accounts Receivable Allowance

     Our accounts receivable allowance was as follows for the years ended December 31 (dollars in thousands):

	2005			2004			2003
Beginning balance	$	331		$	26		$	—
Additions charged to cost and expenses		829			680			16
Acquisitions		445			153			—
Write-offs, net of recoveries		(411	)		(528	)		10
Ending balance	$	1,194		$	331		$	26

Note 7 – Income Taxes

     The components of the Company’s income tax expense or benefit applicable to pre-tax losses from continuing operations were zero for the years ended December 31, 2005, 2004 and 2003 due to taxable losses in each such year and a 100% valuation allowance against all resulting net deferred income tax assets.

     A $21.3 million valuation allowance has been provided on the Company’s total net deferred income tax assets as of December 31, 2005. The Company reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards. If or when the Company becomes profitable, management may determine that all or a portion of this valuation allowance is not required and, if so, the Company will record benefits, which could be substantial, in the period such determinations are made.

     As of December 31, 2005, the Company had consolidated net capital loss carryforwards of approximately $22.0 million which expire in 2010 and consolidated net operating loss carryforwards of approximately $40.9 million for tax return purposes, which expire from 2009 to 2020.

     The effective income tax rate on pre-tax income (loss) from continuing operations differs from the statutory corporate federal income tax rate as follows for the years ended December 31 (in thousands):

	2005			2004			2003
Federal income tax expense at statutory rate (34%)	$	(6,896	)	$	(7,008	)	$	(5,690	)
Increase in valuation allowance		6,896			7,008			5,690
Federal income tax expense (benefit)	$	—		$	—		$	—
Effective tax rate		0	%		0	%		0	%

-F 21-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 7 — Income Taxes (continued)

     Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax return purposes and tax loss carryforwards. Temporary differences included in our deferred income tax assets (liabilities) are as follows at December 31 (in thousands):

	2005			2004
Deferred income tax assets:
Net operating loss (“NOL”) carryforwards	$	13,872		$	6,942
Capital loss carryforwards		7,480			—
Other, net		140			103
Gross deferred income tax assets		21,492			7,045
Valuation allowance for deferred income tax assets		21,365			6,903
Deferred income tax assets, net of valuation allowance		127			142
Deferred income tax liabilities:
Unrealized gain on securities available for sale		(34	)		(23	)
Other		(93	)		(119	)
Total deferred income tax liabilities		(127	)		(142	)
Net deferred income tax asset	$	—		$	—

-F 22-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 8 – Shareholders’ Equity

Warrants

     Historically, the Company has issued warrants to purchase common stock (a) as a component of the purchase price of pharmacy acquisitions, (b) in connection with the issuance of convertible debt, (c) as an inducement to its independent agents for annuity sales, and (d) for equity and capital marketing related services. During 2005 and 2004, the Company had 376,500 warrants and 157,750 warrants, respectively, expire unexercised. In addition, during 2005, the Company issued (a) 125,000 warrants recorded as a charge of $105,000, (b) 532,511 warrants recorded as debt discount of $351,000, and (c) 80,619 warrants recorded as deferred financing fees of $62,000. The fair value of each warrant granted is estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions used for the aforementioned grants: dividend yield 0.0%, expected volatility of 3.45, risk-free interest rate of 3.54%, and expected life of 4.0 years.

The following table represents outstanding warrants to purchase common stock as of December 31:

		Exercise		Warrants Outstanding
Issue Date	Expiration Date	Price		2005		2004		2003
March 2005	March 2010	$	3.28		175,000		—		—
March 2005	March 2010		3.90		563,130		—		—
October 2002	October 2007		4.92		10,000		10,000		10,000
June 2002	June 2005		7.61		—		89,500		89,500
January 2002	January 2005		6.02		—		287,000		287,000
January 2001	January 2004		3.00		—		—		157,750
					748,130		386,500		544,250

Changes in Shares of Common Stock and Treasury Stock

     The following table represents changes in the number of common and treasury shares as of December 31:

	2005			2004			2003
Common Stock:
Balance, beginning of year		9,446,191			9,629,274			9,369,859
Issuance for business acquisitions, other than MCO		1,266,668			16,667			45,000
MCO acquisition (recision)		—			(200,000	)		200,000
Stock option and warrant exercises		—			250			14,415
Balance, end of year		10,712,859			9,446,191			9,629,274
Treasury Stock:
Balance, beginning of year		(1,525,078	)		(1,515,078	)		(1,515,078	)
Treasury stock acquired		(92,573	)		(10,000	)		—
Balance, end of year		(1,617,651	)		(1,525,078	)		(1,515,078	)

     At December 31, 2005, the Company was authorized to purchase an additional 507,427 shares under the Company’s treasury stock repurchase program.

Unrealized Gain on Securities

     Accumulated other comprehensive income represents unrealized gains on securities available for sale which substantially related to the now-sold financial services business. The remaining unrealized gain relates to securities held to support insurance policies the Company continues to carry after the sale of Standard Life.

-F 23-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 9 – Stock Option Plans

     Effective June 12, 2002, the Company adopted the 2002 Stock Incentive Plan (the “Plan”) which authorized the granting of options to employees, directors and consultants of the Company to purchase up to 990,000 shares of its common stock at a price not less than its market value on the date the option is granted. The number of shares of stock available for issuance pursuant to the Plan is automatically increased on the first trading day of each calendar year beginning January 1, 2004, by an amount equal to 3% of the shares of stock outstanding on the trading day immediately preceding January 1. As of December 31, 2005, there were 794,702 shares of common stock available for grant under the Plan. Additionally, as of January 1, 2006, the Plan’s available shares increased by an additional 273,356 shares. Options may not be granted under the Plan on a date that is more than ten years from the date of its adoption. The options may become exercisable immediately or over a period of time. Any shares subject to an option that for any reason expires or is terminated unexercised may again be subject to an option under the Plan. The Plan also permits granting of stock appreciation rights and restricted stock awards. In addition to the Plan, the 1992 Stock Option Plan has 1,325,180 options outstanding. No additional shares remain available for future issuance under the 1992 Stock Option Plan.

     A summary of the Company’s stock option activity and related information for the years ended December 31 is as follows:

	2005					2004					2003
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Shares			Exercise Price		Shares			Exercise Price		Shares			Exercise Price
Options outstanding, beginning of year		2,490,125		$	5.28		2,804,054		$	5.58		2,409,869		$	6.00
Exercised		(21,300	)		3.34		(8,000	)		3.25		(6,225	)		3.36
Granted		471,000			2.09		203,000			3.72		580,000			3.97
Expired or forfeited		(717,645	)		4.84		(508,929	)		6.39		(179,590	)		5.56
Options outstanding, end of year		2,222,180		$	4.44		2,490,125		$	5.28		2,804,054		$	5.58
Options exercisable, end of year		2,093,013		$	4.54		2,182,125		$	5.54		2,450,722		$	5.80
Weighted-average fair value of options granted during the year	$	0.92				$	1.58				$	1.39

     Information with respect to stock options outstanding at December 31, 2005, is as follows:

	Options Outstanding						Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
Range of			Remaining		Average				Average
Exercise	Number		Contractural		Exercise		Number		Exercise
Prices	Outstanding		Life (years)		Price		Exercisable		Price
$2.05-3.20		916,000		7.74	$	2.42		839,333	$	2.44
3.21-6.25		638,650		3.89		4.89		586,150		4.99
6.25-7.61		667,530		1.33		6.80		667,530		6.80
		2,222,180						2,093,013

-F 24-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 10 – Long Lived Assets

     A summary of property and equipment for the years ended December 31 is as follows (in thousands):

	2005			2004
Land	$	582		$	1,146
Building and improvements		10,266			10,042
Furniture and fixtures		1,672			1,529
Computer equipment and software		1,375			1,327
Machinery and equipment		1,381			659
Property and equipment, gross		15,276			14,703
Accumulated depreciation		(4,326	)		2,988
Property and equipment, net	$	10,950		$	11,715

     The activity related to goodwill is summarized as follows for December 31 (in thousands):

	2005			2004
Balance, beginning of year	$	3,725		$	6,028
Goodwill acquired		10,480			2,263
Goodwill disposed		—			(3,603	)
Goodwill impairment		(2,839	)		(963	)
Balance, end of year	$	11,366		$	3,725

     The Company completes an assessment of goodwill at least annually. The Company currently has four reporting units representing pharmacies in each of its regional hubs which service a unique geographical subsection of the United States. The goodwill impairment test compares the fair value of a reporting unit with its carrying value. The Company relied on the merger and acquisition method and the discounted future benefits method to calculate fair value using an outside appraisal. Finally, the Company compared the implied goodwill from the calculated fair value of the reporting unit with the carrying amount of goodwill for the reporting unit. As a result of the Company’s impairment test, the Company recorded impairment charges of approximately $2.8 million and $1 million for one of its reporting units in 2005 and 2004, respectively.

     Intangible assets consist of the following as of December 31 (in thousands):

	2005			2004
Customer lists	$	4,381		$	1,401
Trademarks		220			—
Non-compete agreements		980			500
Accumulated amortization		(1,276	)		(589	)
Intangible assets, net	$	4,305		$	1,312

     Amortization expense was $687,000, $388,000 and $201,000, in 2005, 2004, and 2003, respectively, and is expected to be $964,000, $809,000, $727,000, $568,000 and $512,000 for the next five years.

Note 11 – Related Party Transactions

     In 1997, the Company made an interest-free loan to one of our officers. The principal balance of the loan was $775,500 at December 31, 2005 and 2004. Repayment is due within 10 days of voluntary termination or resignation as an officer. In the event of a termination of the officer’s employment following a change in control, the loan is deemed to be forgiven.

-F 25-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 12 – Commitments and Contingencies

Lease Commitments

     The Company rents office and storage space under noncancellable operating leases and incurred rent expense for operating leases of $.5 million, $.6 million, and $.7 million in 2005, 2004 and 2003, respectively.

     Future required minimum rental payments, by year and in the aggregate, under operating leases as of December 31, 2005, are as follows (in thousands):

2006	$	959
2007		838
2008		693
2009		695
2010		672
Beyond 2010		4,199
Total minimum lease payments	$	8,056

Employment Agreements

     Certain officers are employed pursuant to executive employment agreements that create certain liabilities in the event of the termination of the covered executives following a change in control of Standard Management. The commitment under these agreements is approximately three to five times their current annual salaries plus bonuses and would aggregate to $4.8 million as of December 31, 2005. Additionally, following termination due to a change in control, certain executives are entitled to receive a lump sum payment equal to all unexercised stock options granted multiplied by the highest per share fair market value during the six month period ending on the date of termination. There were unexercised options outstanding to these executives to buy 1,340,405 shares at December 31, 2005 with a payment value of $3.2 million.

Note 13 – Litigation

     The Company is involved in various legal proceedings in the normal course of business. In most cases, such proceedings involve claims under insurance policies or other contracts of Standard Life, for which the Company remains liable. Except for the matter described below the outcomes of these legal proceedings are not expected to have a material adverse effect on the consolidated financial position, or future results of operations based on management’s current understanding of the relevant facts and law and the Company’s recorded reserves for such matters.

     Effective May 31, 2005, P.B. (“Pete”) Pheffer resigned his positions as President and Chief Financial Officer of Standard Management. As a result of this resignation, Mr. Pheffer has terminated his employment agreement with the Company dated January 1, 2003 (the “Employment Agreement”). In his letter of termination, Mr. Pheffer asserts that his termination was based upon a “change of control” of the Company, as defined in the Employment Agreement, as a result of the sale of Standard Life. Mr. Pheffer also asserts that as a result of such sale, he has experienced a change in his “authority, power, function, duties and responsibility” and that he is invoking the “good reason” clause in the Employment Agreement. Mr. Pheffer claims that under the Employment Agreement, as a result of his resignation “for good reason,” he is owed, no later than ten days following his resignation, a lump-sum cash severance payment of approximately $3.8 million.

     The severance payment sought by Mr. Pheffer under the Employment Agreement includes amounts for: a) accrued, but unpaid, paid time-off and the pro rata share of his bonus for 2005; b) a lump sum payment of three times the sum of his current base salary and average bonus paid in the preceding three years; and c) a lump sum stock option value payment equal to the number of shares of the Company’s common stock subject to unexercised stock options held by Mr. Pheffer (regardless of the exercise price thereof) multiplied by the highest sales price of the Company’s common stock during the six months prior to his resignation. Mr. Pheffer also claims he is entitled to receive all of his current employee benefits under medical, insurance and other employee benefit plans for 36 months following the date of his termination.

-F 26-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 13 – Litigation (continued)

     The Company disputes Mr. Pheffer’s assertion that he had “good reason” to terminate his employment under the terms of the Employment Agreement. Rather, it is the Company’s position that Mr. Pheffer terminated his employment “without cause,” as defined in the Employment Agreement, and, as a result, the Company owes Mr. Pheffer only approximately $50,000 for accrued, but unpaid, paid time off and his pro rata share of his bonus for 2005 which was paid in 2005.

     A provision of the Employment Agreement provides that any amounts payable upon termination of the Agreement constitute wage payments under the Indiana Wage Payment Statute (the “Wage Statute”). The Wage Statute allows a party to recover liquidated damages for each day wages remain unpaid in an amount equal to ten percent of the amount not to exceed double the amount of wages due (in addition to the base amount), and costs and reasonable attorneys’ fees if suit is filed. It is the Company’s position that Mr. Pheffer cannot invoke the Wage Statute and that this provision of the Employment Agreement is otherwise unenforceable.

     Under the Employment Agreement, if it is determined that any payments made to Mr. Pheffer as a result of his termination would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any penalties or interest are incurred by Mr. Pheffer with respect to such excise tax, then the Company is required to make an additional gross-up payment to Mr. Pheffer to fully compensate him for the amount of such excise tax. If the Company is required to pay Mr. Pheffer the full severance amount he is claiming under the Employment Agreement, the Company believes such amount would be subject to the federal excise tax and, as such, the Company would be required to make an additional gross-up payment to Mr. Pheffer of approximately $1.7 million.

     The aggregate of Mr. Pheffer’s demands is approximately $13 million, which includes the severance payment, liquidated damages under the Wage Statute, if applicable, and gross-up payment for federal excise taxes. The Company is vigorously contesting these claims. This matter is subject to binding arbitration, which is currently in the discovery phase.

Note 14 – Quarterly Financial Data (unaudited) (in thousands, except per share amounts)

     Earnings per common and common equivalent share for each quarter are computed independently of earnings (loss) per share for the year. Due to the transactions affecting the weighted average number of shares outstanding in each quarter and due to the uneven distribution of earnings (loss) during the year, the sum of the quarterly earnings (loss) per share may not equal the earnings (loss) per share for the year. Quarterly results are not always comparable due to the timing of health care business acquisitions and the sale of the Financial Services business.

	2005 Quarters
	First			Second			Third			Fourth
Net revenues	$	2,201		$	2,489		$	10,106		$	14,126
Gross profit		421			532			2,878			4,356
Net loss from continuing operations		(5,203	)		(4,591	)		(3,938	)		(6,551	)
Net loss		(38,460	)		(5,363	)		(3,882	)		(6,559	)
Loss per share data:
Net loss from continuing operations		(0.66	)		(0.58	)		(0.44	)		(0.72	)
Net loss		(4.86	)		(0.68	)		(0.43	)		(0.72	)

	2004 Quarters
	First			Second			Third			Fourth
Net revenues	$	1,651		$	1,841		$	1,872		$	1,756
Gross profit		450			478			442			(72	)
Net loss from continuing operations		(4,878	)		(4,928	)		(4,233	)		(6,573	)
Net loss		(1,767	)		(2,467	)		(2,697	)		(3,937	)
Loss per share date
Net loss from continuing operations		(0.60	)		(0.62	)		(0.53	)		(0.83	)
Net loss		(0.22	)		(0.31	)		(0.34	)		(0.50	)

-F 27-

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 15 – Going Concern

     Based on current estimates of cash flow, management believes that, absent a significant additional cash infusion or significantly increased cash flow from operations, at some point during 2006, the Company may not have sufficient cash to meet its cash requirements. The situation raises “substantial doubt” about the Company’s ability to continue as a going concern. Management believes, but cannot guarantee, that it can adequately address these issues by (i) significantly reducing the rate of cash use at one of the Company’s operating subsidiaries, (ii) raising additional capital, and (iii) using a portion of such capital to continue to acquire profitable businesses that will provide cash flow from operations.

Note 16 – Subsequent Events

     In related transactions in February 2006, the Company issued a $.5 million short-term 9.5% promissory note due on or before May 1, 2006 to the primary owners of a professional racing team and entered into a sponsorship agreement with the team under which a Company executive will assist the team to secure additional sponsorships for the upcoming 2007 and 2008 racing seasons. The Company also agreed to pay the team $75,000 and issue warrants to the team on or before May 1, 2006. The warrants will be exercisable for 200,000 shares of the Company’s common stock on the terms and conditions of the warrants issued under the Company’s private placement described below.

     On March 8, 2006, the Company announced that it intends to defer distributions on the 10.25% preferred securities of its subsidiary, SMAN Capital Trust I. The deferral, which will begin with the distribution date scheduled for March 31, 2006, is expected to continue for up to two years. The Company will make a decision each quarter as to the continuation of the deferral of the distributions. All unpaid distributions will accrue interest at the rate of 10.25% per annum until paid by the Company.

     The Company also announced that it intends to commence an exchange offer for all or a portion of the trust preferred securities. The exchange offer, which the Company expects to commence in April 2006, would allow all trust preferred security holders to exchange their trust preferred securities for shares of common stock of Standard Management. The terms of the exchange offer, including the exchange ratio, have not been determined yet by the Company.

     On March 8, 2006, the Company signed a five-year prime vendor pharmaceutical distribution agreement with AmerisourceBergen Drug Corporation, its primary vendor of pharmaceutical and other products.

     Additionally, on March 8, 2006 the Company announced that at a special shareholder meeting held, the Company’s shareholders approved proposals to increase the authorized common stock of the Company from 40 million to 60 million shares and for the issuance of more than 20% of the Company’s outstanding shares.

     During the 1^st quarter 2006 the Company announced its intention to issue up to 15 million shares in a private placement of the Company’s common stock.

     On April 13, 2006, the Company entered into a senior loan agreement with one of the officers at a recently acquired company for $2.8 million at an interest rate of 8.25% due April 13, 2008. Additionally, we issued warrants exercisable for 100,000 shares of the Company’s common stock. Such warrants shall be exercisable for seventy three cents ($.73) per share. In a related transaction, the Company paid $.5 million in satisfaction of taxes on the stock portion of the purchase price paid to the former owner of that acquired company.

-F 28-

Schedule IV – Reinsurance

STANDARD MANAGEMENT CORPORATION

Years Ended December 31, 2005, 2004 and 2003
(dollars in thousands)

									Percentage
			Ceded to		Assumed				of Amount
	Gross		Other		From Other				Assumed to
	Amount		Companies		Companies		Net Amount		Net Amount
Year Ended December 31, 2005*
Year Ended December 31, 2004
Life insurance in force	$	1,024,685	$	490,209	$	61,735	$	596,211		10.35	%
Premiums:
Life insurance and annuities	$	8,193	$	2,414	$	578	$	6,357
Accident and health insurance		10		8		—		2
Supplementary contract and other funds on deposit		1,565		—		—		1,565
Total premiums	$	9,768	$	2,422	$	578	$	7,924
Year Ended December 31, 2003
Life insurance in force	$	1,054,341	$	475,704	$	67,684	$	646,321		10.47	%
Premiums:
Life insurance and annuities	$	10,001	$	4,040	$	706	$	6,667
Accident and health insurance		12		9		—		3
Supplementary contract and other funds on deposit		2,259		—		—		2,259
Total premiums	$	12,272	$	4,049	$	706	$	8,929

* All life insurance was reclassified into discontinued operations upon the sale of Standard Life in 2005.

EX-3.1A 2 g00463exv3w1a.txt EX-3.1A AMENDMENT TO THE AMENDED AND RESTATED ARTICLES EXHIBIT 3.1a ARTICLES OF AMENDMENT OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF STANDARD MANAGEMENT CORPORATION The undersigned officer of Standard Management Corporation (hereinafter referred to as the "Corporation") existing pursuant to the provisions of the Indiana Business Corporation Law (hereinafter referred to as the "Law"), desiring to give notice of corporate action effectuating amendment of certain provisions of its Amended and Restated Articles of Incorporation, certify the following facts: ARTICLE I AMENDMENT SECTION 1. The name of the Corporation following the Amendment to the Amended and Restated Articles of Incorporation is Standard Management Corporation. SECTION 2. The exact text of Article V, Section 1 of the Amended and Restated Articles of Incorporation, as amended (hereinafter referred to as the "Amendment"), now is as follows: The total number of shares which the Corporation has authority to issue is Sixty-One Million (61,000,000) shares without par value. SECTION 3. The exact text of Article V, Section 2 of the Amendment now reads as follows: The total authorized shares of the Corporation shall consist of the following classes and amounts: (a) Sixty Million (60,000,000) shares of Common Stock; and (b) One Million (1,000,000) shares of Preferred Stock. The Common Stock of the Corporation shall in all respects entitle the holder to the same rights and preferences, and subject the holder to the same qualifications, limitations, and restrictions, as all other shareholders of Common Stock. The shares of Preferred Stock shall be issued from time to time in one or more series, with such distinguishing designations, and with such preferences, limitations and relative voting and other rights as shall be determined as stated by the Board of Directors before issuance of any such series, in and by the resolution or resolutions authorizing the issuance of any such series pursuant to authority so to do, which is hereby expressly vested in the Board of Directors. ARTICLE II MANNER OF ADOPTION AND VOTE SECTION 1. ACTION BY DIRECTORS. The Board of Directors of the Corporation duly adopted a resolution proposing to amend the terms and provisions of Article V, Sections 1 and 2 of the Amended and Restated Articles of Incorporation. The resolution was adopted at a meeting of the Board of Directors of the Corporation held on January 26, 2006, and adopted by a majority of the members of the Board of Directors. SECTION 2. ACTION BY SHAREHOLDERS. The Shareholders of the Corporation entitled to vote in respect of the Amendment, adopted the proposed Amendment. The Amendment was adopted at a meeting of the Shareholders held on March 8, 2006. The result of such vote is as follows: Common Shares entitled to vote: 9,095,208 Common Shares voted in favor: 7,913,863 Common Shares voted against: 663,614 Common Shares not voted: 96,549 Preferred Shares entitled to vote: -0- Preferred Shares voted in favor: -0- Preferred Shares voted against: -0- SECTION 3. COMPLIANCE WITH LEGAL REQUIREMENTS. The manner of adoption of the Amendment, and the vote by which it was adopted, constitute full legal compliance with the provision of the Law, the Amended and Restated Articles of Incorporation and the Bylaws of the Corporation. ARTICLE III STATEMENT OF CHANGES MADE WITH RESPECT TO ANY INCREASE IN THE NUMBER OF SHARES HERETOFORE AUTHORIZED Aggregate Number of Shares Previously Authorized: 41,000,000 Increase: 20,000,000 Aggregate Number of Shares to be Authorized After Effect of this Amendment: 61,000,000 I hereby verify subject to the penalties of perjury that the facts contained herein are true. Current Officer's Signature Officer's Printed Name /s/ Ronald D. Hunter Ronald D. Hunter - ---------------------- --------------------- Officer's Title Chairman, CEO and President EX-10.5 3 g00463exv10w5.txt EX-10.5 LEASE BY AND BETWEEN STANDARD LIFE AND STANDARD MANAGEMENT EXHIBIT 10.5 EXECUTION COPY LEASE Between STANDARD MANAGEMENT CORPORATION Landlord, and STANDARD LIFE INSURANCE COMPANY OF INDIANA, Tenant, Dated: As June 8, 2005 Premises: 10689 N. Pennsylvania Street Indianapolis, Indiana 46280 TABLE OF CONTENTS Business Terms ARTICLE 1. Certain Other Definitions..................................................... 3 ARTICLE 2. Term; Commencement Date; Access............................................... 5 ARTICLE 3. Fixed Rent.................................................................... 5 ARTICLE 4. HVAC; Building Systems........................................................ 6 ARTICLE 5. Use........................................................................... 7 ARTICLE 6. Compliance with Laws and Insurance Requirements............................... 7 ARTICLE 7. Alterations and Installations................................................. 7 ARTICLE 8. Fixtures and Equipment; Tenant's Property..................................... 8 ARTICLE 9. Maintenance; Repairs.......................................................... 9 ARTICLE 10. Required Insurance............................................................ 9 ARTICLE 11. Damage; Restoration........................................................... 10 ARTICLE 12. Condemnation.................................................................. 11 ARTICLE 13. Public Areas; Conference Rooms; Parking Lot................................... 11 ARTICLE 14. Signs......................................................................... 12 ARTICLE 15. Landlord's Access to Premises; Related Matters................................ 12 ARTICLE 16. Subordination: Estoppel Certificate; Attornment............................... 12 ARTICLE 17. Surrender of Premises......................................................... 13 ARTICLE 18. Assignment, Mortgaging, Subletting, etc....................................... 14 ARTICLE 19. Quiet Enjoyment............................................................... 14 ARTICLE 20. Real Estate Brokers........................................................... 14 ARTICLE 21. Adjacent Excavation; Shoring; Construction.................................... 14 ARTICLE 22. Defaults; Conditional Limitations; Remedies................................... 15 ARTICLE 23. Indemnification............................................................... 17 ARTICLE 24. Notices....................................................................... 18 ARTICLE 25. No Waivers.................................................................... 18 ARTICLE 26. No Representations by Landlord; Landlord's Interest; Transferee Landlords..... 18 ARTICLE 27. Consent to Jurisdiction....................................................... 18 ARTICLE 28. Termination of Current Lease.................................................. 19 ARTICLE 29. Miscellaneous................................................................. 19 Exhibit A Land Exhibit B Cleaning Specifications Exhibit C Building Rules INDEX

Defined Term Article / Section - ------------ ----------------- Additional Rent................................................................. 3.3 Alteration(s)................................................................... 1.1 Building........................................................................ Heading Building Rules.................................................................. 13.1 Building Systems................................................................ 1.1 Business Day.................................................................... 1.1 Business Hours.................................................................. 1.1 City............................................................................ 1.1 Commencement Date............................................................... Business Terms Condemnation.................................................................... 1.1 Conference Rooms................................................................ 13.3 Control......................................................................... 1.1 Damage.......................................................................... 1.1 Deficiency...................................................................... 22.4 Employee........................................................................ 1.1 Encumbrance..................................................................... 1.1 Estoppel Certificate............................................................ 16.3 Expiration Date................................................................. Business Terms Extra Water..................................................................... 4.5 Fees-And-Costs.................................................................. 1.1 Fixed Rent...................................................................... Business Terms Government Entity............................................................... 1.1 Hazardous Materials............................................................. 1.1 HVAC............................................................................ 1.1 Indemnitees..................................................................... 1.1 Insurance Policy................................................................ 10.3 Insurance Requirement........................................................... 1.1 Interest Rate................................................................... 1.1 Land............................................................................ Heading Landlord........................................................................ Heading Landlord's Account.............................................................. Business Terms Landlord's Affiliates........................................................... 1.1 Law(s).......................................................................... 1.1 Lease........................................................................... Heading Lease Year...................................................................... 1.1 Legal Proceeding................................................................ 1.1 Liability Limit................................................................. Business Terms Lien............................................................................ 1.1 New Landlord.................................................................... 16.2 Non-Structural Alterations...................................................... 1.1 Notice Addresses................................................................ Business Terms Overtime Hours.................................................................. 1.1 Parking Lot..................................................................... 1.1 Permitted Use................................................................... Business Terms Person.......................................................................... 1.1 Premises........................................................................ Heading Project......................................................................... 1.1 Public Areas.................................................................... 1.1 Rent(s)......................................................................... 1.1 Rent Payment Address............................................................ Business Terms Required Insurance.............................................................. 1.1, 10.1 Restoration..................................................................... 1.1 Senior Encumbrance.............................................................. 1.1 State........................................................................... 1.1

Telephone Room.................................................................. 2.2 Tenant.......................................................................... Heading Term............................................................................ Business Terms Termination Notice.............................................................. 22.2 Utilities....................................................................... 1.1 LEASE (this "Lease") made as of this 8th day of June, 2005 between STANDARD MANAGEMENT CORPORATION, an Indiana corporation having an address at 10689 N. Pennsylvania Street, Indianapolis, Indiana 46280, ("Landlord") and STANDARD LIFE INSURANCE COMPANY OF INDIANA, an Indiana life insurance company having an address c/o Capital Prospects, LLC, 100 Mallard Creek Road, Suite 197, Louisville, Kentucky 40207 ("Tenant"). INTRODUCTORY STATEMENT Landlord is the owner of the building (the "Building") located at 10689 N. Pennsylvania Street, Indianapolis, Indiana 46280 (the "Land"). Tenant desires to lease from Landlord, and Landlord is willing to lease to Tenant, the first floor computer room and the entire second floor in the Building (the "Premises") as shown cross-hatched on Exhibit A hereto, upon the terms, covenants, conditions and provisions set forth below. This Lease consists of three parts: 1. Business Terms 2. General Lease Provisions 3. Exhibits and Riders NOW, THEREFORE, in consideration of the rents and agreements set forth herein, and intending to be legally bound hereby, Landlord and Tenant agree as follows: BUSINESS TERMS The following "Business Terms" shall have the following meanings in this Lease: "Commencement Date": The date hereof. "Expiration Date": The last day of the third Lease Year after the Commencement Date. "Fixed Rent": $480,000 per year, payable in equal monthly installments of $40,000, from the Commencement Date through the end of the Third Lease Year. "Term": The term of this Lease of three (3) years, commencing at 12:00 a.m. on the Commencement Date and expiring at 11:59 p.m. on the Expiration Date (or on such earlier date as this Lease may otherwise terminate in accordance with its terms, covenants, conditions, and provisions). "Permitted Use": Executive, general, and administrative offices and related and ancillary uses for Tenant and Dixie National Life Insurance Company. "Liability Limit": Three million dollars ($3,000,000). 1 "Notice Addresses": (a) for Tenant: Standard Life Insurance Company of Indiana c/o Capital Prospects, LLC 100 Mallard Creek Road, Suite 197 Louisville, Kentucky 40207 Attention: Mr. Bob Scott (b) for Landlord: Standard Management Corporation 10689 N. Pennsylvania Street Indianapolis, Indiana 46280 Attention: Steve Coons, Esq. "Rent Payment Address": Standard Management Corporation 10689 N. Pennsylvania Street Indianapolis, Indiana 46280 Attention: Michael B. Berry 2 General Lease Provisions ARTICLE 1. Certain Other Definitions. 1.1. The following words and phrases shall have the following meanings wherever used in this Lease: "Alteration" means any and every alteration, addition, construction, improvement, or modification of or to the Premises and/or any and every installation in the Premises (including all fixtures, panelling, partitions, railings, wall coverings, and all electrical, mechanical, plumbing, heating, ventilating and air conditioning installations affixed or attached to the Premises). "Building Systems" means the plumbing, heating, ventilating, air conditioning, elevator, wiring, and electrical systems, installations, and facilities of the Building. "Business Day" means any day other than Saturday, Sunday or national holidays. "Business Hours" means 8 a.m. to 6 p.m. on Business Days. "City" means the municipality in which the Premises are located. "Condemnation" (or to "Condemn") means any and every taking (whether temporary or permanent) for any public or quasi-public purpose, by any Government Entity by exercise of condemnation or eminent domain (or any transfer or conveyance by agreement in lieu thereof). "Control" (or, in context, "Controlling" or "Controlled by") means the ownership of more than fifty per cent (50%) of the common stock of a corporation or of the beneficial ownership of an unincorporated enterprise. "Damage" means any and all damage or destruction resulting from fire or other casualty. "Employee" means an officer, director, employee, partner, agent, contractor, subcontractor, or representative. "Encumbrance" means any and every lease, security interest, charge, covenant, restriction, lien, mortgage, or other encumbrance of any kind whatsoever. "Fees-And-Costs" means documented actual and reasonable fees and expenses of attorneys, accountants, architects, engineers, expert witnesses, contractors, consultants and other Persons and costs of transcripts, printing of briefs and records, copying, and other reimbursable expenses charged by any of the foregoing. "Government Entity" means the United States, the State, the City, and any and every other agency, department, commission, rule-making body, bureau, instrumentality and/or political subdivision of government of any kind whatsoever, now existing or hereafter created, now or hereafter having jurisdiction over the Premises, the Land, the Building, and/or the use, occupancy, possession, operation and/or maintenance of the Premises, the Land and/or the Building. "Hazardous Materials" means any materials, substances, fluids, chemicals, gases, or other compounds the presence, use, storage, emission, drainage, leakage, effusion, modification, or disposition of which is prohibited by law or subject by law to specific procedures, controls, or restrictions, or which are otherwise deemed toxic, poisonous, or unsafe. However, "Hazardous Materials" shall not include minor quantities of substances which are used legally in the ordinary course of a business use for office purposes. "HVAC" means the heating, ventilating, and air conditioning equipment servicing the Premises, whether located within the Premises, on the roof of the Premises, or otherwise outside of the Premises. "Indemnitees" means Landlord, Landlord's Affiliates, and each holder of a Senior Encumbrance. "Insurance Requirement" means any rule, regulation, code, or other requirement issued by any fire insurance rating bureau or any body having similar functions and/or any insurance company which has issued a policy of insurance covering the Premises, the Land and/or the Building, as in effect from the date of this Lease through the Expiration Date. "Interest Rate" means a rate per annum equal to the lesser of (a) 4% above the so-called "prime rate" published in the New York City edition of The Wall Street Journal from time to time (or, if such rate shall cease to be published, any similar rate which is publicly announced from time to time by any bank in New York City having total assets in excess of $500 million designated by Landlord in writing); or (b) the maximum rate of interest, if any, which Tenant may legally contract to pay in the State on the applicable obligation. "Landlord" means only the owner (or mortgagee in possession) of the Building for the time being. "Landlord's Affiliates" means (i) any corporation Controlling Landlord and any parent corporation Controlling the same (whether directly or indirectly); (ii) any corporation Controlled by Landlord and any corporation Controlled by the same (whether directly or indirectly); (iii) any Person which acquires substantially all of the assets of Landlord or any corporation into which Landlord may be merged or with 3 which Landlord may be consolidated; and (iv) all Employees of Landlord and of every corporation referred to in (i), (ii) and (iii) above. "Law" or "Laws" means each and every law, rule, regulation, order, ordinance, statute, requirement, code, or executive mandate of any kind whatsoever, present or future, issued by any Government Entity applicable to or affecting the Premises, the Land, the Building, and/or the use, occupancy, possession, operation, and/or maintenance of the Premises, the Land and/or the Building. "Lease Year" means a period of twelve (12) consecutive months during the Lease Term commencing on the Commencement Date; and "Partial Lease Year" means that portion of the Lease Term occurring after the Commencement Date and ending prior to the commencement of the first full Lease Year or occurring after the end of the last full Lease Year and through the Expiration Date (or any earlier date on which this Lease may otherwise terminate in accordance with its terms, covenants, conditions, and provisions). "Legal Proceeding" means every action, litigation, summary proceeding, arbitration, administrative proceeding, and other legal or equitable proceeding of any kind whatsoever. "Lien" means any and every lien of any kind whatsoever for the furnishing (or alleged furnishing) of (or on account of) labor, materials, services, facilities, or any other things whatsoever. "Non-Structural Alterations" means painting, wallpapering, the installation of carpeting, bookcases, shelves, partitions, non-load bearing walls, paneling, furniture or moveable fixtures, or the hanging of pictures or other decorative items which can be removed without permanent damage to the applicable surface, or computer/telecommunications wiring or re-wiring within the Premises which does not affect Building Systems. "Overtime Hours" means hours other than Business Hours. "Parking Lot" means the parking lot on the Land adjacent to the Building and owned by Landlord and designated by Landlord for common use by tenants and occupants of the Building and their invitees. "Person" means an individual person, corporation, partnership, trust, joint venture, proprietorship, estate or other incorporated or unincorporated enterprise, entity, Government Entity, or organization of any kind whatsoever. "Project" means the Building and all Public Areas. "Public Areas" means those areas of the Building which are not leased to tenants and which are available for common use of tenants, occupants, and their invitees, including (if any), lobby, loading docks and areas, delivery areas, elevators (including freight elevators), escalators, hallways, pedestrian sidewalks, landscaped areas, stairways, lights and lighting facilities, sanitary systems restrooms, Utility installations, the Parking Lot and facilities, cafe/cafeteria and exterior courtyard adjacent thereto, and other areas and improvements provided by Landlord for common use or benefit. "Rent" or "Rents" means, collectively, Fixed Rent and Additional Rent. "Required Insurance" means the insurance coverage required to be provided by Tenant under Article 10. "Restoration" (or "Restore") means and includes any and all repairs, additions, restorations, rebuilding, construction, alterations, improvements and replacements of every kind (whether structural or otherwise). "Senior Encumbrance" means: (a) any and every mortgage now a lien, or hereafter becoming a lien, upon the Land or the Building; and (b) any lease presently or hereafter in effect between Landlord, as lessee or tenant, and any owner of the Land or the Building, which covers or includes the Premises. "State" means the State of Indiana. "Utilities" means gas, water (including water for domestic uses and fire protection), sewer, electricity, light, heat, power, telephone, and telecommunications, data transmission, water filtration service, other utilities of every kind. Certain other words and phrases are defined elsewhere in this Lease and/or the Exhibits hereto. 1.2. Wherever used in this Lease, (a) the words "include" or "including" shall be construed as incorporating "but not limited to" or "without limitation"; (b) the phrase "at Tenant's expense" means at the sole and exclusive expense of Tenant, who shall be responsible for all costs involved in, or associated with, the applicable matter; and 4 (c) the phrase "in Landlord's judgment" means in Landlord's sole and exclusive discretion and judgment. 1.3. Wherever this Lease imposes any obligation upon Tenant, or provides that Tenant shall be responsible for any action or matter, this Lease shall be construed to mean that Tenant shall perform or undertake the matter at Tenant's expense, unless expressly specified otherwise. ARTICLE 2. Term; Commencement Date; Access. 2.1. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Premises for the Term. 2.2. Landlord hereby grants Tenant (and its employees and contractors) a non-exclusive license for the Term to use the telephone switch room located on the first floor of the Building (the "Telephone Room") for maintenance of Tenant's telephone switch(es) and related equipment. 2.3. Tenant shall have access to the Premises and the Telephone Room 24 hours per day, seven days per week. 2.4. Landlord shall provide Tenant's officers and employees with a key, card key, access code or other type of access to the Building, the Premises, the computer room and the Telephone Room and shall maintain such access system in good repair. Landlord shall program the elevator to restrict access to the second floor of the Building to officers and employees of Tenant and other authorized persons designated by Tenant who are holders of card keys which are programmed to provide access to the Premises. Landlord shall also provide a receptionist in the lobby of the Building during Business Hours to receive and direct Tenant's guests and shall use reasonable efforts to restrict access to the second floor of the Building as directed by Tenant. Landlord shall not grant access to the Premises to other tenants or occupants of the Building (other than Building maintenance and management personnel). ARTICLE 3. Fixed Rent. 3.1. Tenant agrees to pay Fixed Rent to Landlord, without notice or demand, in equal monthly installments in advance on the first day of each and every calendar month during the Term. Tenant shall pay the first monthly installment of Fixed Rent upon execution of this Lease. 3.2. If the Commencement Date falls on any day other than the first day of a calendar month, the installment of Fixed Rent for such calendar month shall be prorated on a per diem basis (and Tenant shall pay such pro-rated installment on the Commencement Date). 3.3. Tenant agrees to pay as additional rent ("Additional Rent") all sums of money, costs, expenses, charges, interest, or fees of every kind or amount whatsoever, other than Fixed Rent, which Tenant has assumed or agreed to pay to Landlord, or which otherwise may become due and payable by Tenant, under this Lease. Additional Rent shall not include, and Tenant shall not be responsible for, any payments on account of real estate taxes or operating expenses for the Building. Unless otherwise specified, Tenant shall pay all Additional Rent within ten (10) days after Landlord's demand. Landlord shall have the same rights (and remedies) under this Lease for Tenant's failure to pay any Additional Rent as for Tenant's failure to pay Fixed Rent. 3.4. Tenant shall pay Fixed Rent and all Additional Rent in lawful money of the United States by unendorsed check payable to Landlord drawn on a bank located within the continental United States. 3.5. Tenant shall pay Fixed Rent and all Additional Rent to Landlord at the Rent Payment Address or at such other place as Landlord may designate by notice to Tenant from time to time. 3.6. Tenant shall pay all Fixed Rent and Additional Rent promptly when due and payable, without notice or demand, and without offset, deduction, credit, abatement, or counterclaim of any kind or for any reason whatsoever unless, however, specifically permitted elsewhere in this Lease. 3.7. If Tenant fails to pay any installment of Fixed Rent or any amount of Additional Rent for more than ten (10) days after the same is due, Tenant shall pay, with the delinquent sum, (a) a late charge equal to 5% of such delinquent installment and (b) interest thereon at the Interest Rate from the date when due through the date of payment. 3.8. If Tenant fails to make any payment required by this Lease (other than Fixed Rent), or if Tenant fails to keep or perform any other term, covenant, condition or provision of this Lease, or if this Lease provides in any case that Landlord may take certain actions at Tenant's expense, Landlord may (at Landlord's election) make any such payment and/or take such action as Landlord deems necessary or desirable (in Landlord's judgment) to perform and fulfill such term, covenant, condition or provision. In any such event, Tenant agrees to reimburse Landlord, upon demand, for any such payment, and/or for all amounts so paid or incurred by Landlord (including all Fees-And-Costs), together with interest on each such amount at the Interest Rate from the date of Landlord's demand. 3.9. If any Fixed Rent or any Additional Rent shall be or become uncollectible by virtue of any Laws, Tenant shall enter into such agreement or agreements and take such other action as Landlord may request to permit Landlord to collect 5 the maximum Fixed Rent and Additional Rent which may, from time to time during the continuance of such restriction, be legally permissible (but not in excess of the amounts due under this Lease). Upon the termination of such restriction, (a) Fixed Rent and Additional Rent shall become payable in accordance with the terms of this Lease and (b) Tenant shall pay Landlord, if legally permissible, an amount equal to the Fixed Rent and Additional Rent which would have been payable hereunder but for the restriction, less the amounts paid by Tenant to Landlord during the period that such rent restriction was in effect. ARTICLE 4. HVAC; Building Systems. 4.1. Landlord shall provide, maintain and repair the Building Systems. 4.2. Landlord shall furnish HVAC to the Premises during Business Hours via the Building Systems. At Tenant's request, Landlord shall furnish HVAC to the Premises during Overtime Hours, at no additional cost to Tenant, provided Tenant requests such service before 3:00 p.m. on the day for which service is requested (or by 3:00 p.m. on the preceding Business Day if service is requested for a day other than a Business Day). 4.3. Landlord shall provide passenger elevator service to the Premises on Business Days during Business Hours. Landlord shall have one passenger elevator subject to call at other times. Elevator service shall be on a non-exclusive basis and shall be subject to temporary cessation for ordinary repair and maintenance and during times when life safety systems override normal building operating systems. 4.4. There shall be one freight elevator on call on a "first come", "first served" basis during Business Hours and Overtime Hours, at no additional cost to Tenant, subject to temporary cessation for ordinary repair and maintenance and during times when life safety systems override normal building operating systems and further subject to the Building Rules and Regulations. 4.5. Landlord shall furnish water to the Premises for ordinary lavatory, drinking, pantry and space cleaning purposes. If Tenant uses water for other purposes or excessive quantities ("Extra Water"), Tenant shall pay Landlord's actual cost for Extra Water. 4.6. Tenant shall not discharge (or allow discharge of) foreign or Hazardous Materials into the water or sewer systems of the Building or in violation of Laws. 4.7. Landlord shall cause janitorial services to be provided to the Premises, at no additional cost to Tenant, in a manner that Landlord reasonably deems to be consistent with the standards of comparable office buildings in the market area of the Building. 4.8. Tenant shall notify Landlord in writing, promptly after learning of the same, of defects or problems in the Building Systems or in services to be furnished by Landlord under this Lease. 4.9. Landlord shall make available to Tenant space in the Building directory in the lobby on terms reasonably acceptable to Landlord. 4.10. Landlord represents and warrants that the electrical power currently supplied to the Premises via the Building Systems is adequate to continue the current level of operations and use of the Premises. To the extent the services described in this Article 4 require electricity and water supplied by public utilities, Landlord's covenants thereunder shall only impose on Landlord the obligation to use its reasonable efforts to cause the applicable public utilities to furnish same, provided however, that Landlord shall permit Tenant to use all of the then existing Building Systems, feeders, risers, wiring, and pipes to receive such services. Except for the willful misconduct or negligence of Landlord and as set forth in Section 4.11 below, failure by Landlord to furnish the services described herein, or any cessation thereof, shall not render Landlord liable for damages to either person or property, nor be construed as an eviction of Tenant, nor work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. In addition to the foregoing, should any of the equipment or machinery, for any cause, fail to operate, or function properly, Tenant shall have no claim for rebate of rent or damages on account of an interruption in service occasioned thereby or resulting therefrom; provided, however, Landlord agrees to use reasonable efforts to promptly repair said equipment or machinery and to restore said services during normal business hours. 4.11. Notwithstanding anything to the contrary in this Lease, however, if the Premises, or any portion thereof, shall be rendered untenantable due to Landlord's failure to perform its obligations under this Lease and/or provide the services required hereunder for any reason within Landlord's reasonable control for a period of five consecutive Business Days or more, then the Fixed Rent and Additional Rent payable hereunder shall be abated until the date upon which the condition causing the untenantability is cured and the Premises is restored to substantially the same condition as it existed, or if applicable, the date of restoration of substantially the same level of service, prior to the occurrence of the condition which rendered the Premises (or portion) untenantable; and provided, further, that if, for any reason whatsoever (including Landlord's actions or failure to perform and/or force majeure) (i) a substantial portion of the Premises shall be rendered untenantable and Tenant is entitled to an abatement pursuant to the above and the same continues for 6 forty-five (45) days after Landlord received notice of such untenantable condition (except due to Damage, in which event the provisions of Article 14 shall govern), then Tenant shall be entitled to terminate this Lease, by giving Landlord written notice of its election to terminate within ten (10) days after the expiration of said forty-five (45) day period (time being of the essence). ARTICLE 5. Use. 5.1. The Premises shall be occupied and used by Tenant solely and exclusively for the Permitted Use, and Tenant shall not use or permit or suffer the use of the Premises for any other purpose whatsoever. 5.2. Tenant agrees that Tenant: (a) will not permit the use of any part of the Premises for any unlawful purpose; (b) will not permit the Premises to be used for disreputable or pornographic purposes or for activities which would be deemed obscene under applicable Laws; or (c) will not cause or allow any waste, disfigurement or damage, to the Premises. ARTICLE 6. Compliance with Laws and Insurance Requirements. 6.1. At Tenant's expense, Tenant shall comply with all Laws and Insurance Requirements, applicable during the Term, except however to the extent such Laws and Insurance Requirements relate to Landlord's obligations under this Lease and such compliance requires repairs or Alterations to the Premises. 6.2. To the extent permitted by Law, Tenant may in good faith contest, at Tenant's expense and by appropriate proceedings, the validity or effect of any Law. 6.3. Notwithstanding Section 6.2, Tenant shall not use or occupy the Premises in violation of the certificate of occupancy issued for the Premises. If any Government Entity shall give notice that the Premises are being used in violation of such certificate of occupancy, Tenant shall, upon five (5) days written notice from Landlord, discontinue such use of the Premises. ARTICLE 7. Alterations and Installations. 7.1. Tenant shall not undertake any Alteration, whether voluntarily or in connection with a Restoration required by this Lease, unless Tenant complies with this Article. 7.2. Tenant shall not commence any structural Alteration without Landlord's prior written consent. Notwithstanding the foregoing, however, Landlord's consent shall not be required for any Non-Structural Alteration provided that the cost of performing such non-structural alteration shall not exceed $25,000.00 and shall not cause the aggregate of all such alterations in any 12-month period to exceed $50,000.00. 7.3. Landlord will not unreasonably withhold or delay consent to an Alteration (when such consent is required) except, however, with regard to any Alteration which will: (a) alter or affect the proper functioning of the Building Systems or the structure, facade, roof, or foundation of the Building; (b) detract from the use or character of the Premises; (c) require amendment of any certificate of occupancy for the Premises; or (d) require the consent of any insurer under any Required Insurance or any other policy of insurance covering the Premises or the holder of a Senior Encumbrance. 7.4. With respect to every Alteration (except with regard to Non-Structural Alterations), Tenant shall cause all necessary designs, plans and specifications for a proposed Alteration to be prepared at Tenant's expense by an architect (or engineer, if appropriate) licensed by the State and shall submit the same to Landlord for Landlord's review. With respect to every Alteration (except with regard to Non-Structural Alterations not requiring Landlord's consent), such designs, plans and specifications shall be subject to Landlord's written approval which Landlord will not unreasonably withhold or delay. Landlord's approval (if given) shall not imply that the Alteration is properly designed or complies with Laws. 7.5. With respect to every Alteration: (a) Tenant shall procure or cause to be procured all permits, approvals, consents, licenses and filings of any kind required by Laws; (b) Tenant shall obtain (and pay any additional costs for) the consent of any insurer to such Alteration if such consent is required to keep any Insurance Policy in full force and effect; (c) Tenant shall undertake, prosecute, and complete all work in connection with the Alteration continuously and expeditiously and in a good and workerlike manner; 7 (d) Any contractor employed by Tenant (and all subcontractors) shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld, delayed or conditioned, and shall agree to employ only such labor as will not result in jurisdictional disputes or strikes or cause disharmony with other workers employed at the Building. (e) Tenant shall pay each contractor, as the work progresses, the entire cost of supplying the materials and performing the work shown on Tenant's approved plans and specifications for an Alteration, subject to a reasonable retainage (and to resolution of disputes provided that no liens are filed against the Premises). (f) Tenant shall cause the Alteration to be installed or constructed in compliance with Laws. (g) Tenant agrees that each Alteration will: (i) be of good quality and free from faults and defects, latent or otherwise; (ii) be free of Liens; (iii) conform to the plans and specifications approved by Landlord; and (iv) be fit for the intended use and purpose. (h) Tenant and Tenant's contractors shall allow access for inspection by Landlord's representatives at all reasonable times. (i) Tenant shall obtain all necessary asbestos certifications (if any) and comply with all Laws regarding the removal, handling, or treatment of Hazardous Materials in connection with any Alteration. (j) With respect to any Alteration, Tenant shall pay Landlord, upon demand, Fees-And-Costs incurred by Landlord for review by architects and/or engineers of Tenant's Alteration plans. 7.6. Landlord shall not be responsible for any labor or materials furnished to Tenant or for delays of any kind experienced by Tenant's contractors or subcontractors. No Lien for any labor, materials, or other services or things furnished to Tenant shall attach to or affect Landlord's estate or interest in the Premises. Tenant agrees to discharge, at Tenant's expense (whether by payment, bonding, or otherwise) every Lien filed against the Premises for work or materials claimed to have been furnished to Tenant, within thirty (30) days after receiving notice thereof. Tenant shall require that all contractors and subcontractors engaged in connection with Tenant's Alterations indemnify the Indemnitees against any and all loss, cost, liability, claim, damage, or expense (including Fees-and-Costs) paid or incurred by any Indemnitee, or asserted against any Indemnitee, for bodily injury, disease, or death to persons, or damage to property, by reason of the acts or omissions of Tenant or Tenant's contractors or subcontractors or by reason of their failure to comply with Laws. ARTICLE 8. Fixtures and Equipment; Tenant's Property. 8.1. Any Alterations made and installed by Landlord (or at Landlord's expense) shall be Landlord's property and shall remain upon the Premises (and be surrendered by Tenant) at the end of the Term. 8.2. All Alterations made and installed by Tenant (or at Tenant's expense) in or upon the Premises which are of a permanent nature and cannot be removed without damage to the Premises shall become Landlord's property and shall remain upon (and be surrendered by Tenant) at the end of the Term. However, except to the extent as Landlord may have otherwise agreed in writing, Landlord shall have the right, by written notice given to Tenant to require Tenant to remove any of such Alterations and, in such event, Tenant will remove the same and restore the Premises to its original condition prior to the Expiration Date, excepting only ordinary wear and tear. In addition, at Landlord's option, Tenant shall also be responsible for removing all wires and cables installed by Tenant in the Premises and other portions of the Building to serve Tenant's telecommunications and computer systems in the Premises and the removal of such wires and cables shall be effected by Tenant without damage to the Building and without interference with the business or operations of Landlord or any other tenant of the Building. 8.3. Tenant shall have the right during the Term to use any and all furniture, furnishings, trade fixtures and equipment in the Premises as of the Commencement Date. All furniture, furnishings, trade fixtures and equipment otherwise furnished by Tenant or at Tenant's expense shall be the property of Tenant which Tenant shall remove prior to the Expiration Date. 8.4. If any Alterations or other property which Tenant may or must remove under Sections 8.2 or 8.3 are not removed prior to the expiration or termination of this Lease for any cause whatsoever or upon the Tenant being dispossessed by process of law or otherwise, such alterations, effects, personalty and equipment shall, at Landlord's option, be deemed conclusively to be abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without written notice to Tenant or any other party and without obligation to account for them. Tenant shall pay Landlord on demand any and all expenses incurred by Landlord in the removal of such property, including, without 8 limitation, the cost of repairing any damage to the Building caused by the removal of such property and storage charges (if Landlord elects to store such property). 8.5. Tenant shall repair all damage to the Premises resulting from the installation, moving, or removal of any property (or shall reimburse Landlord, upon demand, for Landlord's cost of repairing any such damage if Tenant fails to do so). This Section shall survive any termination of this Lease. ARTICLE 9. Maintenance; Repairs. 9.1. Except for obligations of Landlord specifically set forth in this Lease, Tenant shall maintain the Premises in a good, clean, safe, sanitary, and orderly condition. 9.2. Landlord shall maintain: (a) the lobby and other Public Areas of the Building and the exterior of the Building in good, clean and orderly condition (reasonable wear, tear and obsolescence excepted); and (b) the Building Systems in good working order and repair. 9.3. Any work or repairs by Tenant required or permitted with respect to the Premises under this Lease shall be of good quality. If Tenant fails to make any such required repairs within a reasonable time after written notice from Landlord (not to exceed thirty (30) days), or to promptly commence and diligently prosecute such repairs within a reasonable time if the same cannot be completed within thirty (30) days, Landlord may (but shall not be obligated to) effect the repairs at Tenant's expense and collect the cost thereof, upon demand, as Additional Rent, with interest at the Interest Rate from the date of Landlord's payment. 9.4. Tenant shall Restore promptly all Damage or injury to the Premises caused by the acts or omissions of Tenant or Tenant's Employees or invitees. 9.5. Tenant shall not place a load upon any floor of the Premises exceeding the floor load which such floor was designed to carry and which is allowed by Laws. Business machines and mechanical equipment used by Tenant which cause vibration, noise, cold or heat shall be placed and maintained by Tenant in settings of cork, rubber or spring-type vibration eliminators sufficient to absorb and prevent such vibration or noise, or prevent transmission of such cold or heat. ARTICLE 10. Required Insurance. 10.1. At Tenant's expense, Tenant shall secure and keep in force the following "Required Insurance" at all times during the Term: (a) commercial liability insurance (including contractual liability coverage recognizing this Lease) covering the Premises and Tenant's occupancy thereof, with coverage limits not less than the Liability Limit; and (b) "all-risk" insurance protecting against all risk of physical loss or damage to Tenant's personal property, in amounts not less than the actual replacement cost of Tenant's trade fixtures, furnishings, wall coverings, floor coverings, drapes, computers and other equipment and other personal property located within the Premises. 10.2. Landlord, at its expense, shall secure and keep in force at all times during the Term, "all-risk" casualty insurance, on an extended coverage basis, protecting against all risk of physical loss or Damage to the Premises and the Building from fire, windstorm, and other casualties customarily covered by risk insurance, in an amount at least equal to the full replacement value of the Building. 10.3. All Required Insurance shall be evidenced by valid and enforceable policies issued by companies licensed to do business in the State. (Each policy providing Required Insurance is referred to in this Lease as an "Insurance Policy".) All Insurance Policies shall name Landlord the holder of every Senior Encumbrance and such other parties reasonably designated by Landlord as an additional insured. Tenant shall furnish Landlord, within thirty (30) days after the date of this Lease and thereafter at Landlord's request from time to time, with original insurance certificates or copies of original policies evidencing such coverage. The minimum limits of the comprehensive general liability policy of insurance shall in no way limit or diminish Tenant's liability under Article 23 of this Lease. All Required Insurance shall be written on the "occurrence", and not on the "claims made", basis. 10.4. Each Insurance Policy shall provide that the insurer shall not cancel or amend such Insurance Policy, or reduce any coverage, without thirty (30) days' prior written notice to Landlord (whether or not such provision is obtainable only by payment of an additional premium). 10.5. All policies of insurance carried by Landlord and Tenant shall include, if available without additional premium, a waiver by the insurer of all rights of subrogation against Landlord or Tenant in connection with any loss or damage thereby insured against. Neither party (nor its agents, Employees or guests) shall be liable to the other for loss or damage caused by any risk covered by such insurance, to the extent that policies are obtainable with such waiver of subrogation. If insurance policies with such waivers are available only at extra premium, the insured party will give written notice to the other, who may pay the extra premium for such waiver within thirty (30) days after the giving of such notice; and the insured party will then secure the waiver of 9 subrogation. If the release of either Landlord or Tenant in this Section contravenes any law respecting exculpatory agreements, the party purportedly released hereunder shall not be released; but such party's liability shall be secondary to that of the other party's insurer. 10.6. Prior to the Commencement Date, Tenant shall deliver to Landlord certificates or, at Landlord's request, copies of the original policies, evidencing that all Required Insurance shall be in full force and effect as of the Commencement Date. Tenant shall cause each of its contractors to comply with this Section 10.6 prior to entry upon the Premises for the purpose of performing any work. 10.7. Thirty (30) days prior to the expiration of any Insurance Policy, Tenant shall deliver to Landlord certificates or, at Landlord's request, original policies evidencing renewal or replacement of such Insurance Policy. If Tenant fails to deliver such certificates or pay the premiums, Landlord may procure and pay for the renewal or replacement policies after ten (10) days' notice to Tenant. Any such payments by Landlord shall constitute Additional Rent due and payable by Tenant upon demand, with interest at the Interest Rate from the date of Landlord's payment. 10.8. Tenant and Landlord shall cooperate with each other and with the holders of any Senior Encumbrances in connection with collection of any insurance monies. 10.9. Tenant shall not do or permit to be done any act or thing upon the Premises which will invalidate or contravene any Insurance Policy or be in conflict with any Insurance Requirements, or prevent Landlord from obtaining insurance, or increase the rate of fire insurance applicable to the Building; and Tenant shall neither do nor permit to be done any act or thing upon the Premises which will or might subject Landlord to any liability or responsibility for injury to any Person or to property. 10.10. Tenant shall reimburse Landlord, as Additional Rent upon demand, for all increases of Landlord's insurance premiums resulting from violations of Tenant's obligations under Section 10.9. In any Legal Proceeding involving the cost of insurance, a schedule or "make-up" of rates issued by the body making insurance rates for the Premises shall be presumptive evidence of the items and charges taken into consideration in fixing the insurance rates then applicable to the Premises. 10.11. Except to the extent resulting or arising from Landlord's negligence, Landlord and Landlord's Affiliates shall not be liable for, and Tenant waives all claim for, any injury or damage to Persons or property resulting from any equipment or appurtenances in disrepair, Landlord's failure to keep the Building and Premises in repair, fire, explosion, falling plaster, broken glass, steam, gas, electricity, water, wind, rain, snow or other natural elements, or leaks from any part of the Building, or from the pipes, appliances, tanks, plumbing, roof, street, or subsurface, or the backing up of any sewer pipe or drain downspout, or from any other place, or by dampness or steam, or from theft or other criminal activity, or from the acts or omissions of other tenants or occupants or owners of nearby properties, or any other cause of whatsoever nature (excluding however, any of the foregoing resulting directly from elective work in the Premises performed by Landlord or Landlord's contractors). ARTICLE 11. Damage; Restoration. 11.1. Tenant shall notify Landlord in writing of any Damage to the Premises or the Building promptly after Tenant learns of the same. 11.2. In event of Damage to the Building or the Premises, Landlord shall Restore the Damaged area and repair or replace Landlord's personal property in the Premises as nearly as possible to the value, condition and character of the same immediately before the Damage, subject, however, to Sections 9.4 and 11.3. 11.3. If the Building is so Damaged (whether or not the Premises are Damaged) as to require, for Restoration, a reasonably estimated expenditure of more than 30% of the value of the Building as actually insured under Landlord's insurance policies immediately prior to such Damage, and Landlord elects not to Restore the Building, Landlord may terminate this Lease by notice to Tenant within 120 days after the date of such Damage. 11.4. In event of Damage to the Building or the Premises, if Landlord is obligated to repair the same under Section 11.2 but has not completed the required repairs within 270 days after the date of such Damage and if the Damage has deprived (and then continues to deprive) Tenant of reasonable access to the Premises or the use and enjoyment of more than 10% of the Premises, Tenant may terminate this Lease by written notice to Landlord given within 30 days after the end of such 270 days. 11.5. If Landlord or Tenant terminates this Lease pursuant to Section 11.3 or 11.4, this Lease shall expire as of the date of Landlord's or Tenant's notice, as if such date were the Expiration Date. Upon such date, Tenant shall quit, surrender and vacate the Premises as if upon expiration of the Term; and all Rents shall be apportioned as of such date (subject to Section 11.6). 11.6. If the Premises become unusable by Tenant for more than five consecutive Business Days from Damage to the Premises or the Building (except any Damage caused by the acts or omissions of Tenant or its Employees or invitees), Tenant shall receive an abatement of Fixed Rent and 10 Additional Rent from the date of the Damage to the date when such Damage is Restored. Such abatement shall be proportional to the ratio which the square footage of the Damaged area of Premises bears to the total square footage of the Premises. 11.7. This Article shall be considered an express agreement governing Damage to the Premises and/or the Building; and (to the extent permitted by law) any statute purporting to govern in such cases, now or subsequently in force, shall have no application under this Lease. ARTICLE 12. Condemnation. 12.1. If the entire Premises is Condemned or taken in Condemnation, this Lease shall terminate and expire as of the effective date of such Condemnation. 12.2. If more than 15% of the usable area of the Land on which the Building has been constructed (excluding adjacent Land not necessary to the operation or maintenance of the Building), the Parking Lot, and/or the Building shall be Condemned (whether or not the Premises are Condemned), Landlord may terminate this Lease by notice to Tenant within 90 days after the effective date of such Condemnation; and this Lease shall terminate on the date specified in Landlord's notice (which shall be at least 60 days after the date of such notice). 12.3. Subject to Section 12.2, if part (but not all) of the Premises is Condemned, this Lease shall terminate with respect only to the portion of the Premises so Condemned, as of the effective date of such Condemnation. In all other respects this Lease shall remain in effect except that Rents shall be reduced, after such date, in the proportion which the square footage of the area so Condemned bears to the Premises. 12.4. Notwithstanding Section 12.3, if more than 10% of the Premises is Condemned, or if there is a Condemnation of a substantial part of the means of access to the Premises, Tenant may terminate this Lease by notice to Landlord given within 90 days after the effective date of such Condemnation; and this Lease shall terminate 30 days after the giving of Tenant's notice. 12.5. In event of any Condemnation of the Land, the Building or the Premises, whether or not this Lease terminates, Landlord shall be entitled to the entire award and compensation, without deduction for any estate vested in Tenant by this Lease (or any value attributable thereto). Tenant hereby assigns to Landlord Tenant's entire interest (if any) in or to any such award and compensation (other than Tenant's claim for statutory moving expenses, if any); and Tenant agrees to execute and file, at Landlord's expense, all documents and instruments necessary or desirable to facilitate Landlord's collection of such award and compensation. 12.6. If this Lease terminates in whole or in part under this Article, the effect shall be the same (as to the affected portion of the Premises) as if the date of such Condemnation were the Expiration Date; and Rents shall be apportioned as of such date. ARTICLE 13. Public Areas; Conference Rooms; Parking Lot. 13.1. The Public Areas shall be subject to Landlord's management. Landlord may establish, amend, and enforce reasonable rules concerning the Public Areas and the Premises (the "Building Rules") from time to time. The current Building Rules are attached hereto as Exhibit C. Any modifications, amendments or additions to the Building Rules shall be subject to Tenant's reasonable approval. 13.2. Tenant and its Employees and invitees shall have the non-exclusive right, in common with Landlord (and others to whom Landlord has granted or may in the future grant rights), to use the Public Areas subject to the Building Rules and Landlord's rights as set forth above. Landlord may close any Public Areas temporarily at any time to make repairs or changes, to prevent the acquisition of public rights, and for other reasonable purposes. 13.3. Tenant shall have the right to use the conference rooms located on the first floor of the Building (the "Conference Rooms") subject to availability during Business Hours and Overtime Hours for a reasonable fee to be agreed to between Landlord and Tenant. Landlord and Tenant agree that the initial fee for using each room shall be $100.00 per room per day or any portion of such day. Tenant shall have the right to use the cafe/cafeteria in the Building for Tenant's exclusive use for special events subject to availability during Overtime Hours for a reasonable fee to be agreed to between Landlord and Tenant. Landlord and Tenant agree that the Initial Fee for such use of the cafe/cafeteria shall be $200.00 per day or any portion of such day. Tenant shall cause such areas to be cleaned and restocked, as necessary, promptly after the completion of Tenant's use thereof at Tenant's sole cost expense. In the event that Tenant fails to comply with the terms of this Section 13.3 and such other reasonable rules and regulations of Landlord relating to the use of such areas, Landlord shall be permitted to terminate Tenant's use rights of such areas under this Section 13.3 only. 13.4. Tenant and its employees, guests, and invitees shall have the nonexclusive right to use up to 120 parking spaces in the Parking Lot. Notwithstanding anything to the contrary in this Lease, Landlord agrees that during the Term, the Parking Lot shall be operated on a "first come", "first served" basis and that Landlord shall not create "reserved" parking spots in 11 the Parking Lot in addition to those spots currently designated as "reserved". 13.5. Tenant agrees and acknowledges that Landlord shall not have any obligation to continue operation of the cafe/cafeteria or to otherwise provide any food service facilities or services at the Building and that Tenant shall have no claim whatsoever against Landlord or any other policy in the event of the cessation of such operation. ARTICLE 14. Signs. 14.1. Tenant shall have the right to install and maintain at Tenant's expense a panel on the pylon sign on the Land identifying the occupant(s) of the Premises. Landlord shall have the right to approve the location, materials, dimensions, and design of such signage which approval shall not to be unreasonably withheld or delayed. ARTICLE 15. Landlord's Access to Premises; Related Matters. 15.1. Tenant shall permit Landlord to erect, use and maintain pipes, ducts and conduits in and through the Premises, provided the same are installed adjacent to or concealed behind walls and ceilings of the Premises. To the extent reasonably practicable, Landlord shall install such pipes, ducts and conduits by methods and in locations which will not materially interfere with or impair Tenant's layout or use of the Premises. 15.2. Landlord shall be allowed to bring into and store upon the Premises all necessary materials, equipment, tools, facilities, and supplies to be used for any work permitted or required under this Lease without the same constituting an actual or constructive eviction of Tenant; and Rents shall not abate while said repairs or alterations are being made except as otherwise provided in this Lease. Landlord shall exercise reasonable diligence to minimize disturbance to Tenant during any such work but need not perform any work on an overtime or premium pay basis. 15.3. Landlord reserves the right, without the same constituting an actual or constructive eviction and without incurring liability to Tenant, to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, if any, stairways, toilets and/or other public parts of the Building, if any; provided, however, that there shall be no obstruction of access to the Premises or interference with Tenant's use or enjoyment of the Premises. 15.4. Tenant authorizes Landlord and Landlord's Employees to enter the Premises during Business Hours on at least 24 hours prior notice (provided that such prior notice shall not be required in emergency situations) (a) to inspect the Premises; and/or (b) to perform any maintenance or to make any repairs, alterations, or improvements which Landlord deems necessary to the Premises or which are otherwise permitted under this Lease (including any work required under Article 9 which Tenant has failed to perform or make). Landlord shall not enter the Premises unless accompanied by a representative of Tenant except in case of emergency. 15.5. Landlord shall repair any damage to property caused by willful acts or gross negligence of Landlord or Landlord's Employees. 15.6. Tenant agrees to permit Landlord and/or any Employee of Landlord to enter the Premises during Business Hours, on at least 24 hours prior notice and so long as accompanied by a representative of Tenant, to exhibit the Premises in connection with: (a) any prospective sale or lease of the Land and/or the Building; or (b) any prospective securing, refinancing, or assignment of any mortgage affecting the Land or the Building; and/or (c) during the final twelve (12) months of the Term, any prospective leasing of the Premises. 15.7. If, during the last month of the Term, Tenant has removed all of Tenant's Property, Landlord may (at Landlord's option but without any liability to do so) immediately enter and alter, renovate and redecorate the Premises, without abatement or adjustment of any Rents or incurring liability to Tenant for any compensation; and such acts shall have no effect upon this Lease. ARTICLE 16. Subordination: Estoppel Certificate; Attornment. 16.1. This Lease (as amended, modified, extended, or otherwise revised from time to time), and the leasehold estate created hereby, are now and shall hereafter be subject and subordinate in every respect to all Senior Encumbrances. This subordination shall be self-operative without requirement of any further instrument of subordination from any Person to whom (or to whose interest) this Lease, and leasehold estate created hereby, are subordinate. However, if and whenever requested by Landlord or the holder of any Senior Encumbrance, Tenant shall execute and deliver within ten (10) days of such request any certificate or instrument requested to evidence such subordination. 16.2. Upon request of any present or future or prospective fee owner or the holder of any Senior Encumbrance who succeeds to the rights of Landlord hereunder, whether through 12 conveyance pursuant to sale, possession, foreclosure action, expiration or earlier termination of any ground lease, or otherwise (any such Person, a "New Landlord"), Tenant shall attorn to and recognize each New Landlord as "Landlord" under this Lease (as the same may then have been amended or modified); and Tenant shall promptly execute and deliver any instrument which each New Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease (as then amended, modified, extended, or otherwise revised) shall continue in full force and effect as, or as if it were, a direct lease between New Landlord and Tenant; except, however, that any New Landlord shall not: (a) be liable for any previous act or omission of Landlord under the Lease, or any claim which shall have previously accrued to Tenant against any prior Landlord, except, however, to the extent that such act or omission or claim is continuing; or (b) be bound by any prepayment to any prior Landlord of more than one month's Fixed Rent or Additional Rent, unless the New Landlord shall have approved the prepayment in writing; or (c) be subject to any offsets, claims, defenses, or counterclaims which Tenant might have against any prior Landlord. 16.3. At either party's request from time to time, Landlord or Tenant, as applicable, shall, within ten (10) days of such request, execute, acknowledge and deliver to the other party a written statement (each such statement, an "Estoppel Certificate") certifying that, except as specifically disclosed in such Estoppel Certificate, on the date thereof: (a) attached to the Estoppel Certificate is a true, correct and complete copy of this Lease, including any and all amendments and modifications thereof; (b) there are no agreements other than this Lease (and, except as attached hereto, no amendments, modifications, extensions, or other revisions of this Lease) in effect between Tenant and Landlord (or Tenant and any other Person) with respect to the Premises; (c) this Lease is valid and in full force and effect and to such party's knowledge, such party has no setoffs, claims or defenses of any kind whatsoever to enforcement of this Lease; (d) to such party's knowledge, such party has no claim, demand, cause of action or right to institute any Legal Proceeding against the other party arising out of or by virtue of this Lease or by reason of Tenant's occupancy and use of the Premises. In each Estoppel Certificate, such party shall certify, also, the amount of Fixed Rent then payable under this Lease, the amounts (and elements) of Additional Rent (if any) then payable and the dates to which the same has been paid, and such other matters as Landlord or Tenant or the holder of any Senior Encumbrance may reasonably request. Tenant agrees that a prospective purchaser or mortgagee of Landlord's interest in this Lease, the Premises, the Building, and/or the Land, or the holder of any Senior Encumbrance (or the assignee of any such Person), may rely upon such an Estoppel Certificate. 16.4. If the holder of any Senior Encumbrance requests reasonable modifications in this Lease as a condition to approval of any financing or refinancing of the Land or the Building, Tenant will not unreasonably withhold or delay making any requested modifications which do not increase Fixed Rent or Additional Rent, impose additional liabilities on Tenant, or shorten or extend the Term or otherwise reduce Tenant's rights or increase Tenant's obligations under this Lease. 16.5. Except for the first month's Fixed Rent, Tenant will pay no Rents under this Lease more than thirty (30) days in advance of the due date. 16.6. Tenant will not exercise any right (or alleged right) to terminate this Lease based upon any alleged act or omission of Landlord, unless Tenant first gives written notice of such act or omission to the holder of each Senior Encumbrance (provided Tenant has received written notice of and contact information for such holder) and until a reasonable period to remedy such act or omission elapses after the giving of such notice (during which time such holder shall have the right, but no obligation, to remedy the alleged act or omission). Tenant agrees, further, not to exercise any such right if the holder of any such Senior Encumbrance commences to cure such act or omission within a reasonable time after such notice and diligently prosecutes such cure to completion. ARTICLE 17. Surrender of Premises. 17.1. Upon the expiration of the Term or any earlier termination of this Lease, Tenant shal l quit and surrender to Landlord the Premises, broom clean, in the condition required under this Lease, excepting ordinary wear and tear and Damage (other than Damage caused by the willful misconduct or negligence of Tenant or its Employees). This Section shall survive the expiration of the Term or any earlier termination of this Lease. 17.2. If Tenant holds over after the Expiration Date (or any earlier termination of this Lease) without Landlord's written consent, at Landlord's election, such holding over shall be deemed a month-to-month tenancy subject to all of the terms, covenants and conditions herein specified and terminable on 13 thirty (30) days' prior written notice, provided, however, that Fixed Rent shall be $50,000 per month (i.e., 125% of the amount set forth in the Business Terms section of this Lease). ARTICLE 18. Assignment, Mortgaging, Subletting, etc. 18.1. Except as otherwise expressly provided in this Article, Tenant shall not, without obtaining the prior written consent of Landlord (which consent shall not be unreasonably withheld or delayed) in each instance: (a) assign or otherwise transfer this Lease, or any part of Tenant's right, title or interest therein; (b) sublet all or any part of the Premises or allow all or any part of the Premises to be used or occupied by any other Persons; or (c) mortgage, pledge or otherwise encumber this Lease, or the Premises. For purposes of this Article: (w)the transfer of more than fifty percent (50%) of any class of capital stock of any corporate tenant or subtenant, or the transfer of more than fifty percent (50%) of the total interest in any other Person which is a tenant or subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease, or of such sublease, as the case may be, except however, that such transfer shall not be deemed an assignment (and shall not require Landlord's consent) if such transfer is for a bona fide business purpose and not a device for the transfer of Tenant's interest in this Lease and Tenant so certifies to Landlord; (x) an agreement by any other Person, directly or indirectly, to assume Tenant's obligations under this Lease (or to reimburse Tenant for any Rents payable under this Lease) shall be deemed an assignment; (y)any Person to whom Tenant's interest under this Lease passes by operation of law, or otherwise, shall be bound by the provisions of this Article; and (z) each modification, amendment or extension of any sublease to which Landlord has previously consented shall be deemed a new sublease. Tenant agrees to furnish to Landlord upon demand at any time such information and assurances as Landlord may reasonably request that neither Tenant, nor any previously permitted subtenant, has violated the provisions of this Article. 18.2. Any assignment, whether made with or without Landlord's consent (as required by Section 18.1), shall not be effective, and shall be null and void as against Landlord, unless and until the assignee shall execute, acknowledge and deliver to Landlord an agreement, in form and substance reasonably satisfactory to Landlord, under which the assignee assumes the obligations and performance of this Lease and agrees to be bound personally by all of the covenants, agreements, terms, provisions and conditions hereby on the part of Tenant to be performed or observed on and after the effective date of any such assignment. ARTICLE 19. Quiet Enjoyment. 19.1. Upon paying Fixed Rent and Additional Rent and keeping and performing the terms, covenants, conditions and provisions of this Lease, Tenant may lawfully and quietly hold and enjoy the Premises during the Term SUBJECT, HOWEVER, to the terms, covenants, conditions, and provisions of this Lease. ARTICLE 20. Real Estate Brokers. 20.1. Tenant covenants, represents and warrants that Tenant has had no dealings with any real estate broker, finder, or sales agent in connection with the negotiation and execution of this Lease. 20.2. Tenant agrees to indemnify and hold Landlord harmless from and against any commission or fee claimed by any real estate broker, finder, or other Person with respect to the negotiation or execution of this Lease if such claim(s) are based in whole or in part on dealings with Tenant (or by, through, or under any Person claiming to have had such dealings). Tenant's indemnity shall cover, also, all Fees-And-Costs which Landlord incurs to defend against any such claim. 20.3. Landlord agrees to indemnify and hold Tenant harmless from and against any commission or fee claimed by any real estate broker, finder, or other Person with respect to the negotiation or execution of this Lease if such claim(s) are based in whole or in part on dealings with Landlord (or by, through, or under any Person claiming to have had such dealings). Landlord's indemnity shall cover, also, all Fees-And-Costs which Tenant incurs to defend against any such claim. ARTICLE 21. Adjacent Excavation; Shoring; Construction. If excavation, foundation, other substructure or superstructure work, or other construction work shall be made or authorized in, on or upon land adjacent to the Premises, the Land and/or the Building, Tenant shall afford to the Person causing (or authorized to cause) such excavation or construction, license to enter the Premises to do such work as necessary to preserve the walls of the Building from injury or 14 damage, and to support the same by proper foundations, without any claim for damages or indemnity against Landlord, or diminution or abatement of Rents. ARTICLE 22. Defaults; Conditional Limitations; Remedies. 22.1. Each of the following events shall be a "Default" under this Lease: (a) Tenant fails to pay any installment of Fixed Rent or Additional Rent within five days after written notice from Landlord, provided that such notice and cure period shall be afforded to Tenant only two times in any consecutive 12-month period; (b) Tenant admits, in writing, that Tenant is unable to pay Tenant's debts as such become due; (c) Tenant makes an assignment for the benefit of creditors; (d) Tenant files a voluntary petition in bankruptcy or a petition is filed against Tenant and an order for relief is entered, or Tenant files any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law, or Tenant seeks or consents to or acquiesces in or suffers the appointment of any trustee, receiver or liquidator of Tenant or of the Premises (or Tenant's interest therein) or of all or any substantial part of Tenant's properties; (e) Within sixty (60) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law, such proceeding is not dismissed; within sixty (60) days after the appointment (without the consent or acquiescence of Tenant) of any trustee, receiver or liquidator of Tenant or of all or any substantial part of Tenant's properties or of the Premises (or Tenant's interest therein), such appointment is not vacated or stayed on appeal or otherwise, or within sixty (60) days after the expiration of any such stay, such appointment shall not have been vacated; (f) Tenant sublets the Premises (or any part thereof) or mortgages, pledges, assigns, transfers, or otherwise disposes of this Lease (or any part of Tenant's right, title, and interest hereunder) without complying with all requirements of this Lease; (g) Tenant fails to secure or maintain any Required Insurance; (h) A levy under execution or attachment is made against Tenant or Tenant's property and is not vacated or removed by court order, bonding or otherwise within thirty (30) days thereafter; (i) Tenant uses (or permits the use of) the Premises in violation of the certificate of occupancy for the Premises after five (5) days' written notice from Landlord; and/or (j) Tenant fails to keep or perform any other term, covenant, condition, or provision of this Lease, and such failure continues for thirty (30) days after written notice from Landlord - unless such failure is susceptible of cure and requires work to be performed, acts to be done, or conditions to be removed which cannot be performed, done or removed within such thirty (30) days, in which case the Default shall not be deemed to exist as long as Tenant: (i) advises Landlord by written notice within ten (10) days after Landlord's notice that Tenant intends to take all steps necessary to remedy such failure with due diligence and specifies a reasonable date by which all steps will have been completed which date shall not be more than ninety (90) days after Tenant's notice; (ii) duly commences curing the same within such period; (iii) diligently and continuously prosecutes to completion all steps necessary to remedy the same and prior to the date specified by Tenant for the completion thereof. 22.2. If and whenever any Default occurs, at Landlord's option, Landlord may give written notice to Tenant (the "Termination Notice"), stating that this Lease and the Term shall expire and terminate on the date specified in such Termination Notice (which date shall be not less than ten (10) days after the giving of the Termination Notice). In such event, this Lease and the Term (and Tenant's entire right, title, and interest therein) shall expire and terminate as if the date specified in the Termination Notice were the Expiration Date; and Tenant shall quit and surrender the Premises but shall remain liable as provided in this Lease. 22.3. If and whenever any Default occurs, and/or if this Lease and the Term terminate under Section 22.2 or otherwise, Landlord may without notice re-enter and repossess the Premises using such lawful force for that purpose as may be necessary without being liable to indictment, prosecution or damages; and Tenant shall remain liable as provided in this Lease. If Landlord so re-enters, at its option, and whether or not this Lease and the Term have terminated, Landlord may: 15 (a) repair and alter the Premises in such manner as Landlord may deem necessary or desirable without relieving Tenant of any liability whatsoever under this Lease; and/or (b) let or relet the Premises (or any parts thereof) for the whole or any part of the remainder of the Term or for a longer period, in Landlord's name or as agent of Tenant, and pay and apply all rents and other sums thus collected or received as follows: (i) first, to all costs and expenses (including all Fees-And-Costs which Landlord pays or incurs in terminating this Lease, re-entering, retaking, repossessing, repairing and/or altering the Premises, and removing all Persons and property therefrom; (ii) second, to all costs and expenses which Landlord incurs in securing any new tenant(s) of the Premises (including in such costs brokerage commissions and expenses of preparing the Premises for reletting, and all Fees-And-Costs), and, if Landlord maintains the Premises, all costs and expenses of maintaining the Premises, including utilities); and (iii) third, any balance of Rents and other amounts then remaining on account of Tenant's liability to Landlord under this Lease. In no case shall re-entry by Landlord, whether under summary proceedings or otherwise, absolve or discharge Tenant from any liability whatsoever under this Lease. 22.4. If Tenant Defaults and/or if this Lease and the Term terminate under Section 22.2 or otherwise, and/or if Landlord re-enters the Premises under Section 22.3 or by any summary proceeding or other Legal Proceeding, then, in any of such events: (a) Tenant shall pay Landlord all Fixed Rent and Additional Rent due under this Lease to the date upon which this Lease and the Term have terminated or to the date of re-entry upon the Premises by Landlord, as the case may be; and (b) Tenant shall pay Landlord, also, as damages, any deficiency (a "Deficiency") between (i) the Fixed Rent and all Additional Rent reserved in this Lease for the period which otherwise would have constituted the unexpired portion of the Term and (ii) the amount, if any, of rents actually collected by Landlord under any reletting effected pursuant to Section 22.3(c) for any part of such period (after deducting from such collections all Fees-and-Costs and other amounts paid or incurred by Landlord pursuant to Section 22.3. Tenant shall pay any Deficiency in installments on the days specified in this Lease for payments of Fixed Rent. Landlord shall be entitled to recover from Tenant each Deficiency installment as the same arises; and no Legal Proceeding to collect any Deficiency installment shall prejudice Landlord's right to collect any subsequent installment by a similar or other Legal Proceeding. Whether or not Landlord collects any unpaid Deficiency installments under (b) above, Tenant shall pay Landlord, on demand, in lieu of any further Deficiency, as and for liquidated and agreed final damages (it being agreed that it would be impractical or extremely difficult to fix the actual damages), a sum equal to the amount by which Fixed Rent and Additional Rent reserved in this Lease for the period which otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Premises for the same period, both discounted to present worth at the rate of four (4%) per cent per annum. If, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Premises (or any party thereof) shall have been relet for the period which otherwise would have constituted the unexpired portion of the Term, the amount of rent reserved upon such reletting shall be deemed prima facie the fair and reasonable rental value for the part or the whole of the Premises so relet during the term of such reletting. 22.5. Landlord may bring Legal Proceedings from time to time, at Landlord's election, for the recovery of damages, or for a sum equal to any installment or installments of Fixed Rent or Additional Rent or any Deficiency or other sum payable by Tenant to Landlord pursuant to this Article; and nothing in this Lease shall require Landlord to await the originally scheduled Expiration Date for any such purpose. 22.6. No receipt of moneys by Landlord from Tenant after the giving of a Termination Notice, or after a termination of this Lease, shall reinstate, continue or extend the Term or affect any Termination Notice or other written notice previously given to Tenant, or operate as a waiver of Landlord's right to enforce payment of Fixed Rent or Additional Rent then or subsequently becoming due, or operate as a waiver of Landlord's right to recover possession of the Premises. Tenant agrees that after the giving of a Termination Notice or commencement of summary proceedings or other Legal Proceeding, or after final order or judgment for possession of the Premises, Landlord may demand, receive and collect all moneys without invalidating or rescinding such Termination Notice, proceeding, order, suit or judgment; and at Landlord's election, all moneys so collected shall be deemed payments either on account of the use and occupancy of the Premises or on account of Tenant's liability hereunder. 22.7. If Tenant is dispossessed by judgment or warrant of any court, or in the event of re-entry or repossession by Landlord or in the event of expiration or any termination of 16 this Lease, Tenant (on behalf of Tenant and all Persons claiming by, through, or under Tenant) hereby expressly waives to the fullest extent permitted by law (a) service of any notice of intention to re-enter now or hereafter provided by law, or of commencement of Legal Proceedings for such purpose; (b) any and all right of redemption now or hereafter provided by law; and (c) any re-entry or repossession or right to restore the Term or legal continuance of this Lease. 22.8. Landlord and Tenant hereby waive trial by jury in any Legal Proceeding brought by either against the other with respect to any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claims of injury or damage. 22.9. No failure by Landlord or Tenant to insist upon the strict performance of any covenant, agreement, term or condition of this Lease or to exercise any right or remedy after any Default, and no acceptance of full or partial Fixed Rent or Additional Rent during the continuance of any Default shall constitute a waiver of any such covenant, agreement, term, condition, or Default. No covenant, agreement, term or condition of this Lease to be performed or complied with by Tenant, and no Default, shall be waived, altered or modified except by a written instrument executed by Landlord. 22.10. In event of any Default, or any actual or threatened breach by either party of any term, covenant, condition or provision of this Lease, the other party shall be entitled to enjoin such Default or actual or threatened breach and shall have the right to invoke all rights and remedies allowed at law or in equity as though this Lease did not provide for re-entry, summary proceedings, or other remedies. 22.11. Each right and remedy of Landlord in this Lease shall be cumulative and in addition to every other right or remedy in this Lease, or now or hereafter existing at law or in equity; and the exercise (or beginning of exercise) by Landlord of any one or more rights or remedies shall not preclude the simultaneous or later exercise by Landlord of any and all other rights or remedies. ARTICLE 23. Indemnification. 23.1. Tenant hereby agrees, to the fullest extent permitted by law, to indemnify each and every Indemnitee and hold each and every Indemnitee harmless from and against (and to pay the full amount of) all loss, liability, obligation, damage, penalty, tax, cost, claim, demand, judgment, charge, or expense of every kind whatsoever which any Indemnitee may suffer, incur, or pay out, or which may be asserted against any Indemnitee, in whole or in part, by reason of, or in connection with: (a) Tenant's use, occupancy, management or control of the Premises, or Tenant's operations, conduct or activities in the Premises; (b) any Legal Proceeding by Landlord to terminate the Lease, or any other Legal Proceeding by Landlord against Tenant, in which Landlord secures a judgment against Tenant, final beyond appeal, or in which Landlord receives any payment from Tenant pursuant to any written settlement agreement disposing of such Legal Proceeding; (c) any Default by Tenant in the observance or performance of any obligation under the Lease; (d) any bodily injury, sickness, disease or death of or to any person or persons, or any Damage to or of the Premises, (or to property of any other Person), resulting (or alleged to result) from any acts or omissions of Tenant or Tenant's Employees; (e) any failure of Tenant to comply with Laws or Insurance Requirements; (f) any failure of Tenant to secure and maintain Required Insurance (or any loss of coverage under any Required Insurance); and/or (g) any other appearance by Landlord (or any Employee of Landlord) as a witness or otherwise in any Legal Proceeding whatsoever involving or affecting Tenant or this Lease. 23.2. Tenant shall defend any and all Legal Proceedings commenced against Landlord by any Person (other than Tenant) concerning any matter covered by any indemnity or obligation under Section 23.1 (regardless of any alleged fault or cause). Tenant shall deliver to Landlord copies of documents served in any such Legal Proceeding and, whenever requested by Landlord, shall advise as to the status of such Legal Proceeding. If Tenant fails to defend diligently any such Legal Proceeding, or if Landlord elects to defend by written notice to Tenant at any time, Landlord shall have the right (but no obligation) to defend the same at Tenant's expense. Tenant shall not settle any such Legal Proceeding without Landlord's prior written consent unless such settlement (i) provides solely for the payment of money by the Tenant, (ii) provides a complete release of the Landlord from all matters that were or could have been asserted in connection with such Legal Proceedings and (iii) does not involve any finding or admission of any violation of law or any violation of the rights of any Person and does not affect any other claims that may be made against the Landlord. 23.3. Tenant's indemnities and obligations under Sections 23.1 and 23.2 shall cover and include all Fees-And-Costs 17 incurred by Landlord in connection with any and every matter and amount referred to in Sections 23.1 and 23.2, as well as Fees-And-Costs incurred by Landlord to enforce Landlord's rights and remedies under this Article. Tenant shall pay all such Fees-And-Costs to Landlord upon demand. 23.4. Tenant shall notify Landlord immediately of every Legal Proceeding or claim which may or might be covered by any indemnity under this Article 23 and/or by any Required Insurance. Tenant shall also give timely notice of such Legal Proceedings and claims to each insurer which has issued an applicable policy of Required Insurance. ARTICLE 24. Notices. All notices, requests, demands, elections, consents, approvals and other communications hereunder must be in writing (each such, a "notice") and addressed to the parties at their Notice Addresses (or to any other address which either party may designate by notice). Any notice required by this Lease to be given or made within a specified period of time, or on or before a date certain, shall be deemed to have been duly given only if delivered by hand, evidenced by written receipt, or mailed by first class, certified or registered mail, return receipt requested, postage and fees prepaid. A notice sent by certified or registered mail (as above) shall be deemed given two (2) Business Days after mailing. All other notices shall be deemed given when received. ARTICLE 25. No Waivers. 25.1. No agreement to accept a surrender of this Lease shall be valid unless in writing signed by Landlord. No Employee of Landlord shall have any power to accept the keys of the Premises prior to the Expiration Date. The delivery of keys to any Employee of Landlord shall not operate as a termination of this Lease or a surrender of the Premises. If Tenant at any time desires to have Landlord sublet the premises for Tenant's account, Landlord or Landlord's Employees are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this Lease. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or any of the Rules and Regulations (now or hereafter in effect) shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. 25.2. This Lease contains the entire agreement between the parties, and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. ARTICLE 26. No Representations by Landlord; Landlord's Interest; Transferee Landlords. 26.1. Tenant agrees that Landlord and Landlord's Employees have made no representations or promises with respect to the Land, the Building, the Premises, or any terms, covenants, conditions, or provisions of this Lease, except as expressly set forth in this Lease; and, except as expressly set forth in this Lease or in that certain Stock and Asset Purchase Agreement entered into between Landlord and Capital Assurance Corporation as of February 9, 2005. Tenant accepts the Premises "as is" in the condition existing on the date of this Lease. 26.2. Tenant agrees to look solely to Landlord's interest in the Premises for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord (or Landlord's Affiliates), in the event of any liability by Landlord, and no other property or assets of Landlord (or Landlord's Affiliates) shall be subject to levy, execution, attachment, or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of the Premises, or any other liability of Landlord (or Landlord's Affiliates) to Tenant. 26.3. In the event of any transfer of title to the Land or the Building, or in the event of a lease of the Building, or of the Land and Building, upon written notification to Tenant of such transfer or lease the transferor Landlord shall be released from future covenants, obligations and liabilities of Landlord under this Lease accruing or arising thereafter; and it shall be deemed a covenant running with the land that the transferee or lessee, as applicable, has assumed and agreed to carry out any and all covenants, obligations and liabilities of Landlord under this Lease accruing or arising after such event. ARTICLE 27. Consent to Jurisdiction. Tenant hereby agrees that any Legal Proceeding with respect to this Lease may be brought in the courts of the State. Tenant hereby accepts with regard to any such Legal Proceeding, for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Nothing in this Article shall affect Landlord's rights to commence Legal Proceedings or otherwise proceed against Tenant in any other jurisdiction in which assets of Tenant are located or to serve process in any other manner permitted by applicable law. Tenant agrees that final judgment in any such Legal Proceeding shall be conclusive and, to the extent permitted by applicable law, may be enforced in any other jurisdiction within or outside the United States by suit on the judgment (a 18 certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of Tenant's indebtedness). ARTICLE 28. Termination of Current Lease. 28.1. That certain Office Building Lease dated December 28, 2001 (the "Prior Lease") entered into between Landlord and Tenant with respect to the Premises, is terminated effective as of the Commencement Date hereof and Landlord represents and warrants that: (a) there are no other leases or occupancy agreements now in effect or pending with respect to the Premises, other than this Lease, and (b) no obligations or liabilities of Tenant (including any obligation to remove or restore or pay for the removal or restoration of any existing improvements in the Premises) under the Prior Lease survive termination of such Prior Lease. ARTICLE 29. Miscellaneous. 29.1. This Lease shall be governed by and construed in accordance with the laws of the State of Indiana (without giving effect to principles of conflicts of laws). This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Unless otherwise specifically provided in this Lease, each covenant, agreement, obligation or other provision of this Lease to be performed by Tenant shall be deemed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. The captions of this document are for convenience and do not define, limit or describe the scope of this Lease or the intent of any provisions thereof. 29.2. Any interest payable by Tenant under this Lease shall be at the Interest Rate, unless otherwise provided. If and whenever Tenant is in arrears in payment of Fixed Rent or Additional Rent, Tenant waives Tenant's right (if any) to designate the items against which any payments made by Tenant are to be credited; and Tenant agrees that Landlord may apply any payments by Tenant, in Landlord's judgment, among amounts owed by Tenant to Landlord, notwithstanding any specific designation or request by Tenant. 29.3. All Exhibits, Schedules, and Riders to this Lease form part of this Lease and are incorporated in this Lease. 29.4. The terms, covenants, conditions, and provisions of this Lease shall bind and inure to the benefit of Landlord and Tenant and, subject to Article 18, their respective legal representatives, successors, and assigns. 29.5. No remedy or election of Landlord under this Lease shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity. 29.6. If any term, covenant, condition or provision of this Lease (or the application thereof) shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Lease shall not be affected thereby; and each remaining term, covenant, condition and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 29.7. Landlord's acceptance of any name for listing on the Building directory or signage will not be deemed, nor will it substitute for, Landlord's consent, as required by this Lease, to any sublease, assignment, or other occupancy of the Premises. 19 IN WITNESS WHEREOF, LANDLORD AND TENANT HAVE RESPECTIVELY EXECUTED THIS LEASE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN. LANDLORD: STANDARD MANAGEMENT CORPORATION By: /s/ Ronald D. Hunter --------------------------------------------- Name: Ronald D. Hunter Title: Chairman and Chief Executive Officer TENANT: STANDARD LIFE INSURANCE COMPANY OF INDIANA By: /s/ Stephen M. Coons --------------------------------------------- Name: Stephen M. Coons Title: Executive Vice President and Secretary Exhibit A The Premises A portion of the first and the entire second floor of the Building comprising approximately 22,294 square feet as shown on the floor plans attached hereto as Exhibit A-1. E-A-1 Exhibit A-1 [Attach] E-A-1-1 Exhibit B BUILDING RULES AND REGULATIONS 1. WINDOW TREATMENTS, SIGNS AND EXTERIOR APPEARANCE: No signs, pictures, advertisements or notices visible from the exterior of the Premises shall be installed, affixed, inscribed, painted or otherwise displayed by Tenant on any part of the Premises or the Building unless the same is first approved by Landlord. Any such sign, picture, advertisement or notice approved by Landlord shall be painted or installed for Tenant at Tenant's cost by Landlord or by a party approved by Landlord. No awnings, curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with any window or door of the Premises without the prior consent of the Landlord, including approval by the Landlord of the quality, type, design, color and manner of attachment. In the event of any breach of the foregoing, Landlord may remove the applicable item, and Tenant agrees to pay the cost and expense of such removal and associated repairs. 2. ELECTRICAL LOAD: Tenant agrees that its electrical load shall never exceed the capacity of existing feeders, risers or wiring installation if a specific capacity is described in Section 4.10 of the Lease. Any wires and wiring installed by or on behalf of Tenant within any riser of the Building shall be bundled together within such riser and a tag shall be placed on such bundle at each floor of the Building identifying the floor(s) served by each bundle and the name and telephone number of a representative of Tenant to contact in the case of an emergency. 3. APPROPRIATE USES FOR INTERIOR AND EXTERIOR SPACE: The interior and exterior of the Premises shall not be used for storage of any types of materials other than business related items in designated areas to be determined by Landlord. Tenant shall not do or permit to be done in or about the Premises or Building anything which shall increase the rate of insurance on said Building or obstruct or interfere with the rights of other lessees of Landlord or annoy them in any way, including, but not limited to, using any musical instrument, making loud or unseemly noises, or singing, etc. The Premises shall not be used for sleeping or lodging. No cooking or related activities shall be done or permitted by Tenant in the Premises except with permission of Landlord. Tenant will be permitted to use for its own employees within the Premises a refrigerator, a small microwave oven and Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations, and provided that such use shall not result in the emission of odors from the Premises into the common area of the Building. No vending machines of any kind will be installed, permitted or used on any part of the Premises without the prior consent of Landlord. No part of said Building or Premises shall be used for gambling, immoral or other unlawful purposes. No intoxicating beverage shall be sold in said Building or Premises without prior written consent of the Landlord. 4. ANIMALS AND VEHICLES: No birds or animals of any kind shall be brought into the Building (other than trained assist dogs required to be used by the visually impaired). No bicycles, motorcycles or other motorized vehicles shall be brought into the Building. 5. APPROPRIATE USE OF BUILDING. The sidewalks, entrances, passages, corridors, halls, elevators, and stairways in the Building shall not be obstructed by Tenant or used for any purposes other than those for which same were intended as ingress and egress. No windows, floors or skylights that reflect or admit light into the Building shall be covered or obstructed by Tenant and no articles shall be placed on the windowsills of the Building. Toilets, wash basins and sinks shall not be used for any purpose other than those for which they were constructed, and no sweeping, rubbish, or other obstructing or improper substances shall be thrown therein. Any damage resulting from the Tenant's or its employees' misuse of the building shall be borne by Tenant. 6. KEYS AND LOCKS: Only one key for each office in the Premises will be furnished Tenant without charge. Landlord may make a reasonable charge for any additional keys. No additional lock, latch or bolt of any kind shall be placed upon any door nor shall any changes be made in existing locks without written consent of Landlord and Tenant shall in each such case furnish Landlord with a key for any such lock. At E-B-1 the termination of the Lease, Tenant shall return to Landlord all keys furnished to Tenant by Landlord, or otherwise procured by Tenant, and in the event of loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof. 7. HEAVY ARTICLES AND FREIGHT: Landlord shall have the right to prescribe the weight, position and manner of installation of heavy articles such as safes, machines and other equipment brought into the Building. Tenant shall not allow the building structure within the Premises, nor shall Tenant cause the elevators of the Building, to be loaded beyond rated capacities. No safes, furniture, boxes, large parcels or other kind of freight shall be taken to or from the Premises or allowed in any elevator, hall or corridor except upon prior notice to Landlord. Tenant shall make prior arrangements with Landlord for use of freight elevator for the purpose of transporting such articles and such articles may be taken in or out of said Building during Business Hours and otherwise as reasonably approved by Landlord. Landlord reserves the right to inspect and, where deemed appropriate by Landlord, to open all freight coming into the Building and to exclude from entering the Building all freight which is in violation of any of these Rules and Regulations and all freight as to which inspection is not permitted. No hand trucks, mail carts, floats or dollies shall be used in passenger elevators. All hand trucks, mail carts, floats or dollies used by Tenant or its service providers for the delivery or receipt of any freight shall be equipped with rubber tires. 8. BUILDING AIR QUALITY: Tenant shall not cause or permit any gases, liquids or odors to be produced upon or permeate from the Premises, and no flammable, combustible or explosive fluid, chemical or substance shall be brought into the Building. Tenant shall prevent inadequate ventilation from and will assure proper operation of any HVAC systems and/or office equipment under Tenant's control, and Tenant will not allow any unsafe levels of chemical or biological contaminants in the Premises and will take all steps necessary to prevent the release of such contaminants from adhesives, machinery, and cleaning agents. Tenant shall cooperate in all respects with Landlord regarding the management of the indoor air quality in the Building and in connection with the development and implementation of an indoor air quality management plan for the Building. Smoking will not be permitted in any common areas of the Building or the Project or in any premises within the Building. If Tenant shall assert that the air quality in the Premises is unsatisfactory or if Tenant shall request any air quality testing within the Premises, Landlord may elect to cause its consultant to test the air quality within the Premises and to issue a report regarding same. If the report from such tests indicates that the air quality within the Premises is comparable to the air quality of other first-class office buildings in the market area of the Building, or if the report from such tests indicates that the air quality does not meet such standard as a result of the activities caused or permitted by Tenant in the Premises, Tenant shall reimburse Landlord for all costs of the applicable tests and report. Additionally, in the event Tenant shall cause or permit any activity that shall adversely affect the air quality in the Premises, in the common area of the Building or in any premises within the Building, Tenant shall be responsible for all costs of remedying same. 9. HOURS OF OPERATION AND ACCESS: The Building's normal hours of operation will be from 8:00 a.m. to 6:00 p.m. - Monday through Friday. All non-building personnel (i.e., visitors, guests, vendors, and/or contractors) will only be allowed access to the Building through its Southeast entrance and will be required to sign in at the Security Desk. A call will be placed to the appropriate party announcing their guest has arrived. On all weekends and national holidays, the Building will be closed. Notwithstanding the Building's normal hours of operation, Tenant and its employees shall have the right to enter the Building and Premises with card access twenty-four hours per day, seven days per week (including weekends and national holidays). 10. SERVICE CONTRACTS: Unless agreed to in writing by Landlord, Tenant shall not employ any person other than Landlord's contractors for the purpose of cleaning and taking care of the Premises. Cleaning service will not be furnished on nights when rooms are occupied after 6:30 p.m., unless, by agreement in writing, service is extended to a later hour for specifically designated rooms. Only persons authorized by the Landlord may furnish ice, drinking water, towels, and other similar services within the Building and only at hours and under regulations fixed by Landlord. 11. MAINTENANCE: Connection shall not be made to the electric wires or gas or electric fixtures, without the consent in writing on each occasion of Landlord. All glass, locks and trimmings in or upon the doors and E-B-2 windows of the Premises shall be kept whole and in good repair. Tenant shall not injure, overload or deface the Building, the woodwork or the walls of the Premises, nor permit upon the Premises any noisome, noxious, noisy or offensive business. 12. ELECTRICAL WORK: If Tenant requires wiring for a bell or buzzer system, such wiring shall be done by any of the electricians indicated on the list of contractors approved by Landlord attached hereto, and no other electrician shall be allowed to do work of this kind unless by the written permission of Landlord or its representatives, such permission not to be unreasonably withheld, delayed or conditioned. If telegraph or telephonic service is desired, the wiring for same shall be approved by Landlord, and no boring or cutting for wiring shall be done unless approved by Landlord or its representatives, as stated. The electric current shall not be used for space heaters unless written permission to do so shall first have been obtained from Landlord or its representatives in writing, and at an agreed cost to Tenant. 13. PARKING AND VEHICLES: Tenant and its employees and invitees shall observe and obey all parking and traffic regulations as imposed by Landlord. All vehicles shall be parked only in areas designated by Landlord. 14. SOLICITATION: Canvassing, peddling, soliciting and distribution of handbills or any other written materials in the Building are prohibited, and Tenant shall cooperate to prevent the same. 15. WASTE RECYLCLING PROGRAMS: Tenant agrees to participate in the waste recycling programs implemented by Landlord for the Building, including any programs and procedures for recycling writing paper, computer paper, shipping paper, boxes, newspapers and magazines and aluminum cans. If Landlord elects to provide collection receptacles for recyclable paper and/or recyclable aluminum cans in the Premises, Tenant shall designate an appropriate place within the Premises for placement thereof, and Tenant shall cause its employees to place their recyclable papers and/or cans into the applicable such receptacles on a daily basis. 16. SPECIAL WORK OR SERVICES: Any special work or services requested by Tenant to be provided by Landlord shall be provided by Landlord only upon request received at the Building Operations and Security Services office. Building personnel shall not perform any work or provide any services outside of their regular duties unless special instructions have been issued from Landlord or its managing agent. 17. CHANGING THE BUILDING'S NAME OR STREET ADDRESS: Landlord shall have the right to change the name of the Building and to change the street address of the Building, provided that in the case of a change in the street address, Landlord shall give Tenant not less than 180 days' prior notice of the change, unless the change is required by governmental authority. 18. SUPPLEMENTAL RULES AND REGULATIONS. These Rules and Regulations are supplemental to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building. 19. ADDITIONAL RULES AND REGULATIONS: Landlord reserves the right to make such other and reasonable Rules and Regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Project and/or the Building, and for the preservation of good order therein. E-B-3 List of Permitted Contractors EX-10.11 4 g00463exv10w11.txt EX-10.11 EMPLOYEMENT AGREEMENT EXHIBIT 10.11 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made and entered into as of June 1, 2004 (the "Effective Date"), by and between U.S. Health Services Corporation, a Delaware corporation, (the "COMPANY"), Standard Management Corporation, an Indiana corporation, (the "GUARANTOR"), and Martial R. Knieser, M.D., an individual, (the "EXECUTIVE"). RECITALS WHEREAS, the Company desires to hire Executive and Executive desires to become employed by the Company; and WHEREAS, the Company and Executive have determined that it is in their respective best interest to enter into this Agreement on the terms and conditions as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. 2. DUTIES. Executive shall serve as President, and such other positions as may be mutually agreed upon by Executive and the Board of Directors of the Company (the "Board"). Executive shall perform all reasonable duties assigned by the Chairman and the Board and agrees to be subject to the general supervision, orders, advice and direction of the Chairman and the Board. 3. EXTENT OF SERVICES. During the term of Executive's employment hereunder, Executive shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not be otherwise employed. Notwithstanding the above, Executive may serve as a director or trustee of other organizations, may practice medicine, or engage in charitable, civic, and/or governmental activities provided that such service and activities do not prevent Executive from performing the duties required of Executive under this Agreement and further provided that Executive obtains written consent for all such activities from the Company, which consent will not be unreasonably withheld. Executive may engage in personal activities, including, without limitation, personal investments, provided that such activities do not interfere with Executive's performance of duties hereunder and/or the provisions of Executive's written agreements with the Company. 4. TERM. Subject to the provisions for termination in Section 8 below, the initial term of employment of Executive under this Agreement shall be two (2) years from and after the Effective Date (the "INITIAL TERM"). This Agreement shall automatically renew annually for successive one (1) year periods (the "RENEWAL TERM," and together with the Initial Term, the "EMPLOYMENT TERM"), unless the Company or Executive elects not to renew this Agreement by serving written notice of such intention not to renew on the other party at least ninety (90) days prior to the succeeding Effective Date. If such an election is made, this Agreement shall be in full force and effect for the remaining portion of the then-current one (1) year period, subject to the provisions for termination in Section 8 of this Agreement. 5. COMPENSATION AND BENEFITS. 5.1 BASE SALARY. In consideration of the services rendered to the Company hereunder by Executive and Executive's covenants hereunder, the Company shall, during the Employment Term, pay Executive a salary at the annual rate of Three Hundred Fifty Thousand Dollars ($350,000) (the "BASE SALARY"), less statutory deductions and withholdings, payable in accordance with the Company's regular payroll practices. Executive may receive annual salary increases based upon his performance in his executive and management capacity. The amount of such salary increases shall be determined by the Board or the Compensation Committee of the Board (the "COMPENSATION COMMITTEE"). 5.2 BONUS. In addition to base salary, within ninety (90) days after the end of each calendar year of the Company, Executive shall be entitled to receive a bonus equal to one percent (1%) of the Company's earnings, on a consolidated basis, before interest and taxes for such calendar year of the Company; provided, however, that no bonus shall be paid unless the Company earns a profit for the calendar year, and provided further that Executive must be actively employed by the Company on December 31 of the calendar year for which the bonus is to be paid. The bonus shall be calculated from the books and records of the Company and its affiliates, which shall be kept in accordance with generally accepted accounting principles applied by the Company in the preparation of its financial statements. In addition to the bonus described above, Executive may receive additional bonuses based upon his performance in his executive and management capacity. Whether to award such bonus increases and the amounts thereof shall be determined solely by the Board or the Compensation Committee. 5.3 BENEFITS PACKAGE. During the Employment Term, Executive shall be entitled to participate in such employee benefit plans and insurance programs offered by the Company, from time to time for its executive, management or supervisory personnel generally, at such time as Executive shall have fulfilled the eligibility requirements for participation therein. 5.4 VACATION. Executive shall be entitled to four (4) weeks' paid vacation each year of the Employment Term. 5.5 EXPENSES. The Company shall, upon receipt from Executive of supporting receipts to the extent required by applicable income tax regulations and the Company's reimbursement policies, reimburse Executive for all out-of-pocket business expenses reasonably incurred by Executive in connection with his employment hereunder. 5.6 LIFE INSURANCE. During the Employment Term, the Company shall at its expense maintain a term life insurance policy or policies on the life of Executive in the 2 face amount of Five Hundred Thousand Dollars ($500,000). Four Hundred Thousand Dollars ($400,000) of the policy or policies is payable to the Company and One Hundred Thousand Dollars ($100,000) of the policy or policies is payable to such beneficiaries as Executive may designate. Following termination or expiration of this Agreement for any reason, for a period of sixty (60) days following the later of (i) termination or expiration of this Agreement and (ii) the date upon which the Company is no longer required to maintain such insurance for the benefit of Executive, Executive shall have the option to purchase from the Company the policy of insurance (other than group insurance) on the life of Executive. The purchase price of such policy shall be equal to the applicable portion of any prepaid premium thereon. 6. STOCK OPTION. Subject to approval by the Board, Executive shall receive an option to purchase a total of 100,000 shares (the "OPTION SHARES") of the Guarantor's common stock (the "OPTION"). The Option shall vest over two (2) years in accordance with the following vesting schedule, and at the closing market price on the Effective Date: 33% on the Effective Date, 33% after Executive's completion of one (1) year of service and the remaining 33% upon Executive's completion of two (2) years of service. 6.1 In the event of Executive's Involuntary Termination (as defined below) following a Change in Control (as defined below), the Option shall automatically accelerate so that the total number of vested Option Shares for which the Option shall be exercisable after taking such acceleration into account, shall be equal to the number of Option Shares in which Executive would have vested under the normal vesting/exercise schedule in effect for the Option had Executive completed service with the Company through the Severance Period (as defined below). (i) An INVOLUNTARY TERMINATION shall mean the termination of Executive's employment by reason of: 1. Executive is terminated by the Company for reasons other than for Cause; or 2. Executive's voluntary resignation following (a) a change in Executive's position with the Company (or Parent or Subsidiary employing Executive) that materially reduces Executive's level of responsibility, or (b) a reduction in Executive's level of compensation (including base salary, bonus and fringe benefits), provided and only if such change or reduction is effected by the Company without Executive's consent, and (ii) A CHANGE IN CONTROL shall be deemed to occur in the event of a change in ownership or control of the Guarantor effected through any of the following transactions: 1. the acquisition, directly or indirectly, by any person or related group of persons (other than the Guarantor or a person that directly or indirectly controls, or is controlled by, or is under common control with, the Guarantor) of beneficial ownership (within the meaning of Rule 13d-3 of the 3 Securities Exchange Act of 1934, as amended) of securities possessing more than fifteen percent (15%) of the total combined voting power of the Guarantor's outstanding securities pursuant to a tender or exchange offer made directly to the Guarantor's stockholders; or 2. the sale, transfer or other disposition of all or substantially all of the Guarantor's assets; or 3. a change in the composition of the Board of Directors of the Guarantor over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or 4. the consummation of a merger or consolidation of the Guarantor with or into another entity or any other corporate reorganization, if more than fifteen percent (15%) of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Guarantor immediately prior to such merger, consolidation or other reorganization. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Guarantor's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Guarantor's securities immediately before such transaction. 6.2 The Option is to remain exercisable for three (3) months following the Involuntary Termination of Executive's employment. 7. TERMINATION. Executive's employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the "TERMINATION DATE"): 7.1 DEATH OR DISABILITY. Immediately upon the death of Executive or a determination by the Company that Executive has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than ninety (90) days, due to a mental or physical illness or incapacity ("DISABILITY") (termination pursuant to this Section 7.1 being referred to herein as termination for "DEATH OR DISABILITY"); or 7.2 VOLUNTARY TERMINATION. Ninety (90) days following Executive's written notice to the Company of termination of employment; provided, however, that the Company may waive all or a portion of the ninety (90) days' notice and accelerate the 4 effective date of such termination (and the Termination Date) (termination pursuant to this Section 7.2 being referred to herein as "VOLUNTARY" termination); or 7.3 TERMINATION FOR CAUSE. Immediately following notice of termination for "CAUSE" (as defined below), specifying such Cause, given by the Company (termination pursuant to this Section 7.3 being referred to herein as termination for "CAUSE"). As used herein, "Cause" means (i) termination based on Executive's conviction or plea of "guilty" or "no contest" to any crime constituting a felony in the jurisdiction in which committed, any crime involving moral turpitude (whether or not a felony), or any other violation of criminal law involving dishonesty or willful misconduct that materially injures the Company (whether or not a felony); (ii) Executive's substance abuse that in any manner interferes with the performance of his duties; (iii) Executive's failure or refusal to perform his duties at all or in an acceptable manner, or to follow the lawful and proper directives of the Chairman, the Board or Executive's supervisor(s) that is not corrected within thirty (30) days after written notice from the Company to the Executive identifying such failure or refusal; (iv) Executive's breach of this Agreement; (v) misconduct by Executive that has or could discredit or damage the Company; (vi) Executive's indictment for a felony violation of the federal securities laws; or (vii) Executive's chronic absence from work for reasons other than illness. 7.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions contained herein, including, but not limited to Section 4 above, the Company may terminate Executive's employment thirty (30) days following notice of termination without Cause given by the Company; provided, however, that during any such thirty (30) day notice period, the Company may suspend, with no reduction in pay or benefits, Executive from his duties as set forth herein (including, without limitation, Executive's position as a representative and agent of the Company) (termination pursuant to this Section 7.4 being referred to herein as termination "WITHOUT CAUSE"). 7.5 OTHER REMEDIES. Termination pursuant to Section 7.3 above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement. 8. SEVERANCE AND TERMINATION. 8.1 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR DISABILITY. In the case of a termination of Executive's employment hereunder for Death or Disability in accordance with Section 7.1 above, or Executive's Voluntary termination of employment hereunder in accordance with Section 7.2 above, or a termination of Executive's employment hereunder for Cause in accordance with Section 7.3 above, (i) Executive shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than Base Salary earned but unpaid, accrued but unused vacation to the extent required by the Company's policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 5.5 hereof incurred by Executive as of the Termination Date, and (ii) the Company's obligations under this Agreement shall immediately cease. 5 8.2 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in this Agreement, in the case of a termination of Executive's employment hereunder Without Cause in accordance with Section 7.4 above, the Company shall pay Executive twelve (12) months' salary (hereinafter the "SEVERANCE PAYMENT"), payable in installments in accordance with the Company's normal payroll practices and subject to the tax withholding specified in Section 5.1 above. The Company shall also provide Executive with health benefits equal to and under the same terms as such benefits were provided to Executive immediately prior to the Termination Date, or pay the same level of premiums for such benefits required of Executive under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter "BENEFIT CONTINUATION"), throughout any period in which Executive receives the Severance Payment under this Section or until Executive receives comparable benefits from any other source, whichever occurs first. Nothing contained herein shall interfere with Executive's right to purchase continuation coverage under COBRA. In the event of Executive's Involuntary Termination following a Change in Control under Section 6.1 of this Agreement, Executive shall be entitled to the Severance Payment and Benefit Continuation set forth in this paragraph, a lump-sum payment equal to two hundred ninety-nine percent (299%) of Executive's then-current base salary as set out in Section 5.1, and the accelerated vesting described in Section 6.1. The Company's obligation to pay and Executive's right to receive the Severance Payment and Benefit Continuation shall cease in the event of Executive's breach of his obligations under Section 9 of this Agreement, as reasonably determined in the sole discretion of the Company. 8.3 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation to provide Executive with the Severance Payment and Benefit Continuation set forth in Section 8.2 is contingent upon Executive's execution of a satisfactory release of all claims in favor of the Company. 6 9. CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION. 9.1 CONFIDENTIALITY. The Executive agrees that he shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Executive's assigned duties and for the benefit of the Company, either during the period of the Executive's employment or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge or data relating to the Company or any of its subsidiaries, affiliated companies or businesses. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Executive; (ii) becomes known to the public subsequent to disclosure to the Executive through no wrongful act of the Executive or any representative of the Executive; or (iii) the Executive is required to disclose by applicable law, regulation or legal process (provided that the Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, the Executive's obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Furthermore, Executive shall deliver promptly to the Company upon termination of his employment, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, software, models, designs, and other documents and computer records (and all copies thereof) relating to the business of the Company or any of its affiliates or subsidiaries, and all property associated therewith, which he may then possess or have under his control. This Agreement supplements and does not supersede Executive's obligations under statute or the common law to protect the Company's or any of its affiliates' or subsidiaries' trade secrets and confidential information. 9.2 NONSOLICITATION. During the Executive's employment with the Company and for the two (2) year period thereafter, the Executive agrees that he will not, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, knowingly solicit, aid or induce (i) any managerial level employee of the Company or any of its subsidiaries or affiliates to leave such employment to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company or knowingly take any action to materially assist or aid any other person, firm, corporation or other entity in identifying or hiring any such employee or (ii) any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer. 9.3 NONCOMPETITION. The Executive acknowledges that he performs services of a unique nature for the Company that are irreplaceable, and that his performance of such services to a competing business will result in irreparable harm to the Company. Accordingly, during the Executive's employment hereunder and for the two (2) year period thereafter (regardless of the reason for the separation), the Executive agrees that the Executive will not: 7 (i) directly or indirectly, own, manage, operate, control, be employed by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation) or render services to any person, firm, corporation or other entity, in whatever form, engaged in any business of the same type as any business in which the Company or any of its subsidiaries or affiliates is engaged on the date of termination or in which they have proposed, on or prior to such date, to be engaged in on or after such date and in which the Executive has been involved to any extent at any time during the 12-month period ending with the date of termination, within the geographical area in which Executive has been performing services on behalf of the Company or for which he has been assigned responsibility at anytime within the twelve (12) months preceding his separation. This Section 9.3(i) shall not prevent the Executive from owning not more than one percent of the total shares of all classes of stock outstanding of any publicly held entity engaged in such business, nor will it restrict the Executive from rendering services to charitable organizations, as such term is defined in Section 501(c) of the Internal Revenue Code. (ii) within the geographical area in which Executive has been performing services on behalf of the Company or for which he has been assigned responsibility at anytime within the twelve (12) months preceding his separation, directly or indirectly in any competitive capacity, work for, advise, manage, or act as an agent or consultant for or have any business connection or business or employment relationship with any entity or person engaged in research, development, production, sale or distribution of a product or service that competes with or is substantially similar to any product or service in research, development or design, or produced, sold or distributed by the Company or any of its subsidiaries or affiliates. (iii) directly or indirectly market, sell or otherwise provide any products or services that are competitive with or substantially similar to any product or service in research, development or design, or produced, sold or distributed by the Company, or any of its subsidiaries or affiliates, to any customer of the Company with whom Executive has had contact (either directly or indirectly) or over which he has had responsibility at any time during the twelve (12) months preceding his separation. 9.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of this Section would be inadequate and, in recognition of this fact, the Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. With respect to any suit, action, or other proceeding for equitable relief under Section 9 of this Agreement, the Company and Executive hereby irrevocably agree to the exclusive personal jurisdiction and venue of the United States District Court for the 8 Southern District of Indiana (and any Indiana State Court within Marion County, Indiana). 9.5 REFORMATION. If it is determined by a court of competent jurisdiction (or the arbitrators pursuant to Section 13.6) that any restriction in this Section 9 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 9.6 SURVIVAL OF PROVISIONS. The obligations contained in this Section 9 shall survive the termination or expiration of the Executive's employment with the Company and shall be fully enforceable thereafter. 10. REPRESENTATIONS AND WARRANTIES BY EXECUTIVE. Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) Executive is not subject to any pending or, to Executive's knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company. Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith. 11. CHANGE IN CONTROL BENEFIT LIMIT. 11.1 BENEFIT LIMIT. The aggregate Present Value (measured as of the Change in Control) of the benefits to which Executive becomes entitled under this Agreement either at the time of the Change in Control or at the time of his subsequent termination of employment (namely, the Severance Payment and Benefit Continuation in Section 8.2 and Option Parachute Payment attributable to his accelerated options) will in all events be limited to the amount (the "BENEFIT LIMIT") that yields Executive the greatest after-tax amount payable to him under this Agreement after taking into account the excise tax (if any) imposed under Code Section 4999 ) on the payments and benefits that are provided Executive under this Agreement or that constitute Other Parachute Payments. 11.2 DEFINITIONS For purposes of applying Code Sections 280(G) and 4999 and the Treasury Regulations thereunder to determine the Benefit Limit in effect under this Section 11.2, the following definitions shall be in effect: CODE means the Internal Revenue Code of 1986, as amended from time to time. OPTION PARACHUTE PAYMENT means, with respect to any of Executive's options accelerated pursuant to this Agreement, the portion of that option deemed to be a parachute payment under Code Section 280G and the Treasury Regulations issued thereunder. The portion of such Option which is categorized as an 9 Option Parachute Payment will be calculated in accordance with the valuation provisions established under Code Section 280G and the applicable Treasury Regulations and will include an appropriate dollar adjustment to reflect the lapse of Executive's obligation to remain in the Company's employ as a condition to the vesting of the accelerated installment. In no event, however, will the Option Parachute Payment attributable to any accelerated option (or accelerated installment) exceed the spread (the excess of the fair market value of the accelerated option shares over the option exercise price payable for those shares) existing at the time of acceleration. OTHER PARACHUTE PAYMENT means any payment in the nature of compensation (other than the benefits to which Executive becomes entitled under this Agreement) which are made to him in connection with the Change in Control and which accordingly qualify as parachute payments within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder. PARACHUTE PAYMENT means any payment or benefit provided Executive under this Agreement (other than the Option Parachute Payment) which is deemed to constitute a parachute payment within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder. PRESENT VALUE means the value, determined as of the date of the Change in Control, of any payment in the nature of compensation to which Executive becomes entitled in connection with the Change in Control or the subsequent termination of his employment, including (without limitation) the Option Parachute Payment attributable to the accelerated vesting of his options and any additional benefits to which Executive becomes entitled under this Agreement. The Present Value of each such payment shall be determined in accordance with the provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one hundred twenty percent (120%) of the applicable Federal rate in effect at the time of such determination, compounded semi-annually to the effective date of the Change in Control. 11.3 RESOLUTION PROCEDURE. In the event there is any disagreement between Executive and the Company as to whether one or more payments to which Executive becomes entitled in connection with either the Change in Control or his subsequent termination of employment constitute Parachute Payments, Option Parachute Payments or Other Parachute Payments or as to the determination of the Present Value thereof, such dispute will be resolved as follows: 10 (i) In the event temporary, proposed or final Treasury Regulations in effect at the time under Code Section 280G (or applicable judicial decisions) specifically address the status of any such payment or the method of valuation therefor, the characterization afforded to such payment by the Regulations (or such decisions) will, together with the applicable valuation methodology, be controlling. (ii) In the event Treasury Regulations (or applicable judicial decisions) do not address the status of any payment in dispute, the matter will be submitted for resolution to the Company's independent auditors ("INDEPENDENT AUDITORS"). The resolution reached by the Independent Auditors will be final and controlling. All expenses incurred in connection with the retention of the Independent Auditors to resolve the dispute shall be shared equally by Executive and the Company. (iii) In the event Treasury Regulations (or applicable judicial decisions) do not address the appropriate valuation methodology for any payment in dispute, the Present Value thereof will, at the Independent Auditor's election, be determined through an independent third-party appraisal, and the expenses incurred in obtaining such appraisal shall be shared equally by Executive and the Company. 11.4 STATUS OF BENEFITS. (i) No Severance Payment or Benefit Continuation will be made to Executive under this Agreement and none of his options shall vest and become exercisable on an accelerated basis hereunder, until the Present Value of the Option Parachute Payment attributable to the accelerated vesting of such options has been determined and the status of any payments in dispute under Section 11.3 has been resolved in accordance therewith. The post-termination exercise period for any options which cannot be exercised by reason of the foregoing limitation shall automatically be stayed and shall not be deemed to run during any period the option remains so unexercisable. (ii) Once the requisite determinations under Section 11.3 have been made, then to the extent the aggregate Present Value, measured as of the Change in Control, of (1) the Option Parachute Payment attributable to the accelerated options (or installments thereof) plus (2) the Parachute Payment attributable to the Executive's Severance Payment and Benefit Continuation under this Agreement would, when added to the Present Value of all of the Executive's Other Parachute Payments, exceed the Benefit Limit, the Executive's Severance Payment will first be reduced, then the Benefit Continuation shall be reduced, and lastly then the number of option shares subject to accelerated vesting shall be reduced (based on their Option Parachute Value) to the extent necessary to assure the Benefit Limit is not exceeded. 11 12. GUARANTEE OF STANDARD MANAGEMENT CORPORATION. The Guarantor unconditionally guarantees the financial obligations of the Company payable to Executive as provided in Sections 5, 6 and 8 in this Agreement. 13. MISCELLANEOUS. 13.1 NOTICES. All notices, requests, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or mailed (postage prepaid by certified or registered mail, return receipt requested) or by overnight courier to the parties at the following addresses or facsimile numbers: If to the Executive, to: Martial R. Knieser, M.D. 9654 Halsey Drive Indianapolis, Indiana 46256 If to the Company, to: U.S. Health Services Corporation 10689 N. Pennsylvania Indianapolis, Indiana 46280 Attn: Ronald D. Hunter, Chairman If to the Guarantor, to: Standard Management Corporation 10689 N. Pennsylvania Indianapolis, Indiana 46280 Attn: Ronald D. Hunter, Chairman All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 13.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 13.1, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 13.1, be deemed given upon receipt (in each case regardless of whether such notice, request, or other communication is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number, or other information for the purpose of notices to that party by giving written notice specifying such change to the other parties hereto. 12 13.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Executive's employment hereunder, is subject to Executive providing the Company with legally required proof of Executive's authorization to be employed in the United States of America. 13.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect thereto. 13.4 WAIVER. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 13.5 AMENDMENT. This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto. 13.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, other than injunctive relief under Section 9.4, shall be settled by binding arbitration in the City of Indianapolis, Indiana, in accordance with the laws of the State of Indiana, by three arbitrators, one of whom shall be appointed by the Company, one by Executive and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States District Court for the Southern District of Indiana. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators, which shall be as provided in this Section. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 13.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or arbitration arising from or relating to this Agreement, the prevailing party in such litigation or arbitration proceedings shall be entitled to recover, from the non-prevailing party, the prevailing party's reasonable costs and attorney's fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled. 13.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and the Company's successors or assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person. 13 13.9 NO ASSIGNMENT; BINDING EFFECT. This Agreement shall inure to the benefit of any successors or assigns of the Company. Executive shall not be entitled to assign his obligations under this Agreement. 13.10 HEADINGS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 13.11 SEVERABILITY. The Company and Executive intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, if a court of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Executive intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance. 13.12 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana applicable to contracts executed and performed in such state without giving effect to conflicts of laws principles. 13.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS] 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above. "EXECUTIVE" /s/ MARTIAL R. KNIESER, M.D. ---------------------------------------------- Executive's Signature 10689 N. Pennsylvania St. ---------------------------------------------- Address Indianapolis, IN 46280 ---------------------------------------------- Address "COMPANY" U.S. HEALTH SERVICES CORPORATION By: /s/ Ronald D. Hunter ------------------------------------------ Name: Ronald D. Hunter ---------------------------------------- Title: Chairman and CEO --------------------------------------- "GUARANTOR" STANDARD MANAGEMENT CORPORATION By: /s/ Ronald D. Hunter ------------------------------------------ Name: Ronald D. Hunter ---------------------------------------- Title: Chairman and CEO --------------------------------------- [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT] 15 EX-10.20 5 g00463exv10w20.txt EX-10.20 EMPLOYMENT AGREEMENT EXHIBIT 10.20 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made and entered into as of July 1, 2005 (the "Effective Date"), by and between Standard Management Corporation (the "COMPANY"), and Michael B. Berry, a resident of the State of Indiana, (the "EMPLOYEE"). RECITALS A. Employee is expected to continue to make a major contribution to the profitability, growth and financial strength of the Company; B. The Company and Employee have determined that it is in their respective best interest to enter into this Agreement on the terms and conditions as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. 2. DUTIES. Employee shall serve as Vice President of Corporate Finance and agrees to be subject to the general supervision, orders, advice and direction of the President or Chairman of the Board of Directors for the Company (the "President" or the "Chairman") in a manner consistent with The Articles of Incorporation and By-Laws of the Company. 3. EXTENT OF SERVICES. During the term of Employee's employment hereunder, Employee shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not be otherwise employed. 4. TERM. Subject to the provisions for termination in Section 6 below, the initial term of employment of Employee under this Agreement shall be one (1) year from and after the Effective Date and it shall automatically renew annually for successive one (1) year periods (the "RENEWAL TERM," and together with the Initial Term, the "EMPLOYMENT TERM"), unless the Company or Employee elects not to renew this Agreement by serving written notice of such intention not to renew on the other party at least ninety (90) days prior to the succeeding Effective Date. If such an election is made, this Agreement shall be in full force and effect for the remaining portion of the then-current one (1) year period, subject to the provisions for termination in Section 6 of this Agreement. Any reference in this Agreement to "the Employment Term" means the initial term and any renewal terms, each of which shall be considered a separate term. 5. COMPENSATION AND BENEFITS. 5.1 SALARY. In consideration of the services rendered to the Company hereunder by Employee and Employee's covenants hereunder, the Company shall, during the Employment Term, pay Employee a salary at the annual rate of One Hundred Forty-Five Thousand Dollars ($145,000), less statutory deductions and withholdings, payable in accordance with the Company's regular payroll practices. In addition, Employee will be eligible to receive an annual salary increase in an amount to be determined by the Chairman. 5.2 BONUS. Employee may receive bonuses based upon his performance in his Employee and management capacity. Whether to award such bonuses and the amounts thereof shall be determined solely by the Chairman of the Company. 5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be entitled to participate in the Company's corporate, medical and disability insurance plans, at such time as Employee shall have fulfilled the eligibility requirements for participation therein. Employee shall be entitled to all other fringe benefits generally provided for salaried employees of the Company as provided under such fringe benefit programs. 5.4 STOCK OPTION. Employee shall be entitled to participate in the Standard Management Corporation ("SMC") Incentive Stock Option Plan at the discretion of the "SMC's" Stock Option Committee. 5.5 VACATION. Employee shall be entitled to the greater of (i) 20 days Paid Time Off ("PTO") for each year of the Employment Term; or (ii) the number of PTO days to which Employee would be entitled in accordance with the PTO policy and years of service with the Company or it affiliates. 5.6 EXPENSES. The Company shall, during the Employment Term, reimburse Employee for all reasonable travel, business entertainment and other business expenses incurred by Employee in rendering services under this Contract. Such reimbursement shall be subject to compliance with the applicable policies and procedures established by the Company. 6. TERMINATION. Employee's employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the "TERMINATION DATE"): 6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a determination by the Company that Employee has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than ninety (90) days, due to a mental or physical illness or incapacity ("DISABILITY") (termination pursuant to this Section 6.1 being referred to herein as termination for "DEATH OR DISABILITY"); or 6.2 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written notice to the Company of termination of employment or; 2 6.3 TERMINATION FOR CAUSE. Immediately following notice of termination for "Cause" (as defined below), specifying such Cause, given by the Company (termination pursuant to this Section 6.3 being referred to herein as termination for "CAUSE"). As used herein, "Cause" means (i) termination based on Employee's conviction or plea of "guilty" or "no contest" to any crime constituting a felony in the jurisdiction in which committed, any crime involving moral turpitude (whether or not a felony), or any other violation of criminal law involving dishonesty or willful misconduct that materially injures the Company (whether or not a felony); (ii) Employee's substance abuse that in any manner interferes with the performance of his duties; (iii) Employee's failure or refusal to perform his duties at all or in an acceptable manner as reasonably determined in the sole discretion of the Company, or to follow the lawful orders, advice, directions, policies, standards and regulations of the Company and its Chairman or President, as promulgated from time to time; (iv) Employee's breach of this Agreement; (v) misconduct by Employee that has or could discredit or damage the Company; (vi) an act or acts of fraud or dishonesty by Employee resulting in or tending to result in gain to or personal enrichment of Employee at the Company's expense; (vii) Employee's indictment for a felony violation of the federal securities laws; or (viii) Employee's chronic absence from work for reasons other than illness. 6.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions contained herein, including, but not limited to Section 4 above, the Company may terminate Employee's employment thirty (30) days following notice of termination without Cause given by the Company; provided, however, that during any such thirty (30) day notice period, the Company may suspend, with no reduction in pay or benefits, Employee from his duties as set forth herein (including, without limitation, Employee's position as a representative and agent of the Company) (termination pursuant to this Section 6.4 being referred to herein as termination "WITHOUT CAUSE"). 6.5 OTHER REMEDIES. Termination pursuant to Section 6.3 above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement. 7. SEVERANCE AND TERMINATION. 7.1 CHANGE OF CONTROL. In the event a change of control (as defined below) occurs during the Employment Term and the Employee's employment with the Company terminates within six (6) months following such change of control for any reason other than any termination provided for in Section 6, the Employee shall be entitled to a severance payment consisting of twelve (12) months salary. In addition, Employee shall continue to be entitled to all benefits throughout the severance period. (a) The Employee shall be entitled to the severance payments described in Section 7.1 if the Company's principal executive offices are moved outside, or if the Employee is relocated outside the geographic area consisting, of Hamilton County, Indiana and the counties contiguous to Hamilton County, Indiana. 3 (b) As used in this Agreement, the term "change of control" means: (i) a change of ownership of 50% or more of the shares of voting stock of the Company by any person or group (other than a person or group including Employee or with whom or which Employee is affiliated), (ii) the occurrence of a "change of control" required to be described under the proxy disclosure rules of the Securities and Exchange Commission or (iii) any person or group (other than (A) a person or group including Employee or with whom or which Employee is affiliated or (B) Parent or any of its affiliates) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then-outstanding securities. 7.2 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR DISABILITY. In the case of a termination of Employee's employment hereunder for Death or Disability in accordance with Section 6.1 above, or Employee's Voluntary termination of employment hereunder in accordance with Section 6.2 above, or a termination of Employee's employment hereunder for Cause in accordance with Section 6.3 above, (i) Employee shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than Salary earned but unpaid, accrued but unused vacation to the extent required by the Company's policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 5.6 hereof incurred by Employee as of the Termination Date, and (ii) the Company's obligations under this Agreement shall immediately cease. 7.3 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in this Agreement, in the case of a termination of Employee's employment hereunder Without Cause in accordance with Section 6.4 above, the Company shall pay Employee, the greater of twelve (12) months' salary or the salary due for the remainder of the Employment Term (thereinafter the "Severance Payment"), payable in installments in accordance with the Company's normal payroll practices and subject to the tax withholding specified in Section 5.1 above. The Company shall also provide Executive with health benefits equal to and under the same terms as such benefits are provided to Employees similarly situated to Employee during the severance period, or pay the same level of premiums for such benefits required of Employee under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter "Benefit Continuation"), throughout any period in which Employee receives the Severance Payment under this Section or until Employee receives comparable benefits from any other source, whichever occurs first. Nothing contained herein shall interfere with Employee's right to purchase continuation coverage under COBRA. Any Benefit Continuation under this Agreement shall run concurrently with any continuation coverage under COBRA. The Company's obligation to pay and Employee's right to receive the Severance Payment shall cease in the event of Employee's breach of his obligations under Section 8 of this Agreement, as reasonably determined in the sole discretion of the Company. 4 7.4 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation to provide Employee with the Severance Payment and Benefit Continuation set forth in Sections 7.1 and 7.3 is contingent upon Employee's execution of a satisfactory release of all claims in favor of the Company. 8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION. 8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term and for a period of one year thereafter, (for the purpose of perfecting ownership) he will assign to the Company or its nominees all of his right, title and interest in and to all "Technical Information" (as hereinafter defined) that he made developed or conceived, either alone or in conjunction with others during the employment term; he will disclose promptly to the Company all such Technical Information; and he will cooperate with the Company in its efforts to protect its or any of its affiliates' or subsidiaries' rights of ownership in such Technical Information. For purposes of this Contract, "Technical Information" shall mean and include, but not be limited to, all software, processes, devices, trademarks, trade names, copyrights, marketing plans, improvements, and ideas relating to the business of the Company, or any of its affiliates or subsidiaries, and all goodwill associated with any such item. 8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Employee's assigned duties and for the benefit of the Company, either during the period of the Employee's employment or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge, data or trades secrets (including, but not limited to, the identity and needs of any customer of the Company, or any of its affiliates or subsidiaries, the method and techniques of any of the business of the Company, or any of its affiliates or subsidiaries, the marketing, sales, costs and pricing plans and objectives of the Company, or any of its affiliates or subsidiaries, the problems, developments, research records, and Technical Information) of the Company or any of its subsidiaries, affiliated companies or businesses. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Employee; (ii) becomes known to the public subsequent to disclosure to the Employee through no wrongful act of the Employee or any representative of the Employee; or (iii) the Employee is required to disclose by applicable law, regulation or legal process (provided that the Employee provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, the Employee's obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Furthermore, Employee shall deliver promptly to the Company upon termination of his employment, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, software, models, designs, and other documents and computer records (and all copies thereof) relating to the business of the Company or any of its affiliates or subsidiaries, and all property associated therewith, which he may then possess or have under his control. This 5 Agreement supplements and does not supersede Employee's obligations under statute or the common law to protect the Company's or any of its affiliates' or subsidiaries' trade secrets and confidential information. 8.3 NONSOLICITATION. During the Employee's employment hereunder and for the two (2) year period thereafter (regardless of the reason for the separation), the Employee agrees that he will not, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, knowingly solicit, aid or induce (i) any employee of the Company or any of its subsidiaries or affiliates to leave such employment to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company or knowingly take any action to materially assist or aid any other person, firm, corporation or other entity in identifying or hiring any such employee or (ii) any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer. 8.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of this Section would be inadequate and, in recognition of this fact, the Employee agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, , shall be entitled to seek equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. With respect to any suit, action, or other proceeding for equitable relief under Section 8 of this Agreement, the Company and Employee hereby irrevocably agree to the exclusive personal jurisdiction and venue of the United States District Court for the Southern District of Indiana (and any Indiana State Court within Marion County, Indiana). 8.5 REFORMATION. If it is determined by a court of competent jurisdiction (or the arbitrators pursuant to Section 10.6) that any restriction in this Section 8 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 8.6 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8 shall survive the termination or expiration of the Employee's employment with the Company and shall be fully enforceable thereafter. 9.0 REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) Employee is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) Employee is not subject to any pending or, to Employee's knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the 6 business reputation of the Company. Employee has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith. 10. MISCELLANEOUS. 10.1 NOTICES. All notices, requests, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or mailed (postage prepaid by certified or registered mail, return receipt requested) or by overnight courier to the parties at the following addresses or facsimile numbers: If to the Employee, to: Michael B. Berry 3118 Saddlehorn Drive Carmel, IN 46033 If to the Company, to: Standard Management Corporation 10689 N. Pennsylvania Indianapolis, IN 46280 Attn: Ronald D. Hunter, Chairman, President and Chief Executive Officer All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 10.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 10.1, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 10.1, be deemed given upon receipt (in each case regardless of whether such notice, request, or other communication is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number, or other information for the purpose of notices to that party by giving written notice specifying such change to the other parties hereto. 10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's employment hereunder, is subject to Employee providing the Company with legally required proof of Employee's authorization to be employed in the United States of America. 7 10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect thereto. 10.4 WAIVER. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto. 10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, other than injunctive relief under Section 8.5, shall be settled by binding arbitration in the City of Indianapolis, Indiana, in accordance with the laws of the State of Indiana, by three arbitrators, one of whom shall be appointed by the Company, one by Employee and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States District Court for the Southern District of Indiana. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators, which shall be as provided in this Section. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or arbitration arising from or relating to this Agreement, the prevailing party in such litigation or arbitration proceedings shall be entitled to recover, from the non-prevailing party, the prevailing party's reasonable costs and attorney's fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled. 10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and the Company's successors or assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person. 10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the services to be rendered by him are unique and personal; accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. This Agreement shall inure to the benefit of any successors or assigns of the Company. 8 10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 10.11 SEVERABILITY. The Company and Employee intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, if a court of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Employee intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance. 10.12 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana applicable to contracts executed and performed in such state without giving effect to conflicts of laws principles. 10.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS] 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above. "EMPLOYEE" Michael B. Berry /s/ Michael B. Berry ----------------------------------------- Employee's Signature Address 3118 Saddlehorn Drive Carmel, IN 46033 "COMPANY" STANDARD MANAGEMENT CORPORATION By: /s/ Ronald D. Hunter ------------------------------------ Name: Ronald D. Hunter Title: Chairman, President and Chief Executive Officer [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT] 10 EX-10.21 6 g00463exv10w21.txt EX-10.21 EMPLOYMENT AGREEMENT EXHIBIT 10.21 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made and entered into as of July 1, 2005 (the "Effective Date"), by and between Standard Management Corporation (the "COMPANY"), and Mark B. L. Long, a resident of the State of Indiana, (the "EMPLOYEE"). RECITALS A. Employee is expected to continue to make a major contribution to the profitability, growth and financial strength of the Company; B. The Company and Employee have determined that it is in their respective best interest to enter into this Agreement on the terms and conditions as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. 2. DUTIES. Employee shall serve as Executive Vice President - Pharmacy Operations and agrees to be subject to the general supervision, orders, advice and direction of the President or Chairman of the Board of Directors for the Company (the "President" or the "Chairman") in a manner consistent with The Articles of Incorporation and By-Laws of the Company. 3. EXTENT OF SERVICES. During the term of Employee's employment hereunder, Employee shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not be otherwise employed. 4. TERM. Subject to the provisions for termination in Section 6 below, the initial term of employment of Employee under this Agreement shall be one (1) year from and after the Effective Date and it shall automatically renew annually for successive one (1) year periods (the "RENEWAL TERM," and together with the Initial Term, the "EMPLOYMENT TERM"), unless the Company or Employee elects not to renew this Agreement by serving written notice of such intention not to renew on the other party at least ninety (90) days prior to the succeeding Effective Date. If such an election is made, this Agreement shall be in full force and effect for the remaining portion of the then-current one (1) year period, subject to the provisions for termination in Section 6 of this Agreement. Any reference in this Agreement to "the Employment Term" means the initial term and any renewal terms, each of which shall be considered a separate term. 5. COMPENSATION AND BENEFITS. 5.1 SALARY. In consideration of the services rendered to the Company hereunder by Employee and Employee's covenants hereunder, the Company shall, during the Employment Term, pay Employee a salary at the annual rate of Two-Hundred, Ten Thousand Dollars ($210,000), less statutory deductions and withholdings, payable in accordance with the Company's regular payroll practices. In addition, Employee will be eligible to receive an annual salary increase in an amount to be determined by the Chairman. 5.2 BONUS. Employee may receive bonuses based upon his performance in his Employee and management capacity. Whether to award such bonuses and the amounts thereof shall be determined solely by the Chairman of the Company. 5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be entitled to participate in the Company's corporate, medical and disability insurance plans, at such time as Employee shall have fulfilled the eligibility requirements for participation therein. Employee shall be entitled to all other fringe benefits generally provided for salaried employees of the Company as provided under such fringe benefit programs. 5.4 STOCK OPTION. Employee shall be entitled to participate in the Standard Management Corporation ("SMC") Incentive Stock Option Plan at the discretion of the "SMC's" Stock Option Committee. 5.5 VACATION. Employee shall be entitled to the greater of (i) 20 days Paid Time Off ("PTO") for each year of the Employment Term; or (ii) the number of PTO days to which Employee would be entitled in accordance with the PTO policy and years of service with the Company or it affiliates. 5.6 EXPENSES. The Company shall, during the Employment Term, reimburse Employee for all reasonable travel, business entertainment and other business expenses incurred by Employee in rendering services under this Contract. Such reimbursement shall be subject to compliance with the applicable policies and procedures established by the Company. 6. TERMINATION. Employee's employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the "TERMINATION DATE"): 6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a determination by the Company that Employee has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than ninety (90) days, due to a mental or physical illness or incapacity ("DISABILITY") (termination pursuant to this Section 6.1 being referred to herein as termination for "DEATH OR DISABILITY"); or 6.2 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written notice to the Company of termination of employment or; 2 6.3 TERMINATION FOR CAUSE. Immediately following notice of termination for "Cause" (as defined below), specifying such Cause, given by the Company (termination pursuant to this Section 6.3 being referred to herein as termination for "CAUSE"). As used herein, "Cause" means (i) termination based on Employee's conviction or plea of "guilty" or "no contest" to any crime constituting a felony in the jurisdiction in which committed, any crime involving moral turpitude (whether or not a felony), or any other violation of criminal law involving dishonesty or willful misconduct that materially injures the Company (whether or not a felony); (ii) Employee's substance abuse that in any manner interferes with the performance of his duties; (iii) Employee's failure or refusal to perform his duties at all or in an acceptable manner as reasonably determined in the sole discretion of the Company, or to follow the lawful orders, advice, directions, policies, standards and regulations of the Company and its Chairman or President, as promulgated from time to time; (iv) Employee's breach of this Agreement; (v) misconduct by Employee that has or could discredit or damage the Company; (vi) an act or acts of fraud or dishonesty by Employee resulting in or tending to result in gain to or personal enrichment of Employee at the Company's expense; (vii) Employee's indictment for a felony violation of the federal securities laws; or (viii) Employee's chronic absence from work for reasons other than illness. 6.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions contained herein, including, but not limited to Section 4 above, the Company may terminate Employee's employment thirty (30) days following notice of termination without Cause given by the Company; provided, however, that during any such thirty (30) day notice period, the Company may suspend, with no reduction in pay or benefits, Employee from his duties as set forth herein (including, without limitation, Employee's position as a representative and agent of the Company) (termination pursuant to this Section 6.4 being referred to herein as termination "WITHOUT CAUSE"). 6.5 OTHER REMEDIES. Termination pursuant to Section 6.3 above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement. 7. SEVERANCE AND TERMINATION. 7.1 CHANGE OF CONTROL. In the event a change of control (as defined below) occurs during the Employment Term and the Employee's employment with the Company terminates within six (6) months following such change of control for any reason other than any termination provided for in Section 6, the Employee shall be entitled to a severance payment consisting of twelve (12) months salary. In addition, Employee shall continue to be entitled to all benefits throughout the severance period. (a) The Employee shall be entitled to the severance payments described in Section 7.1 if the Company's principal executive offices are moved outside, or if the Employee is relocated outside the geographic area consisting, of Hamilton County, Indiana and the counties contiguous to Hamilton County, Indiana. 3 (b) As used in this Agreement, the term "change of control" means: (i) a change of ownership of 50% or more of the shares of voting stock of the Company by any person or group (other than a person or group including Employee or with whom or which Employee is affiliated), (ii) the occurrence of a "change of control" required to be described under the proxy disclosure rules of the Securities and Exchange Commission or (iii) any person or group (other than (A) a person or group including Employee or with whom or which Employee is affiliated or (B) Parent or any of its affiliates) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then-outstanding securities. 7.2 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR DISABILITY. In the case of a termination of Employee's employment hereunder for Death or Disability in accordance with Section 6.1 above, or Employee's Voluntary termination of employment hereunder in accordance with Section 6.2 above, or a termination of Employee's employment hereunder for Cause in accordance with Section 6.3 above, (i) Employee shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than Salary earned but unpaid, accrued but unused vacation to the extent required by the Company's policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 5.6 hereof incurred by Employee as of the Termination Date, and (ii) the Company's obligations under this Agreement shall immediately cease. 7.3 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in this Agreement, in the case of a termination of Employee's employment hereunder Without Cause in accordance with Section 6.4 above, the Company shall pay Employee, the greater of twelve (12) months' salary or the salary due for the remainder of the Employment Term (thereinafter the "Severance Payment"), payable in installments in accordance with the Company's normal payroll practices and subject to the tax withholding specified in Section 5.1 above. The Company shall also provide Executive with health benefits equal to and under the same terms as such benefits are provided to Employees similarly situated to Employee during the severance period, or pay the same level of premiums for such benefits required of Employee under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter "Benefit Continuation"), throughout any period in which Employee receives the Severance Payment under this Section or until Employee receives comparable benefits from any other source, whichever occurs first. Nothing contained herein shall interfere with Employee's right to purchase continuation coverage under COBRA. Any Benefit Continuation under this Agreement shall run concurrently with any continuation coverage under COBRA. The Company's obligation to pay and Employee's right to receive the Severance Payment shall cease in the event of Employee's breach of his obligations under Section 8 of this Agreement, as reasonably determined in the sole discretion of the Company. 4 7.4 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation to provide Employee with the Severance Payment and Benefit Continuation set forth in Sections 7.1 and 7.3 is contingent upon Employee's execution of a satisfactory release of all claims in favor of the Company. 8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION. 8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term and for a period of one year thereafter, (for the purpose of perfecting ownership) he will assign to the Company or its nominees all of his right, title and interest in and to all "Technical Information" (as hereinafter defined) that he made developed or conceived, either alone or in conjunction with others during the employment term; he will disclose promptly to the Company all such Technical Information; and he will cooperate with the Company in its efforts to protect its or any of its affiliates' or subsidiaries' rights of ownership in such Technical Information. For purposes of this Contract, "Technical Information" shall mean and include, but not be limited to, all software, processes, devices, trademarks, trade names, copyrights, marketing plans, improvements, and ideas relating to the business of the Company, or any of its affiliates or subsidiaries, and all goodwill associated with any such item. 8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Employee's assigned duties and for the benefit of the Company, either during the period of the Employee's employment or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge, data or trades secrets (including, but not limited to, the identity and needs of any customer of the Company, or any of its affiliates or subsidiaries, the method and techniques of any of the business of the Company, or any of its affiliates or subsidiaries, the marketing, sales, costs and pricing plans and objectives of the Company, or any of its affiliates or subsidiaries, the problems, developments, research records, and Technical Information) of the Company or any of its subsidiaries, affiliated companies or businesses. The foregoing shall not apply to information that (i) was known to the public prior to its disclosure to the Employee; (ii) becomes known to the public subsequent to disclosure to the Employee through no wrongful act of the Employee or any representative of the Employee; or (iii) the Employee is required to disclose by applicable law, regulation or legal process (provided that the Employee provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (i) and (ii) of the preceding sentence, the Employee's obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Furthermore, Employee shall deliver promptly to the Company upon termination of his employment, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, software, models, designs, and other documents and computer records (and all copies thereof) relating to the business of the Company or any of its affiliates or subsidiaries, and all property associated therewith, which he may then possess or have under his control. This 5 Agreement supplements and does not supersede Employee's obligations under statute or the common law to protect the Company's or any of its affiliates' or subsidiaries' trade secrets and confidential information. 8.3 NONSOLICITATION. During the Employee's employment hereunder and for the one (1) year period thereafter (regardless of the reason for the separation), the Employee agrees that he will not, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, knowingly solicit, aid or induce (i) any employee of the Company or any of its subsidiaries or affiliates to leave such employment to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company or knowingly take any action to materially assist or aid any other person, firm, corporation or other entity in identifying or hiring any such employee or (ii) any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer. 8.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of this Section would be inadequate and, in recognition of this fact, the Employee agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, , shall be entitled to seek equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. With respect to any suit, action, or other proceeding for equitable relief under Section 8 of this Agreement, the Company and Employee hereby irrevocably agree to the exclusive personal jurisdiction and venue of the United States District Court for the Southern District of Indiana (and any Indiana State Court within Marion County, Indiana). 8.5 REFORMATION. If it is determined by a court of competent jurisdiction (or the arbitrators pursuant to Section 10.6) that any restriction in this Section 8 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 8.6 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8 shall survive the termination or expiration of the Employee's employment with the Company and shall be fully enforceable thereafter. 9.0 REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (ii) Employee is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (iii) Employee is not subject to any pending or, to Employee's knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the 6 business reputation of the Company. Employee has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith. 10. MISCELLANEOUS. 10.1 NOTICES. All notices, requests, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or mailed (postage prepaid by certified or registered mail, return receipt requested) or by overnight courier to the parties at the following addresses or facsimile numbers: If to the Employee, to: Mark B. L. Long 8526 Oakmont Lane Indianapolis, IN 46260 If to the Company, to: Standard Management Corporation 10689 N. Pennsylvania Indianapolis, IN 46280 Attn: Ronald D. Hunter, Chairman, Chief Executive Officer and President All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 10.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 10.1, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 10.1, be deemed given upon receipt (in each case regardless of whether such notice, request, or other communication is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number, or other information for the purpose of notices to that party by giving written notice specifying such change to the other parties hereto. 10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's employment hereunder, is subject to Employee providing the Company with legally required proof of Employee's authorization to be employed in the United States of America. 10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect thereto. 7 10.4 WAIVER. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto. 10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, other than injunctive relief under Section 8.5, shall be settled by binding arbitration in the City of Indianapolis, Indiana, in accordance with the laws of the State of Indiana, by three arbitrators, one of whom shall be appointed by the Company, one by Employee and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States District Court for the Southern District of Indiana. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators, which shall be as provided in this Section. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or arbitration arising from or relating to this Agreement, the prevailing party in such litigation or arbitration proceedings shall be entitled to recover, from the non-prevailing party, the prevailing party's reasonable costs and attorney's fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled. 10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and the Company's successors or assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person. 10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the services to be rendered by him are unique and personal; accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. This Agreement shall inure to the benefit of any successors or assigns of the Company. 10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 10.11 SEVERABILITY. The Company and Employee intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, if a court 8 of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Employee intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance. 10.12 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana applicable to contracts executed and performed in such state without giving effect to conflicts of laws principles. 10.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS] 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above. "EMPLOYEE" Mark B. L. Long /s/ Mark B.L. Long -------------------------------------------------- Employee's Signature Address 8526 Oakmont Lane Indianapolis, IN 46260 STANDARD MANAGEMENT CORPORATION By: /s/ Ronald D. Hunter ---------------------------------------------- Name: Ronald D. Hunter Title: Chairman, Chief Executive Officer and President [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT] 10 EX-10.22 7 g00463exv10w22.txt EX-10.22 EMPLOYMENT AGREEMENT EXHIBIT 10.22 EMPLOYMENT AGREEMENT This Employment Agreement (this "AGREEMENT") is made and entered into as of July 21, 2005 (the "Effective Date"), by and between Rainier Home Health Care Pharmacy, Inc., a Washington corporation (the "COMPANY"), and John T. Tran, a resident of the State of Washington (the "EMPLOYEE"). RECITALS A. Employee is expected to continue to make a major contribution to the profitability, growth and financial strength of the Company. B. The Company and Employee have determined that it is in their respective best interest to enter into this Agreement on the terms and conditions as set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement. 2. DUTIES. Employee shall serve as President of the Company and agrees to be subject to the general supervision, orders, advice and direction of the Chairman of the Board of Directors for the Company (the "CHAIRMAN") in a manner consistent with The Certificate of Incorporation and By-Laws of the Company. As President, Employee shall be entitled to enter into agreements for the purchase or sale of products and services in the ordinary course of the Company's business and shall have the ability to hire and fire employees of the Company. Employee shall not be obligated to receive any training from the Company in connection with his duties hereunder. 3. EXTENT OF SERVICES. During the term of Employee's employment hereunder, Employee shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not be otherwise employed; provided, however, that Employee's ownership of a property management business and other entities that own real estate shall not be considered a violation of this Section 3. 4. TERM. Subject to the provisions for termination in Section 6 below, the initial term of employment of Employee under this Agreement shall be three (3) years from and after the Effective Date (the "INITIAL TERM") and it shall automatically renew annually for successive one (1) year periods (each, a "RENEWAL TERM"), unless the Company or Employee elects not to renew this Agreement by serving written notice of such intention not to renew on the other party at least ninety (90) days prior to the end of the Employment Term (as hereinafter defined). If such an election is made, this Agreement shall be in full force and effect for the remaining portion of the Employment Term, subject to the provisions for termination in Section 6 of this Agreement. Any reference in this Agreement to the "EMPLOYMENT TERM" shall mean the period beginning on the date hereof and continuing until Employee's employment is terminated under the terms of this Agreement. 5. COMPENSATION AND BENEFITS. 5.1 SALARY. In consideration of the services rendered to the Company hereunder by Employee and Employee's covenants hereunder, the Company shall, during the Employment Term, pay Employee a salary at the annual rate of $180,000, less statutory deductions and withholdings, payable in accordance with the Company's regular payroll practices. In addition, Employee will be eligible to receive an annual salary increase in an amount to be determined by the Chairman. 5.2 BONUS. Employee will receive bonuses based upon his performance in his capacity as an employee and manager of the Company during the Employment Term. The Employee's bonus for calendar year 2005 shall be an amount equal to the lesser of (i) $150,000, or (ii) the Company's actual EBITDA for calendar year 2005 minus the Company's target EBITDA for such year of $1,800,000. The Employee's bonus for calendar year 2006 shall be an amount equal to the lesser of (v) $150,000, or (vi) the Company's actual EBITDA for calendar year 2006 minus the Company's target EBITDA for such year of 2,160,000. The Employee's bonus for calendar year 2007 shall be an amount equal to the lesser of (x) $150,000, or (xi) the Company's actual EBITDA for calendar year 2007 minus the Company's target EBITDA for such year of $2,592,000. If the Company's target EBITDA for any calendar year exceeds actual EBITDA for such year, then no bonus shall be paid to Employee for such year. Actual EBITDA shall be calculated by the Company no later than 120 days after the end of each calendar year, and the bonus shall be paid no later than 10 business days after EBITDA is calculated by the Company. 5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be entitled to participate in the Company's corporate, medical and disability insurance plans. Employee shall be entitled to all other fringe benefits generally provided for salaried employees of the Company as provided under the Company's fringe benefit programs. 5.4 STOCK OPTION. Employee shall be entitled to options to purchase 50,000 shares of Standard Management Corporation ("SMC") under the Standard Management Corporation 2002 Stock Incentive Plan (THE "PLAN"). In addition, Employee shall be entitled to receive options to purchase additional shares of SMC under the Plan at the discretion of SMC's Stock Option Committee. 5.5 VACATION. Employee shall be entitled to the greater of (a) 20 days paid time off ("PTO") for each year of the Employment Term; and (b) the number of PTO days to which Employee would be entitled in accordance with the Company's PTO policy and years of service with the Company or it affiliates. Employee shall receive credit for his prior years of service to the Company and its predecessor in interest. Confidential Page 2 5.6 EXPENSES. The Company shall, during the Employment Term, reimburse Employee for all reasonable travel, business entertainment and other business expenses incurred by Employee in rendering services under this Agreement. Such reimbursement shall be subject to compliance with the applicable policies and procedures established by the Company. 5.7 BOARD OF DIRECTORS. During the Employment Term, Employee may serve, or select another person to serve, on the Board of Directors of the Company. Upon the termination of Employee's employment under this Agreement, the director selected by Employee shall resign from the Company's Board of Directors. 6. TERMINATION. Employee's employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the "TERMINATION DATE"): 6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a determination by the Company that Employee has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than ninety (90) days, due to a mental or physical illness or incapacity (termination pursuant to this Section 6.1 being referred to herein as termination for "DEATH OR DISABILITY"). 6.2 TERMINATION FOR GOOD REASON. Thirty (30) days following Employee's written notice to the Company of termination of employment as a result of (a) the Company's material breach of this Agreement or a material breach of the Merger Agreement (as hereinafter defined), if the Company fails to cure such breach within such thirty (30) day period, (b) a substantial diminution not consented to by Employee, in the nature or scope of Employee's responsibilities, authorities, powers, functions or duties, or (c) the Company's principal executive offices are moved outside, or if the Employee is relocated outside the geographic area consisting, of King County, Washington and the counties contiguous to King County, Washington ("GOOD REASON"). 6.3 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written notice to the Company of termination of employment other than for Good Reason ("VOLUNTARY TERMINATION"). 6.4 TERMINATION FOR CAUSE. Immediately following notice of termination for Cause (as hereinafter defined), which notice shall specify such Cause, given by the Company (termination pursuant to this Section 6.4 being referred to herein as termination for Cause). As used herein, "CAUSE" means (a) termination based on Employee's conviction or plea of "guilty" or "no contest" to any crime constituting a felony in the jurisdiction in which committed, any crime involving moral turpitude (whether or not a felony), or any other crime involving dishonesty or willful misconduct that materially injures the Company (whether or not a felony); (b) Employee's failure or refusal to perform his duties at all or in an acceptable manner as reasonably determined in the sole discretion of the Company, (c) Employee's failure or refusal to follow the lawful orders, advice, directions, policies, standards and regulations of the Company and its Chairman, Confidential Page 3 as promulgated from time to time; (d) Employee's material breach of this Agreement; (e) misconduct by Employee that has or could discredit or damage the Company; (f) an act or acts of fraud or dishonesty by Employee resulting in or tending to result in gain to or personal enrichment of Employee at the Company's expense; (g) Employee's indictment for a felony violation of the federal securities laws; or (h) Employee's chronic absence from work for reasons other than illness. 6.5 TERMINATION WITHOUT CAUSE. Thirty (30) days following notice to Employee of termination for any reason other than Cause, notwithstanding any other provisions contained herein, including, but not limited to Section 4 above; provided, however, that during any such thirty (30) day notice period, the Company may suspend, with no reduction in pay or benefits, Employee from his duties as set forth herein (including, without limitation, Employee's position as a representative and agent of the Company) (termination pursuant to this Section 6.4 being referred to herein as termination "WITHOUT CAUSE"). 6.6 TERMINATION UPON CHANGE OF CONTROL. Upon notice to Employee of termination within six (6) months following a change of control (as defined below) for any reason other than termination for Death or Disability or termination for Cause ("TERMINATION UPON CHANGE OF CONTROL"). As used in this Agreement, the term "change of control" means: (a) a change of ownership of 50% or more of the shares of voting stock of the Company by any person or group (other than a person or group including Employee or with whom or which Employee is affiliated), (b) the occurrence of a "change of control" required to be described under the proxy disclosure rules of the Securities and Exchange Commission or (c) any person or group is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then-outstanding securities. 6.7 OTHER REMEDIES. Termination pursuant to Section 6.4 above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement. 7. SEVERANCE AND TERMINATION. 7.1 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR DISABILITY. In the case of Employee's Voluntary Termination of employment hereunder in accordance with Section 6.3 above or a termination of Employee's employment hereunder for Cause in accordance with Section 6.4 above, (a) Employee shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than salary earned but unpaid, accrued but unused vacation to the extent required by the Company's policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 5.6 hereof incurred by Employee as of the Termination Date, (b) the Company will not be obligated to make any further payments on the Earn-Out (as defined in Agreement and Plan of Merger dated July ___, 2005 by Confidential Page 4 and among Standard Management Corporation, Rainier Acquisition Corporation, the Company, Employee, Cynthia J. Wareing-Tran and The Jonathan Tran Irrevocable Trust, u/a/d 8/23/2004 ("MERGER AGREEMENT"), and (c) the Company's obligations under this Agreement shall immediately cease. 7.3 TERMINATION FOR DEATH OR DISABILITY. In the case of a termination of Employee's employment hereunder for Death or Disability in accordance with Section 6.1 above, (a) Employee shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than salary earned but unpaid, accrued but unused vacation to the extent required by the Company's policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 5.6 hereof incurred by Employee as of the Termination Date, and (b) the Company's obligations under this Agreement shall immediately cease. 7.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to the provisions set forth in this Agreement, in the case of a (a) termination of Employee's employment hereunder for Good Reason in accordance with Section 6.2 above or (b) termination of Employee's termination hereunder Without Cause, unless such termination is also a Termination Upon Change of Control, in accordance with Section 6.4 above, the Company shall pay Employee, the greater of twelve (12) months' salary or the salary due for the remainder of the Initial Term or Renewal Term, as applicable (thereinafter the "SEVERANCE PAYMENT"), payable in installments in accordance with the Company's normal payroll practices and subject to the tax withholding specified in Section 5.1 above. The Company shall also provide Employee with health benefits equal to and under the same terms as such benefits are provided to employees similarly situated to Employee during the severance period, or pay the same level of premiums for such benefits required of Employee under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter "BENEFIT CONTINUATION"), throughout any period in which Employee receives the Severance Payment under this Section 7.4 or until Employee receives comparable benefits from any other source, whichever occurs first. Nothing contained herein shall interfere with Employee's right to purchase continuation coverage under COBRA. Any Benefit Continuation under this Agreement shall run concurrently with any continuation coverage under COBRA. The Company's obligation to pay and Employee's right to receive the Severance Payment shall cease in the event of Employee's breach of his obligations under Section 8 of this Agreement, as reasonably determined in the sole discretion of the Company. 7.5 TERMINATION UPON CHANGE OF CONTROL. In the event the Employee is Terminated Upon Change of Control, the Employee shall be entitled to a severance payment consisting of twelve (12) months salary. In addition, Employee shall continue to be entitled to all benefits throughout the twelve (12) month severance period. 7.6 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation to provide Employee with the benefits set forth in Sections 7.1, 7.4 and 7.5 Confidential Page 5 above is contingent upon Employee's execution of a release, reasonably satisfactory to the Company, of all claims Employee may have against the Company and SMC. 8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION. 8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term and for a period of one year thereafter, (for the purpose of perfecting ownership) he will (a) assign to the Company or its nominees all of his right, title and interest in and to all "Technical Information" (as hereinafter defined) that he made, developed or conceived, either alone or in conjunction with others during the Employment Term; (b) disclose promptly to the Company all such Technical Information; and (c) cooperate with the Company in its efforts to protect its or any of its affiliates' or subsidiaries' rights of ownership in such Technical Information. For purposes of this Contract, "TECHNICAL INFORMATION" shall mean and include, but not be limited to, all software, processes, devices, trademarks, trade names, copyrights, marketing plans, improvements, and ideas relating to the business of the Company, or any of its affiliates or subsidiaries, and all goodwill associated with any such item. 8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the Employee's assigned duties and for the benefit of the Company, either during the Employment Term or at any time thereafter, any nonpublic, proprietary or confidential information, knowledge, data or trades secrets (including, but not limited to, the identity and needs of any customer of the Company, or any of its affiliates or subsidiaries, the method and techniques of any of the business of the Company, or any of its affiliates or subsidiaries, the marketing, sales, costs and pricing plans and objectives of the Company, or any of its affiliates or subsidiaries, the problems, developments, research records, and Technical Information) of the Company or any of its subsidiaries, affiliated companies or businesses. The foregoing shall not apply to information that (a) was known to the public prior to its disclosure to the Employee; (b) becomes known to the public subsequent to disclosure to the Employee through no wrongful act of the Employee or any representative of the Employee; or (c) the Employee is required to disclose by applicable law, regulation or legal process (provided that the Employee provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information). Notwithstanding clauses (a) and (b) of the preceding sentence, the Employee's obligation to maintain such disclosed information in confidence shall not terminate where only portions of the information are in the public domain. Furthermore, Employee shall deliver promptly to the Company upon termination of his employment, or at any time the Company may so request, all memoranda, notes, records, reports, manuals, software, models, designs, and other documents and computer records (and all copies thereof) relating to the business of the Company or any of its affiliates or subsidiaries, and all property associated therewith, which he may then possess or have under his control. This Agreement supplements and does not supersede Employee's obligations under statute or the common law to protect Confidential Page 6 the Company's or any of its affiliates' or subsidiaries' trade secrets and confidential information. 8.3 NON-SOLICITATION. During the Employment Term and for a period of two (2) years thereafter (regardless of the reason for the separation), the Employee agrees that he will not, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, knowingly (a) solicit, aid or induce any employee of the Company or any of its subsidiaries or affiliates to leave such employment to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company or knowingly take any action to materially assist or aid any other person, firm, corporation or other entity in identifying or hiring any such employee, (b) hire or engage as a consultant, independent contractor or in a similar capacity, any person who is (or was during the preceding 12-month period) an employee, independent contractor or consultant of the Company, or (c) solicit, aid or induce any customer of the Company or any of its subsidiaries or affiliates to purchase goods or services then sold by the Company or any of its subsidiaries or affiliates from another person, firm, corporation or other entity or assist or aid any other persons or entity in identifying or soliciting any such customer. 8.4 NON-COMPETITION. During the Employment Term and for a period of one (1) year thereafter (regardless of the reason for the separation), Employee shall not, anywhere in the areas described in Exhibit A, directly or indirectly, invest in, own, or operate any person engaged in any business that is directly competitive with the business of the Company; provided, however, that Employee may purchase or otherwise acquire up to (but not more than) five percent (5%) of any class of the securities of any entity if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934. The Employee acknowledges that the provisions of this Section 8.4 shall be in addition to, and shall not relieve the Employee of, his non-competition obligations under Section 9.2(b) of the Agreement and Plan of Merger dated as of July ___, 2005 by and among Standard Management Corporation, the Company, the Employee, Cynthia J. Wareing Tran and the Jonathan Tran Irrevocable Trust, u/a/d 8/23/2004. 8.5 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of this Section 8.5 would be inadequate and, in recognition of this fact, the Employee agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company shall be entitled to seek equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. With respect to any suit, action, or other proceeding for equitable relief under this Section 8.5, the Company and Employee hereby irrevocably agree to the exclusive personal jurisdiction and venue of the United States District Court for the Southern District of Indiana (and any Indiana State Court within Marion County, Indiana). 8.6 REFORMATION. If it is determined by a court of competent jurisdiction (or the arbitrators pursuant to Section 10.6) that any restriction in this Section 8 is excessive Confidential Page 7 in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 8.7 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8 shall survive the termination or expiration of the Employee's employment with the Company and shall be fully enforceable thereafter. 9. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants to the Company that (a) this Agreement is valid and binding upon and enforceable against him in accordance with its terms, (b) Employee is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect, and (c) Employee is not subject to any pending or, to Employee's knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company. Employee has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith. 10. MISCELLANEOUS. 10.1 NOTICES. All notices, requests, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission with answer back confirmation or mailed (postage prepaid by certified or registered mail, return receipt requested) or by overnight courier to the parties at the following addresses or facsimile numbers: If to the Employee, to: John T. Tran 7716 B Seward Park Ave. South Seattle, WA 98118 FAX: If to the Company, to: Rainier Home Health Care Pharmacy, Inc. 10689 N. Pennsylvania Indianapolis, IN 46280 Attn: Stephen M. Coons, Secretary FAX: 317-574-6227 All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 10.1, be deemed given upon delivery, (b) if delivered by facsimile transmission to the facsimile number as provided in this Section 10.1, be deemed given upon receipt, and (c) if delivered by mail in the manner described above to the address as provided in this Section 10.1, be deemed given upon receipt (in each case regardless of whether such notice, request, or other communication is received by any other person to whom a copy of such notice, request or other communication is to be Confidential Page 8 delivered pursuant to this Section 10.1). Any party from time to time may change its address, facsimile number, or other information for the purpose of notices to that party by giving written notice specifying such change to the other parties hereto. 10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's employment hereunder, is subject to Employee providing the Company with legally required proof of Employee's authorization to be employed in the United States of America. 10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect thereto. 10.4 WAIVER. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative. 10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto. 10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, other than injunctive relief under Section 8.5, shall be settled by binding arbitration in the City of Indianapolis, Indiana, in accordance with the laws of the State of Indiana, by three arbitrators, one of whom shall be appointed by the Company, one by Employee and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States District Court for the Southern District of Indiana. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators, which shall be as provided in this Section 10.6. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or arbitration arising from or relating to this Agreement, the prevailing party in such litigation or arbitration proceedings shall be entitled to recover, from the non-prevailing party, the prevailing party's reasonable costs and attorney's fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled. 10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and the Company's Confidential Page 9 successors or assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person. 10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the services to be rendered by him are unique and personal; accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. This Agreement shall inure to the benefit of any successors or assigns of the Company. 10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 10.11 SEVERABILITY. The Company and Employee intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, if a court of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Employee intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance. 10.12 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana applicable to contracts executed and performed in such state without giving effect to conflicts of laws principles. 10.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS] Confidential Page 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above. "EMPLOYEE" /s/ John T. Tran --------------------------------------- John T. Tran "COMPANY" RAINIER HOME HEALTH CARE PHARMACY, INC. By: /s/ Stephen M. Coons --------------------------------------- Stephen M. Coons, Secretary [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT] Confidential EX-21 8 g00463exv21.txt EX-21 LIST OF SUBSIDIARIES . . . EXHIBIT 21 STANDARD MANAGEMENT CORPORATION AND ITS SUBSIDIARIES

STATE OR COUNTRY IN WHICH NAME OF SUBSIDIARY INCORPORATED Health Services: U.S. Health Services Corporation ............ Delaware HomeMed Channel, Inc. ....................... Indiana PCA, LLC .................................... Indiana HomeDoc Corporation ......................... Indiana Apothecary Solutions Corporation ............ Indiana Long Term Rx, Inc............................ Indiana Precision Healthcare, Inc.................... Tennessee Rainier Home Health Care Pharmacy, Inc. ..... Washington Other Services: Standard Marketing Corporation .............. Indiana Standard Management Financial Corporation ... Delaware Premier Life (Bermuda) Limited .............. Bermuda Standard Development LLC .................... Indiana Standard Management LLC Capital Trust ....... Delaware

EX-23.1 9 g00463exv23w1.txt EX-23.1 CONSENT OF BDO SEIDMAN, LLP. EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Standard Management Corporation Indianapolis, Indiana We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-124160 and 333-117004) and Form S-8 (Nos. 33-92906, 333-41119, 333-41117 and 333-101359) of Standard Management Corporation of our report dated April 14, 2006, relating to the 2005 and 2004 consolidated financial statements of Standard Management Corporation which appears in this Form 10-K. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern. /s/ BDO Seidman, LLP Chicago, Illinois April 14, 2006 EX-23.2 10 g00463exv23w2.txt EX-23.2 CONSENT OF ERNST & YOUNG LLP. EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-8 No. 33-92906) pertaining to the Second Amended and Restated Stock Option Plan of Standard Management Corporation, (2) Registration Statement (Form S-8 No. 333-41117) pertaining to the Standard Management Corporation Savings Plan, (3) Registration Statement (Form S-8 No. 333-41119) pertaining to the Amended and Restated Stock Option Plan of Standard Management Corporation, (4) Registration Statement (Form S-8 No. 333-101359) pertaining to the 2002 Stock Incentive Plan of Standard Management Corporation, (5) Registration Statement (Form S-3 No. 333-117004) of Standard Management Corporation, and (6) Registration Statement (Form S-3 No. 333-124160) of Standard Management Corporation; of our report dated March 2, 2004, with respect to the 2003 consolidated statements of operations and cash flows and 2003 information included in the schedule of Standard Management Corporation included in its 2005 Annual Report (Form 10-K), filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Indianapolis, Indiana April 14, 2006 EX-31.1 11 g00463exv31w1.txt EX-31.1 SECTION 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 I, Ronald D. Hunter, certify that: 1. I have reviewed this report on Form 10-K of Standard Management Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 17, 2006 /s/ Ronald D. Hunter Ronald D. Hunter Chairman, Chief Executive Officer, and President EX-31.2 12 g00463exv31w2.txt EX-31.2 SECTION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 I, Michael B. Edwards, certify that: 1. I have reviewed this report on Form 10-K of Standard Management Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 17, 2006 /s/ Michael B. Edwards Michael B. Edwards Chief Financial Officer EX-32 13 g00463exv32.txt EX-32 SECTION 906 CERTIFICATION OF CEO & CFO EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003 In connection with the accompanying Annual Report on Form 10-K of Standard Management Corporation for the year ended December 31, 2005, we Ronald D. Hunter and Michael B. Edwards, Chairman, Chief Executive Officer, and President and Chief Financial Officer of Standard Management Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, to the best of our knowledge and belief, that: (1) such Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of Standard Management Corporation. April 17, 2006 /s/ Ronald D. Hunter Ronald D. Hunter Chairman, Chief Executive Officer and President /s/ Michael B. Edwards Michael B. Edwards Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.1A

                                                                  EXHIBIT 3.1a

                             ARTICLES OF AMENDMENT
                                     OF THE
                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                         STANDARD MANAGEMENT CORPORATION

      The undersigned officer of Standard Management Corporation (hereinafter
referred to as the "Corporation") existing pursuant to the provisions of the
Indiana Business Corporation Law (hereinafter referred to as the "Law"),
desiring to give notice of corporate action effectuating amendment of certain
provisions of its Amended and Restated Articles of Incorporation, certify the
following facts:

                                    ARTICLE I

                                    AMENDMENT

SECTION 1. The name of the Corporation following the Amendment to the Amended
and Restated Articles of Incorporation is Standard Management Corporation.

SECTION 2. The exact text of Article V, Section 1 of the Amended and Restated
Articles of Incorporation, as amended (hereinafter referred to as the
"Amendment"), now is as follows:

      The total number of shares which the Corporation has authority to issue is
Sixty-One Million (61,000,000) shares without par value.

SECTION 3. The exact text of Article V, Section 2 of the Amendment now reads as
follows:

      The total authorized shares of the Corporation shall consist of the
following classes and amounts:

      (a) Sixty Million (60,000,000) shares of Common Stock; and
      (b) One Million (1,000,000) shares of Preferred Stock.

      The Common Stock of the Corporation shall in all respects entitle the
holder to the same rights and preferences, and subject the holder to the same
qualifications, limitations, and restrictions, as all other shareholders of
Common Stock.

      The shares of Preferred Stock shall be issued from time to time in one or
more series, with such distinguishing designations, and with such preferences,
limitations and relative voting and other rights as shall be determined as
stated by the Board of Directors before issuance of any such series, in and by
the resolution or resolutions authorizing the



issuance of any such series pursuant to authority so to do, which is hereby
expressly vested in the Board of Directors.

                                   ARTICLE II

                           MANNER OF ADOPTION AND VOTE

SECTION 1. ACTION BY DIRECTORS.

      The Board of Directors of the Corporation duly adopted a resolution
proposing to amend the terms and provisions of Article V, Sections 1 and 2 of
the Amended and Restated Articles of Incorporation. The resolution was adopted
at a meeting of the Board of Directors of the Corporation held on January 26,
2006, and adopted by a majority of the members of the Board of Directors.

SECTION 2. ACTION BY SHAREHOLDERS.

      The Shareholders of the Corporation entitled to vote in respect of the
Amendment, adopted the proposed Amendment. The Amendment was adopted at a
meeting of the Shareholders held on March 8, 2006. The result of such vote is as
follows:

                                   
Common Shares entitled to vote:       9,095,208
Common Shares voted in favor:         7,913,863
Common Shares voted against:            663,614
Common Shares not voted:                 96,549

Preferred Shares entitled to vote:           -0-
Preferred Shares voted in favor:             -0-
Preferred Shares voted against:              -0-



SECTION 3. COMPLIANCE WITH LEGAL REQUIREMENTS.

      The manner of adoption of the Amendment, and the vote by which it was
adopted, constitute full legal compliance with the provision of the Law, the
Amended and Restated Articles of Incorporation and the Bylaws of the
Corporation.

                                   ARTICLE III

                    STATEMENT OF CHANGES MADE WITH RESPECT TO
                      ANY INCREASE IN THE NUMBER OF SHARES
                              HERETOFORE AUTHORIZED

                                                  
Aggregate Number of  Shares Previously Authorized:   41,000,000

Increase:                                            20,000,000

Aggregate Number of Shares to be Authorized
  After Effect of this Amendment:                    61,000,000





      I hereby verify subject to the penalties of perjury that the facts
contained herein are true.

Current Officer's Signature                               Officer's Printed Name

/s/ Ronald D. Hunter                                      Ronald D. Hunter
- ----------------------                                    ---------------------

Officer's Title

Chairman, CEO and President

EX-10.5

                                                                    EXHIBIT 10.5

                                                                  EXECUTION COPY

                                      LEASE

                                     Between

                         STANDARD MANAGEMENT CORPORATION

                                    Landlord,

                                       and

                   STANDARD LIFE INSURANCE COMPANY OF INDIANA,

                                     Tenant,

                             Dated: As June 8, 2005

                                    Premises:

                          10689 N. Pennsylvania Street
                           Indianapolis, Indiana 46280



                                TABLE OF CONTENTS

Business Terms

                                                                                                     
ARTICLE 1.        Certain Other Definitions.....................................................         3
ARTICLE 2.        Term; Commencement Date; Access...............................................         5
ARTICLE 3.        Fixed Rent....................................................................         5
ARTICLE 4.        HVAC; Building Systems........................................................         6
ARTICLE 5.        Use...........................................................................         7
ARTICLE 6.        Compliance with Laws and Insurance Requirements...............................         7
ARTICLE 7.        Alterations and Installations.................................................         7
ARTICLE 8.        Fixtures and Equipment; Tenant's Property.....................................         8
ARTICLE 9.        Maintenance; Repairs..........................................................         9
ARTICLE 10.       Required Insurance............................................................         9
ARTICLE 11.       Damage; Restoration...........................................................        10
ARTICLE 12.       Condemnation..................................................................        11
ARTICLE 13.       Public Areas; Conference Rooms; Parking Lot...................................        11
ARTICLE 14.       Signs.........................................................................        12
ARTICLE 15.       Landlord's Access to Premises; Related Matters................................        12
ARTICLE 16.       Subordination: Estoppel Certificate; Attornment...............................        12
ARTICLE 17.       Surrender of Premises.........................................................        13
ARTICLE 18.       Assignment, Mortgaging, Subletting, etc.......................................        14
ARTICLE 19.       Quiet Enjoyment...............................................................        14
ARTICLE 20.       Real Estate Brokers...........................................................        14
ARTICLE 21.       Adjacent Excavation; Shoring; Construction....................................        14
ARTICLE 22.       Defaults; Conditional Limitations; Remedies...................................        15
ARTICLE 23.       Indemnification...............................................................        17
ARTICLE 24.       Notices.......................................................................        18
ARTICLE 25.       No Waivers....................................................................        18
ARTICLE 26.       No Representations by Landlord; Landlord's Interest; Transferee Landlords.....        18
ARTICLE 27.       Consent to Jurisdiction.......................................................        18
ARTICLE 28.       Termination of Current Lease..................................................        19
ARTICLE 29.       Miscellaneous.................................................................        19



Exhibit A         Land
Exhibit B         Cleaning Specifications
Exhibit C         Building Rules



                                      INDEX



Defined Term                                                                       Article / Section
- ------------                                                                       -----------------
                                                                                
Additional Rent.................................................................                3.3
Alteration(s)...................................................................                1.1
Building........................................................................            Heading
Building Rules..................................................................               13.1
Building Systems................................................................                1.1
Business Day....................................................................                1.1
Business Hours..................................................................                1.1
City............................................................................                1.1
Commencement Date...............................................................     Business Terms
Condemnation....................................................................                1.1
Conference Rooms................................................................               13.3
Control.........................................................................                1.1
Damage..........................................................................                1.1
Deficiency......................................................................               22.4
Employee........................................................................                1.1
Encumbrance.....................................................................                1.1
Estoppel Certificate............................................................               16.3
Expiration Date.................................................................     Business Terms
Extra Water.....................................................................                4.5
Fees-And-Costs..................................................................                1.1
Fixed Rent......................................................................     Business Terms
Government Entity...............................................................                1.1
Hazardous Materials.............................................................                1.1
HVAC............................................................................                1.1
Indemnitees.....................................................................                1.1
Insurance Policy................................................................               10.3
Insurance Requirement...........................................................                1.1
Interest Rate...................................................................                1.1
Land............................................................................            Heading
Landlord........................................................................            Heading
Landlord's Account..............................................................     Business Terms
Landlord's Affiliates...........................................................                1.1
Law(s)..........................................................................                1.1
Lease...........................................................................            Heading
Lease Year......................................................................                1.1
Legal Proceeding................................................................                1.1
Liability Limit.................................................................     Business Terms
Lien............................................................................                1.1
New Landlord....................................................................               16.2
Non-Structural Alterations......................................................                1.1
Notice Addresses................................................................     Business Terms
Overtime Hours..................................................................                1.1
Parking Lot.....................................................................                1.1
Permitted Use...................................................................     Business Terms
Person..........................................................................                1.1
Premises........................................................................            Heading
Project.........................................................................                1.1
Public Areas....................................................................                1.1
Rent(s).........................................................................                1.1
Rent Payment Address............................................................      Business Terms
Required Insurance..............................................................          1.1, 10.1
Restoration.....................................................................                1.1
Senior Encumbrance..............................................................                1.1
State...........................................................................                1.1




                                                                                  
Telephone Room..................................................................                2.2
Tenant..........................................................................            Heading
Term............................................................................     Business Terms
Termination Notice..............................................................               22.2
Utilities.......................................................................                1.1





            LEASE (this "Lease") made as of this 8th day of June, 2005 between
STANDARD MANAGEMENT CORPORATION, an Indiana corporation having an address at
10689 N. Pennsylvania Street, Indianapolis, Indiana 46280, ("Landlord") and
STANDARD LIFE INSURANCE COMPANY OF INDIANA, an Indiana life insurance company
having an address c/o Capital Prospects, LLC, 100 Mallard Creek Road, Suite 197,
Louisville, Kentucky 40207 ("Tenant").

                             INTRODUCTORY STATEMENT

            Landlord is the owner of the building (the "Building") located at
10689 N. Pennsylvania Street, Indianapolis, Indiana 46280 (the "Land"). Tenant
desires to lease from Landlord, and Landlord is willing to lease to Tenant, the
first floor computer room and the entire second floor in the Building (the
"Premises") as shown cross-hatched on Exhibit A hereto, upon the terms,
covenants, conditions and provisions set forth below.

            This Lease consists of three parts:

                  1.    Business Terms

                  2.    General Lease Provisions

                  3.    Exhibits and Riders

                  NOW, THEREFORE, in consideration of the rents and agreements
set forth herein, and intending to be legally bound hereby, Landlord and Tenant
agree as follows:

                                 BUSINESS TERMS

The following "Business Terms" shall have the following meanings in this Lease:

"Commencement Date":       The date hereof.

"Expiration Date":         The last day of the third Lease Year after the
                           Commencement Date.

"Fixed Rent":              $480,000 per year, payable in equal monthly
                           installments of $40,000, from the Commencement Date
                           through the end of the Third Lease Year.

"Term":                    The term of this Lease of three (3) years, commencing
                           at 12:00 a.m. on the Commencement Date and expiring
                           at 11:59 p.m. on the Expiration Date (or on such
                           earlier date as this Lease may otherwise terminate in
                           accordance with its terms, covenants, conditions, and
                           provisions).

"Permitted Use":           Executive, general, and administrative offices and
                           related and ancillary uses for Tenant and Dixie
                           National Life Insurance Company.

"Liability Limit":         Three million dollars ($3,000,000).

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"Notice Addresses":

                  (a)   for Tenant:

                              Standard Life Insurance Company of Indiana
                              c/o Capital Prospects, LLC
                              100 Mallard Creek Road, Suite 197
                              Louisville, Kentucky  40207
                              Attention:  Mr. Bob Scott

                  (b)   for Landlord:

                              Standard Management Corporation
                              10689 N. Pennsylvania Street
                              Indianapolis, Indiana 46280
                              Attention:  Steve Coons, Esq.

"Rent Payment Address":       Standard Management Corporation
                              10689 N. Pennsylvania Street
                              Indianapolis, Indiana 46280
                              Attention:  Michael B. Berry

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                            General Lease Provisions

ARTICLE 1. Certain Other Definitions.

1.1. The following words and phrases shall have the following meanings wherever
used in this Lease:

      "Alteration" means any and every alteration, addition, construction,
improvement, or modification of or to the Premises and/or any and every
installation in the Premises (including all fixtures, panelling, partitions,
railings, wall coverings, and all electrical, mechanical, plumbing, heating,
ventilating and air conditioning installations affixed or attached to the
Premises).

      "Building Systems" means the plumbing, heating, ventilating, air
conditioning, elevator, wiring, and electrical systems, installations, and
facilities of the Building.

      "Business Day" means any day other than Saturday, Sunday or national
holidays.

      "Business Hours" means 8 a.m. to 6 p.m. on Business Days.

      "City" means the municipality in which the Premises are located.

      "Condemnation" (or to "Condemn") means any and every taking (whether
temporary or permanent) for any public or quasi-public purpose, by any
Government Entity by exercise of condemnation or eminent domain (or any transfer
or conveyance by agreement in lieu thereof).

      "Control" (or, in context, "Controlling" or "Controlled by") means the
ownership of more than fifty per cent (50%) of the common stock of a corporation
or of the beneficial ownership of an unincorporated enterprise.

      "Damage" means any and all damage or destruction resulting from fire or
other casualty.

      "Employee" means an officer, director, employee, partner, agent,
contractor, subcontractor, or representative.

      "Encumbrance" means any and every lease, security interest, charge,
covenant, restriction, lien, mortgage, or other encumbrance of any kind
whatsoever.

      "Fees-And-Costs" means documented actual and reasonable fees and expenses
of attorneys, accountants, architects, engineers, expert witnesses, contractors,
consultants and other Persons and costs of transcripts, printing of briefs and
records, copying, and other reimbursable expenses charged by any of the
foregoing.

      "Government Entity" means the United States, the State, the City, and any
and every other agency, department, commission, rule-making body, bureau,
instrumentality and/or political subdivision of government of any kind
whatsoever, now existing or hereafter created, now or hereafter having
jurisdiction over the Premises, the Land, the Building, and/or the use,
occupancy, possession, operation and/or maintenance of the Premises, the Land
and/or the Building.

      "Hazardous Materials" means any materials, substances, fluids, chemicals,
gases, or other compounds the presence, use, storage, emission, drainage,
leakage, effusion, modification, or disposition of which is prohibited by law or
subject by law to specific procedures, controls, or restrictions, or which are
otherwise deemed toxic, poisonous, or unsafe. However, "Hazardous Materials"
shall not include minor quantities of substances which are used legally in the
ordinary course of a business use for office purposes.

      "HVAC" means the heating, ventilating, and air conditioning equipment
servicing the Premises, whether located within the Premises, on the roof of the
Premises, or otherwise outside of the Premises.

      "Indemnitees" means Landlord, Landlord's Affiliates, and each holder of a
Senior Encumbrance.

      "Insurance Requirement" means any rule, regulation, code, or other
requirement issued by any fire insurance rating bureau or any body having
similar functions and/or any insurance company which has issued a policy of
insurance covering the Premises, the Land and/or the Building, as in effect from
the date of this Lease through the Expiration Date.

      "Interest Rate" means a rate per annum equal to the lesser of (a) 4% above
the so-called "prime rate" published in the New York City edition of The Wall
Street Journal from time to time (or, if such rate shall cease to be published,
any similar rate which is publicly announced from time to time by any bank in
New York City having total assets in excess of $500 million designated by
Landlord in writing); or (b) the maximum rate of interest, if any, which Tenant
may legally contract to pay in the State on the applicable obligation.

      "Landlord" means only the owner (or mortgagee in possession) of the
Building for the time being.

      "Landlord's Affiliates" means (i) any corporation Controlling Landlord and
any parent corporation Controlling the same (whether directly or indirectly);
(ii) any corporation Controlled by Landlord and any corporation Controlled by
the same (whether directly or indirectly); (iii) any Person which acquires
substantially all of the assets of Landlord or any corporation into which
Landlord may be merged or with

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which Landlord may be consolidated; and (iv) all Employees of Landlord and of
every corporation referred to in (i), (ii) and (iii) above.

      "Law" or "Laws" means each and every law, rule, regulation, order,
ordinance, statute, requirement, code, or executive mandate of any kind
whatsoever, present or future, issued by any Government Entity applicable to or
affecting the Premises, the Land, the Building, and/or the use, occupancy,
possession, operation, and/or maintenance of the Premises, the Land and/or the
Building.

      "Lease Year" means a period of twelve (12) consecutive months during the
Lease Term commencing on the Commencement Date; and "Partial Lease Year" means
that portion of the Lease Term occurring after the Commencement Date and ending
prior to the commencement of the first full Lease Year or occurring after the
end of the last full Lease Year and through the Expiration Date (or any earlier
date on which this Lease may otherwise terminate in accordance with its terms,
covenants, conditions, and provisions).

      "Legal Proceeding" means every action, litigation, summary proceeding,
arbitration, administrative proceeding, and other legal or equitable proceeding
of any kind whatsoever.

      "Lien" means any and every lien of any kind whatsoever for the furnishing
(or alleged furnishing) of (or on account of) labor, materials, services,
facilities, or any other things whatsoever.

      "Non-Structural Alterations" means painting, wallpapering, the
installation of carpeting, bookcases, shelves, partitions, non-load bearing
walls, paneling, furniture or moveable fixtures, or the hanging of pictures or
other decorative items which can be removed without permanent damage to the
applicable surface, or computer/telecommunications wiring or re-wiring within
the Premises which does not affect Building Systems.

      "Overtime Hours" means hours other than Business Hours.

      "Parking Lot" means the parking lot on the Land adjacent to the Building
and owned by Landlord and designated by Landlord for common use by tenants and
occupants of the Building and their invitees.

      "Person" means an individual person, corporation, partnership, trust,
joint venture, proprietorship, estate or other incorporated or unincorporated
enterprise, entity, Government Entity, or organization of any kind whatsoever.

      "Project" means the Building and all Public Areas.

      "Public Areas" means those areas of the Building which are not leased to
tenants and which are available for common use of tenants, occupants, and their
invitees, including (if any), lobby, loading docks and areas, delivery areas,
elevators (including freight elevators), escalators, hallways, pedestrian
sidewalks, landscaped areas, stairways, lights and lighting facilities, sanitary
systems restrooms, Utility installations, the Parking Lot and facilities,
cafe/cafeteria and exterior courtyard adjacent thereto, and other areas and
improvements provided by Landlord for common use or benefit.

      "Rent" or "Rents" means, collectively, Fixed Rent and Additional Rent.

      "Required Insurance" means the insurance coverage required to be provided
by Tenant under Article 10.

      "Restoration" (or "Restore") means and includes any and all repairs,
additions, restorations, rebuilding, construction, alterations, improvements and
replacements of every kind (whether structural or otherwise).

      "Senior Encumbrance" means: (a) any and every mortgage now a lien, or
hereafter becoming a lien, upon the Land or the Building; and (b) any lease
presently or hereafter in effect between Landlord, as lessee or tenant, and any
owner of the Land or the Building, which covers or includes the Premises.

      "State" means the State of Indiana.

      "Utilities" means gas, water (including water for domestic uses and fire
protection), sewer, electricity, light, heat, power, telephone, and
telecommunications, data transmission, water filtration service, other utilities
of every kind.

      Certain other words and phrases are defined elsewhere in this Lease and/or
the Exhibits hereto.

1.2.  Wherever used in this Lease,

      (a) the words "include" or "including" shall be construed as incorporating
"but not limited to" or "without limitation";

      (b) the phrase "at Tenant's expense" means at the sole and exclusive
expense of Tenant, who shall be responsible for all costs involved in, or
associated with, the applicable matter; and

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      (c) the phrase "in Landlord's judgment" means in Landlord's sole and
exclusive discretion and judgment.

1.3. Wherever this Lease imposes any obligation upon Tenant, or provides that
Tenant shall be responsible for any action or matter, this Lease shall be
construed to mean that Tenant shall perform or undertake the matter at Tenant's
expense, unless expressly specified otherwise.

ARTICLE 2. Term; Commencement Date; Access.

2.1. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
the Premises for the Term.

2.2. Landlord hereby grants Tenant (and its employees and contractors) a
non-exclusive license for the Term to use the telephone switch room located on
the first floor of the Building (the "Telephone Room") for maintenance of
Tenant's telephone switch(es) and related equipment.

2.3. Tenant shall have access to the Premises and the Telephone Room 24 hours
per day, seven days per week.

2.4. Landlord shall provide Tenant's officers and employees with a key, card
key, access code or other type of access to the Building, the Premises, the
computer room and the Telephone Room and shall maintain such access system in
good repair. Landlord shall program the elevator to restrict access to the
second floor of the Building to officers and employees of Tenant and other
authorized persons designated by Tenant who are holders of card keys which are
programmed to provide access to the Premises. Landlord shall also provide a
receptionist in the lobby of the Building during Business Hours to receive and
direct Tenant's guests and shall use reasonable efforts to restrict access to
the second floor of the Building as directed by Tenant. Landlord shall not grant
access to the Premises to other tenants or occupants of the Building (other than
Building maintenance and management personnel).

ARTICLE 3. Fixed Rent.

3.1. Tenant agrees to pay Fixed Rent to Landlord, without notice or demand, in
equal monthly installments in advance on the first day of each and every
calendar month during the Term. Tenant shall pay the first monthly installment
of Fixed Rent upon execution of this Lease.

3.2. If the Commencement Date falls on any day other than the first day of a
calendar month, the installment of Fixed Rent for such calendar month shall be
prorated on a per diem basis (and Tenant shall pay such pro-rated installment on
the Commencement Date).

3.3. Tenant agrees to pay as additional rent ("Additional Rent") all sums of
money, costs, expenses, charges, interest, or fees of every kind or amount
whatsoever, other than Fixed Rent, which Tenant has assumed or agreed to pay to
Landlord, or which otherwise may become due and payable by Tenant, under this
Lease. Additional Rent shall not include, and Tenant shall not be responsible
for, any payments on account of real estate taxes or operating expenses for the
Building. Unless otherwise specified, Tenant shall pay all Additional Rent
within ten (10) days after Landlord's demand. Landlord shall have the same
rights (and remedies) under this Lease for Tenant's failure to pay any
Additional Rent as for Tenant's failure to pay Fixed Rent.

3.4. Tenant shall pay Fixed Rent and all Additional Rent in lawful money of the
United States by unendorsed check payable to Landlord drawn on a bank located
within the continental United States.

3.5. Tenant shall pay Fixed Rent and all Additional Rent to Landlord at the Rent
Payment Address or at such other place as Landlord may designate by notice to
Tenant from time to time.

3.6. Tenant shall pay all Fixed Rent and Additional Rent promptly when due and
payable, without notice or demand, and without offset, deduction, credit,
abatement, or counterclaim of any kind or for any reason whatsoever unless,
however, specifically permitted elsewhere in this Lease.

3.7. If Tenant fails to pay any installment of Fixed Rent or any amount of
Additional Rent for more than ten (10) days after the same is due, Tenant shall
pay, with the delinquent sum, (a) a late charge equal to 5% of such delinquent
installment and (b) interest thereon at the Interest Rate from the date when due
through the date of payment.

3.8. If Tenant fails to make any payment required by this Lease (other than
Fixed Rent), or if Tenant fails to keep or perform any other term, covenant,
condition or provision of this Lease, or if this Lease provides in any case that
Landlord may take certain actions at Tenant's expense, Landlord may (at
Landlord's election) make any such payment and/or take such action as Landlord
deems necessary or desirable (in Landlord's judgment) to perform and fulfill
such term, covenant, condition or provision. In any such event, Tenant agrees to
reimburse Landlord, upon demand, for any such payment, and/or for all amounts so
paid or incurred by Landlord (including all Fees-And-Costs), together with
interest on each such amount at the Interest Rate from the date of Landlord's
demand.

3.9. If any Fixed Rent or any Additional Rent shall be or become uncollectible
by virtue of any Laws, Tenant shall enter into such agreement or agreements and
take such other action as Landlord may request to permit Landlord to collect

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the maximum Fixed Rent and Additional Rent which may, from time to time during
the continuance of such restriction, be legally permissible (but not in excess
of the amounts due under this Lease). Upon the termination of such restriction,
(a) Fixed Rent and Additional Rent shall become payable in accordance with the
terms of this Lease and (b) Tenant shall pay Landlord, if legally permissible,
an amount equal to the Fixed Rent and Additional Rent which would have been
payable hereunder but for the restriction, less the amounts paid by Tenant to
Landlord during the period that such rent restriction was in effect.

ARTICLE 4. HVAC; Building Systems.

4.1. Landlord shall provide, maintain and repair the Building Systems.

4.2. Landlord shall furnish HVAC to the Premises during Business Hours via the
Building Systems. At Tenant's request, Landlord shall furnish HVAC to the
Premises during Overtime Hours, at no additional cost to Tenant, provided Tenant
requests such service before 3:00 p.m. on the day for which service is requested
(or by 3:00 p.m. on the preceding Business Day if service is requested for a day
other than a Business Day).

4.3. Landlord shall provide passenger elevator service to the Premises on
Business Days during Business Hours. Landlord shall have one passenger elevator
subject to call at other times. Elevator service shall be on a non-exclusive
basis and shall be subject to temporary cessation for ordinary repair and
maintenance and during times when life safety systems override normal building
operating systems.

4.4. There shall be one freight elevator on call on a "first come", "first
served" basis during Business Hours and Overtime Hours, at no additional cost to
Tenant, subject to temporary cessation for ordinary repair and maintenance and
during times when life safety systems override normal building operating systems
and further subject to the Building Rules and Regulations.

4.5. Landlord shall furnish water to the Premises for ordinary lavatory,
drinking, pantry and space cleaning purposes. If Tenant uses water for other
purposes or excessive quantities ("Extra Water"), Tenant shall pay Landlord's
actual cost for Extra Water.

4.6. Tenant shall not discharge (or allow discharge of) foreign or Hazardous
Materials into the water or sewer systems of the Building or in violation of
Laws.

4.7. Landlord shall cause janitorial services to be provided to the Premises, at
no additional cost to Tenant, in a manner that Landlord reasonably deems to be
consistent with the standards of comparable office buildings in the market area
of the Building.

4.8. Tenant shall notify Landlord in writing, promptly after learning of the
same, of defects or problems in the Building Systems or in services to be
furnished by Landlord under this Lease.

4.9. Landlord shall make available to Tenant space in the Building directory in
the lobby on terms reasonably acceptable to Landlord.

4.10. Landlord represents and warrants that the electrical power currently
supplied to the Premises via the Building Systems is adequate to continue the
current level of operations and use of the Premises. To the extent the services
described in this Article 4 require electricity and water supplied by public
utilities, Landlord's covenants thereunder shall only impose on Landlord the
obligation to use its reasonable efforts to cause the applicable public
utilities to furnish same, provided however, that Landlord shall permit Tenant
to use all of the then existing Building Systems, feeders, risers, wiring, and
pipes to receive such services. Except for the willful misconduct or negligence
of Landlord and as set forth in Section 4.11 below, failure by Landlord to
furnish the services described herein, or any cessation thereof, shall not
render Landlord liable for damages to either person or property, nor be
construed as an eviction of Tenant, nor work an abatement of rent, nor relieve
Tenant from fulfillment of any covenant or agreement hereof. In addition to the
foregoing, should any of the equipment or machinery, for any cause, fail to
operate, or function properly, Tenant shall have no claim for rebate of rent or
damages on account of an interruption in service occasioned thereby or resulting
therefrom; provided, however, Landlord agrees to use reasonable efforts to
promptly repair said equipment or machinery and to restore said services during
normal business hours.

4.11. Notwithstanding anything to the contrary in this Lease, however, if the
Premises, or any portion thereof, shall be rendered untenantable due to
Landlord's failure to perform its obligations under this Lease and/or provide
the services required hereunder for any reason within Landlord's reasonable
control for a period of five consecutive Business Days or more, then the Fixed
Rent and Additional Rent payable hereunder shall be abated until the date upon
which the condition causing the untenantability is cured and the Premises is
restored to substantially the same condition as it existed, or if applicable,
the date of restoration of substantially the same level of service, prior to the
occurrence of the condition which rendered the Premises (or portion)
untenantable; and provided, further, that if, for any reason whatsoever
(including Landlord's actions or failure to perform and/or force majeure) (i) a
substantial portion of the Premises shall be rendered untenantable and Tenant is
entitled to an abatement pursuant to the above and the same continues for

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forty-five (45) days after Landlord received notice of such untenantable
condition (except due to Damage, in which event the provisions of Article 14
shall govern), then Tenant shall be entitled to terminate this Lease, by giving
Landlord written notice of its election to terminate within ten (10) days after
the expiration of said forty-five (45) day period (time being of the essence).

ARTICLE 5. Use.

5.1. The Premises shall be occupied and used by Tenant solely and exclusively
for the Permitted Use, and Tenant shall not use or permit or suffer the use of
the Premises for any other purpose whatsoever.

5.2. Tenant agrees that Tenant:

      (a) will not permit the use of any part of the Premises for any unlawful
purpose;

      (b) will not permit the Premises to be used for disreputable or
pornographic purposes or for activities which would be deemed obscene under
applicable Laws; or

      (c) will not cause or allow any waste, disfigurement or damage, to the
Premises.

ARTICLE 6. Compliance with Laws and Insurance Requirements.

6.1. At Tenant's expense, Tenant shall comply with all Laws and Insurance
Requirements, applicable during the Term, except however to the extent such Laws
and Insurance Requirements relate to Landlord's obligations under this Lease and
such compliance requires repairs or Alterations to the Premises.

6.2. To the extent permitted by Law, Tenant may in good faith contest, at
Tenant's expense and by appropriate proceedings, the validity or effect of any
Law.

6.3. Notwithstanding Section 6.2, Tenant shall not use or occupy the Premises in
violation of the certificate of occupancy issued for the Premises. If any
Government Entity shall give notice that the Premises are being used in
violation of such certificate of occupancy, Tenant shall, upon five (5) days
written notice from Landlord, discontinue such use of the Premises.

ARTICLE 7. Alterations and Installations.

7.1. Tenant shall not undertake any Alteration, whether voluntarily or in
connection with a Restoration required by this Lease, unless Tenant complies
with this Article.

7.2. Tenant shall not commence any structural Alteration without Landlord's
prior written consent. Notwithstanding the foregoing, however, Landlord's
consent shall not be required for any Non-Structural Alteration provided that
the cost of performing such non-structural alteration shall not exceed
$25,000.00 and shall not cause the aggregate of all such alterations in any
12-month period to exceed $50,000.00.

7.3. Landlord will not unreasonably withhold or delay consent to an Alteration
(when such consent is required) except, however, with regard to any Alteration
which will:

      (a) alter or affect the proper functioning of the Building Systems or the
structure, facade, roof, or foundation of the Building;

      (b) detract from the use or character of the Premises;

      (c) require amendment of any certificate of occupancy for the Premises; or

      (d) require the consent of any insurer under any Required Insurance or any
other policy of insurance covering the Premises or the holder of a Senior
Encumbrance.

7.4. With respect to every Alteration (except with regard to Non-Structural
Alterations), Tenant shall cause all necessary designs, plans and specifications
for a proposed Alteration to be prepared at Tenant's expense by an architect (or
engineer, if appropriate) licensed by the State and shall submit the same to
Landlord for Landlord's review. With respect to every Alteration (except with
regard to Non-Structural Alterations not requiring Landlord's consent), such
designs, plans and specifications shall be subject to Landlord's written
approval which Landlord will not unreasonably withhold or delay. Landlord's
approval (if given) shall not imply that the Alteration is properly designed or
complies with Laws.

7.5. With respect to every Alteration:

      (a) Tenant shall procure or cause to be procured all permits, approvals,
consents, licenses and filings of any kind required by Laws;

      (b) Tenant shall obtain (and pay any additional costs for) the consent of
any insurer to such Alteration if such consent is required to keep any Insurance
Policy in full force and effect;

      (c) Tenant shall undertake, prosecute, and complete all work in connection
with the Alteration continuously and expeditiously and in a good and workerlike
manner;

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      (d) Any contractor employed by Tenant (and all subcontractors) shall be
subject to Landlord's prior written approval, which shall not be unreasonably
withheld, delayed or conditioned, and shall agree to employ only such labor as
will not result in jurisdictional disputes or strikes or cause disharmony with
other workers employed at the Building.

      (e) Tenant shall pay each contractor, as the work progresses, the entire
cost of supplying the materials and performing the work shown on Tenant's
approved plans and specifications for an Alteration, subject to a reasonable
retainage (and to resolution of disputes provided that no liens are filed
against the Premises).

      (f) Tenant shall cause the Alteration to be installed or constructed in
compliance with Laws.

      (g) Tenant agrees that each Alteration will:

            (i) be of good quality and free from faults and defects, latent or
      otherwise;

            (ii) be free of Liens;

            (iii) conform to the plans and specifications approved by Landlord;
      and

            (iv) be fit for the intended use and purpose.

      (h) Tenant and Tenant's contractors shall allow access for inspection by
Landlord's representatives at all reasonable times.

      (i) Tenant shall obtain all necessary asbestos certifications (if any) and
comply with all Laws regarding the removal, handling, or treatment of Hazardous
Materials in connection with any Alteration.

      (j) With respect to any Alteration, Tenant shall pay Landlord, upon
demand, Fees-And-Costs incurred by Landlord for review by architects and/or
engineers of Tenant's Alteration plans.

7.6. Landlord shall not be responsible for any labor or materials furnished to
Tenant or for delays of any kind experienced by Tenant's contractors or
subcontractors. No Lien for any labor, materials, or other services or things
furnished to Tenant shall attach to or affect Landlord's estate or interest in
the Premises. Tenant agrees to discharge, at Tenant's expense (whether by
payment, bonding, or otherwise) every Lien filed against the Premises for work
or materials claimed to have been furnished to Tenant, within thirty (30) days
after receiving notice thereof. Tenant shall require that all contractors and
subcontractors engaged in connection with Tenant's Alterations indemnify the
Indemnitees against any and all loss, cost, liability, claim, damage, or expense
(including Fees-and-Costs) paid or incurred by any Indemnitee, or asserted
against any Indemnitee, for bodily injury, disease, or death to persons, or
damage to property, by reason of the acts or omissions of Tenant or Tenant's
contractors or subcontractors or by reason of their failure to comply with Laws.

ARTICLE 8. Fixtures and Equipment; Tenant's Property.

8.1. Any Alterations made and installed by Landlord (or at Landlord's expense)
shall be Landlord's property and shall remain upon the Premises (and be
surrendered by Tenant) at the end of the Term.

8.2. All Alterations made and installed by Tenant (or at Tenant's expense) in or
upon the Premises which are of a permanent nature and cannot be removed without
damage to the Premises shall become Landlord's property and shall remain upon
(and be surrendered by Tenant) at the end of the Term. However, except to the
extent as Landlord may have otherwise agreed in writing, Landlord shall have the
right, by written notice given to Tenant to require Tenant to remove any of such
Alterations and, in such event, Tenant will remove the same and restore the
Premises to its original condition prior to the Expiration Date, excepting only
ordinary wear and tear. In addition, at Landlord's option, Tenant shall also be
responsible for removing all wires and cables installed by Tenant in the
Premises and other portions of the Building to serve Tenant's telecommunications
and computer systems in the Premises and the removal of such wires and cables
shall be effected by Tenant without damage to the Building and without
interference with the business or operations of Landlord or any other tenant of
the Building.

8.3. Tenant shall have the right during the Term to use any and all furniture,
furnishings, trade fixtures and equipment in the Premises as of the Commencement
Date. All furniture, furnishings, trade fixtures and equipment otherwise
furnished by Tenant or at Tenant's expense shall be the property of Tenant which
Tenant shall remove prior to the Expiration Date.

8.4. If any Alterations or other property which Tenant may or must remove under
Sections 8.2 or 8.3 are not removed prior to the expiration or termination of
this Lease for any cause whatsoever or upon the Tenant being dispossessed by
process of law or otherwise, such alterations, effects, personalty and equipment
shall, at Landlord's option, be deemed conclusively to be abandoned and may be
appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without written notice to Tenant or any other party and without obligation to
account for them. Tenant shall pay Landlord on demand any and all expenses
incurred by Landlord in the removal of such property, including, without

                                       8


limitation, the cost of repairing any damage to the Building caused by the
removal of such property and storage charges (if Landlord elects to store such
property).

8.5. Tenant shall repair all damage to the Premises resulting from the
installation, moving, or removal of any property (or shall reimburse Landlord,
upon demand, for Landlord's cost of repairing any such damage if Tenant fails to
do so). This Section shall survive any termination of this Lease.

ARTICLE 9. Maintenance; Repairs.

9.1. Except for obligations of Landlord specifically set forth in this Lease,
Tenant shall maintain the Premises in a good, clean, safe, sanitary, and orderly
condition.

9.2. Landlord shall maintain: (a) the lobby and other Public Areas of the
Building and the exterior of the Building in good, clean and orderly condition
(reasonable wear, tear and obsolescence excepted); and (b) the Building Systems
in good working order and repair.

9.3. Any work or repairs by Tenant required or permitted with respect to the
Premises under this Lease shall be of good quality. If Tenant fails to make any
such required repairs within a reasonable time after written notice from
Landlord (not to exceed thirty (30) days), or to promptly commence and
diligently prosecute such repairs within a reasonable time if the same cannot be
completed within thirty (30) days, Landlord may (but shall not be obligated to)
effect the repairs at Tenant's expense and collect the cost thereof, upon
demand, as Additional Rent, with interest at the Interest Rate from the date of
Landlord's payment.

9.4. Tenant shall Restore promptly all Damage or injury to the Premises caused
by the acts or omissions of Tenant or Tenant's Employees or invitees.

9.5. Tenant shall not place a load upon any floor of the Premises exceeding the
floor load which such floor was designed to carry and which is allowed by Laws.
Business machines and mechanical equipment used by Tenant which cause vibration,
noise, cold or heat shall be placed and maintained by Tenant in settings of
cork, rubber or spring-type vibration eliminators sufficient to absorb and
prevent such vibration or noise, or prevent transmission of such cold or heat.

ARTICLE 10. Required Insurance.

10.1. At Tenant's expense, Tenant shall secure and keep in force the following
"Required Insurance" at all times during the Term:

      (a) commercial liability insurance (including contractual liability
coverage recognizing this Lease) covering the Premises and Tenant's occupancy
thereof, with coverage limits not less than the Liability Limit; and

      (b) "all-risk" insurance protecting against all risk of physical loss or
damage to Tenant's personal property, in amounts not less than the actual
replacement cost of Tenant's trade fixtures, furnishings, wall coverings, floor
coverings, drapes, computers and other equipment and other personal property
located within the Premises.

10.2. Landlord, at its expense, shall secure and keep in force at all times
during the Term, "all-risk" casualty insurance, on an extended coverage basis,
protecting against all risk of physical loss or Damage to the Premises and the
Building from fire, windstorm, and other casualties customarily covered by risk
insurance, in an amount at least equal to the full replacement value of the
Building.

10.3. All Required Insurance shall be evidenced by valid and enforceable
policies issued by companies licensed to do business in the State. (Each policy
providing Required Insurance is referred to in this Lease as an "Insurance
Policy".) All Insurance Policies shall name Landlord the holder of every Senior
Encumbrance and such other parties reasonably designated by Landlord as an
additional insured. Tenant shall furnish Landlord, within thirty (30) days after
the date of this Lease and thereafter at Landlord's request from time to time,
with original insurance certificates or copies of original policies evidencing
such coverage. The minimum limits of the comprehensive general liability policy
of insurance shall in no way limit or diminish Tenant's liability under Article
23 of this Lease. All Required Insurance shall be written on the "occurrence",
and not on the "claims made", basis.

10.4. Each Insurance Policy shall provide that the insurer shall not cancel or
amend such Insurance Policy, or reduce any coverage, without thirty (30) days'
prior written notice to Landlord (whether or not such provision is obtainable
only by payment of an additional premium).

10.5. All policies of insurance carried by Landlord and Tenant shall include, if
available without additional premium, a waiver by the insurer of all rights of
subrogation against Landlord or Tenant in connection with any loss or damage
thereby insured against. Neither party (nor its agents, Employees or guests)
shall be liable to the other for loss or damage caused by any risk covered by
such insurance, to the extent that policies are obtainable with such waiver of
subrogation. If insurance policies with such waivers are available only at extra
premium, the insured party will give written notice to the other, who may pay
the extra premium for such waiver within thirty (30) days after the giving of
such notice; and the insured party will then secure the waiver of

                                       9


subrogation. If the release of either Landlord or Tenant in this Section
contravenes any law respecting exculpatory agreements, the party purportedly
released hereunder shall not be released; but such party's liability shall be
secondary to that of the other party's insurer.

10.6. Prior to the Commencement Date, Tenant shall deliver to Landlord
certificates or, at Landlord's request, copies of the original policies,
evidencing that all Required Insurance shall be in full force and effect as of
the Commencement Date. Tenant shall cause each of its contractors to comply with
this Section 10.6 prior to entry upon the Premises for the purpose of performing
any work.

10.7. Thirty (30) days prior to the expiration of any Insurance Policy, Tenant
shall deliver to Landlord certificates or, at Landlord's request, original
policies evidencing renewal or replacement of such Insurance Policy. If Tenant
fails to deliver such certificates or pay the premiums, Landlord may procure and
pay for the renewal or replacement policies after ten (10) days' notice to
Tenant. Any such payments by Landlord shall constitute Additional Rent due and
payable by Tenant upon demand, with interest at the Interest Rate from the date
of Landlord's payment.

10.8. Tenant and Landlord shall cooperate with each other and with the holders
of any Senior Encumbrances in connection with collection of any insurance
monies.

10.9. Tenant shall not do or permit to be done any act or thing upon the
Premises which will invalidate or contravene any Insurance Policy or be in
conflict with any Insurance Requirements, or prevent Landlord from obtaining
insurance, or increase the rate of fire insurance applicable to the Building;
and Tenant shall neither do nor permit to be done any act or thing upon the
Premises which will or might subject Landlord to any liability or responsibility
for injury to any Person or to property.

10.10. Tenant shall reimburse Landlord, as Additional Rent upon demand, for all
increases of Landlord's insurance premiums resulting from violations of Tenant's
obligations under Section 10.9. In any Legal Proceeding involving the cost of
insurance, a schedule or "make-up" of rates issued by the body making insurance
rates for the Premises shall be presumptive evidence of the items and charges
taken into consideration in fixing the insurance rates then applicable to the
Premises.

10.11. Except to the extent resulting or arising from Landlord's negligence,
Landlord and Landlord's Affiliates shall not be liable for, and Tenant waives
all claim for, any injury or damage to Persons or property resulting from any
equipment or appurtenances in disrepair, Landlord's failure to keep the Building
and Premises in repair, fire, explosion, falling plaster, broken glass, steam,
gas, electricity, water, wind, rain, snow or other natural elements, or leaks
from any part of the Building, or from the pipes, appliances, tanks, plumbing,
roof, street, or subsurface, or the backing up of any sewer pipe or drain
downspout, or from any other place, or by dampness or steam, or from theft or
other criminal activity, or from the acts or omissions of other tenants or
occupants or owners of nearby properties, or any other cause of whatsoever
nature (excluding however, any of the foregoing resulting directly from elective
work in the Premises performed by Landlord or Landlord's contractors).

ARTICLE 11. Damage; Restoration.

11.1. Tenant shall notify Landlord in writing of any Damage to the Premises or
the Building promptly after Tenant learns of the same.

11.2. In event of Damage to the Building or the Premises, Landlord shall Restore
the Damaged area and repair or replace Landlord's personal property in the
Premises as nearly as possible to the value, condition and character of the same
immediately before the Damage, subject, however, to Sections 9.4 and 11.3.

11.3. If the Building is so Damaged (whether or not the Premises are Damaged) as
to require, for Restoration, a reasonably estimated expenditure of more than 30%
of the value of the Building as actually insured under Landlord's insurance
policies immediately prior to such Damage, and Landlord elects not to Restore
the Building, Landlord may terminate this Lease by notice to Tenant within 120
days after the date of such Damage.

11.4. In event of Damage to the Building or the Premises, if Landlord is
obligated to repair the same under Section 11.2 but has not completed the
required repairs within 270 days after the date of such Damage and if the Damage
has deprived (and then continues to deprive) Tenant of reasonable access to the
Premises or the use and enjoyment of more than 10% of the Premises, Tenant may
terminate this Lease by written notice to Landlord given within 30 days after
the end of such 270 days.

11.5. If Landlord or Tenant terminates this Lease pursuant to Section 11.3 or
11.4, this Lease shall expire as of the date of Landlord's or Tenant's notice,
as if such date were the Expiration Date. Upon such date, Tenant shall quit,
surrender and vacate the Premises as if upon expiration of the Term; and all
Rents shall be apportioned as of such date (subject to Section 11.6).

11.6. If the Premises become unusable by Tenant for more than five consecutive
Business Days from Damage to the Premises or the Building (except any Damage
caused by the acts or omissions of Tenant or its Employees or invitees), Tenant
shall receive an abatement of Fixed Rent and

                                       10


Additional Rent from the date of the Damage to the date when such Damage is
Restored. Such abatement shall be proportional to the ratio which the square
footage of the Damaged area of Premises bears to the total square footage of the
Premises.

11.7. This Article shall be considered an express agreement governing Damage to
the Premises and/or the Building; and (to the extent permitted by law) any
statute purporting to govern in such cases, now or subsequently in force, shall
have no application under this Lease.

ARTICLE 12. Condemnation.

12.1. If the entire Premises is Condemned or taken in Condemnation, this Lease
shall terminate and expire as of the effective date of such Condemnation.

12.2. If more than 15% of the usable area of the Land on which the Building has
been constructed (excluding adjacent Land not necessary to the operation or
maintenance of the Building), the Parking Lot, and/or the Building shall be
Condemned (whether or not the Premises are Condemned), Landlord may terminate
this Lease by notice to Tenant within 90 days after the effective date of such
Condemnation; and this Lease shall terminate on the date specified in Landlord's
notice (which shall be at least 60 days after the date of such notice).

12.3. Subject to Section 12.2, if part (but not all) of the Premises is
Condemned, this Lease shall terminate with respect only to the portion of the
Premises so Condemned, as of the effective date of such Condemnation. In all
other respects this Lease shall remain in effect except that Rents shall be
reduced, after such date, in the proportion which the square footage of the area
so Condemned bears to the Premises.

12.4. Notwithstanding Section 12.3, if more than 10% of the Premises is
Condemned, or if there is a Condemnation of a substantial part of the means of
access to the Premises, Tenant may terminate this Lease by notice to Landlord
given within 90 days after the effective date of such Condemnation; and this
Lease shall terminate 30 days after the giving of Tenant's notice.

12.5. In event of any Condemnation of the Land, the Building or the Premises,
whether or not this Lease terminates, Landlord shall be entitled to the entire
award and compensation, without deduction for any estate vested in Tenant by
this Lease (or any value attributable thereto). Tenant hereby assigns to
Landlord Tenant's entire interest (if any) in or to any such award and
compensation (other than Tenant's claim for statutory moving expenses, if any);
and Tenant agrees to execute and file, at Landlord's expense, all documents and
instruments necessary or desirable to facilitate Landlord's collection of such
award and compensation.

12.6. If this Lease terminates in whole or in part under this Article, the
effect shall be the same (as to the affected portion of the Premises) as if the
date of such Condemnation were the Expiration Date; and Rents shall be
apportioned as of such date.

ARTICLE 13. Public Areas; Conference Rooms; Parking Lot.

13.1. The Public Areas shall be subject to Landlord's management. Landlord may
establish, amend, and enforce reasonable rules concerning the Public Areas and
the Premises (the "Building Rules") from time to time. The current Building
Rules are attached hereto as Exhibit C. Any modifications, amendments or
additions to the Building Rules shall be subject to Tenant's reasonable
approval.

13.2. Tenant and its Employees and invitees shall have the non-exclusive right,
in common with Landlord (and others to whom Landlord has granted or may in the
future grant rights), to use the Public Areas subject to the Building Rules and
Landlord's rights as set forth above. Landlord may close any Public Areas
temporarily at any time to make repairs or changes, to prevent the acquisition
of public rights, and for other reasonable purposes.

13.3. Tenant shall have the right to use the conference rooms located on the
first floor of the Building (the "Conference Rooms") subject to availability
during Business Hours and Overtime Hours for a reasonable fee to be agreed to
between Landlord and Tenant. Landlord and Tenant agree that the initial fee for
using each room shall be $100.00 per room per day or any portion of such day.
Tenant shall have the right to use the cafe/cafeteria in the Building for
Tenant's exclusive use for special events subject to availability during
Overtime Hours for a reasonable fee to be agreed to between Landlord and Tenant.
Landlord and Tenant agree that the Initial Fee for such use of the
cafe/cafeteria shall be $200.00 per day or any portion of such day. Tenant shall
cause such areas to be cleaned and restocked, as necessary, promptly after the
completion of Tenant's use thereof at Tenant's sole cost expense. In the event
that Tenant fails to comply with the terms of this Section 13.3 and such other
reasonable rules and regulations of Landlord relating to the use of such areas,
Landlord shall be permitted to terminate Tenant's use rights of such areas under
this Section 13.3 only.

13.4. Tenant and its employees, guests, and invitees shall have the nonexclusive
right to use up to 120 parking spaces in the Parking Lot. Notwithstanding
anything to the contrary in this Lease, Landlord agrees that during the Term,
the Parking Lot shall be operated on a "first come", "first served" basis and
that Landlord shall not create "reserved" parking spots in

                                       11



the Parking Lot in addition to those spots currently designated as "reserved".

13.5. Tenant agrees and acknowledges that Landlord shall not have any obligation
to continue operation of the cafe/cafeteria or to otherwise provide any food
service facilities or services at the Building and that Tenant shall have no
claim whatsoever against Landlord or any other policy in the event of the
cessation of such operation.

ARTICLE 14. Signs.

14.1. Tenant shall have the right to install and maintain at Tenant's expense a
panel on the pylon sign on the Land identifying the occupant(s) of the Premises.
Landlord shall have the right to approve the location, materials, dimensions,
and design of such signage which approval shall not to be unreasonably withheld
or delayed.

ARTICLE 15. Landlord's Access to Premises; Related Matters.

15.1. Tenant shall permit Landlord to erect, use and maintain pipes, ducts and
conduits in and through the Premises, provided the same are installed adjacent
to or concealed behind walls and ceilings of the Premises. To the extent
reasonably practicable, Landlord shall install such pipes, ducts and conduits by
methods and in locations which will not materially interfere with or impair
Tenant's layout or use of the Premises.

15.2. Landlord shall be allowed to bring into and store upon the Premises all
necessary materials, equipment, tools, facilities, and supplies to be used for
any work permitted or required under this Lease without the same constituting an
actual or constructive eviction of Tenant; and Rents shall not abate while said
repairs or alterations are being made except as otherwise provided in this
Lease. Landlord shall exercise reasonable diligence to minimize disturbance to
Tenant during any such work but need not perform any work on an overtime or
premium pay basis.

15.3. Landlord reserves the right, without the same constituting an actual or
constructive eviction and without incurring liability to Tenant, to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, if any, stairways, toilets and/or other public parts of
the Building, if any; provided, however, that there shall be no obstruction of
access to the Premises or interference with Tenant's use or enjoyment of the
Premises.

15.4. Tenant authorizes Landlord and Landlord's Employees to enter the Premises
during Business Hours on at least 24 hours prior notice (provided that such
prior notice shall not be required in emergency situations) (a) to inspect the
Premises; and/or (b) to perform any maintenance or to make any repairs,
alterations, or improvements which Landlord deems necessary to the Premises or
which are otherwise permitted under this Lease (including any work required
under Article 9 which Tenant has failed to perform or make). Landlord shall not
enter the Premises unless accompanied by a representative of Tenant except in
case of emergency.

15.5. Landlord shall repair any damage to property caused by willful acts or
gross negligence of Landlord or Landlord's Employees.

15.6. Tenant agrees to permit Landlord and/or any Employee of Landlord to enter
the Premises during Business Hours, on at least 24 hours prior notice and so
long as accompanied by a representative of Tenant, to exhibit the Premises in
connection with:

      (a) any prospective sale or lease of the Land and/or the Building; or

      (b) any prospective securing, refinancing, or assignment of any mortgage
affecting the Land or the Building; and/or

      (c) during the final twelve (12) months of the Term, any prospective
leasing of the Premises.

15.7. If, during the last month of the Term, Tenant has removed all of Tenant's
Property, Landlord may (at Landlord's option but without any liability to do so)
immediately enter and alter, renovate and redecorate the Premises, without
abatement or adjustment of any Rents or incurring liability to Tenant for any
compensation; and such acts shall have no effect upon this Lease.

ARTICLE 16. Subordination: Estoppel Certificate; Attornment.

16.1. This Lease (as amended, modified, extended, or otherwise revised from time
to time), and the leasehold estate created hereby, are now and shall hereafter
be subject and subordinate in every respect to all Senior Encumbrances. This
subordination shall be self-operative without requirement of any further
instrument of subordination from any Person to whom (or to whose interest) this
Lease, and leasehold estate created hereby, are subordinate. However, if and
whenever requested by Landlord or the holder of any Senior Encumbrance, Tenant
shall execute and deliver within ten (10) days of such request any certificate
or instrument requested to evidence such subordination.

16.2. Upon request of any present or future or prospective fee owner or the
holder of any Senior Encumbrance who succeeds to the rights of Landlord
hereunder, whether through

                                       12



conveyance pursuant to sale, possession, foreclosure action, expiration or
earlier termination of any ground lease, or otherwise (any such Person, a "New
Landlord"), Tenant shall attorn to and recognize each New Landlord as "Landlord"
under this Lease (as the same may then have been amended or modified); and
Tenant shall promptly execute and deliver any instrument which each New Landlord
may reasonably request to evidence such attornment. Upon such attornment, this
Lease (as then amended, modified, extended, or otherwise revised) shall continue
in full force and effect as, or as if it were, a direct lease between New
Landlord and Tenant; except, however, that any New Landlord shall not:

      (a) be liable for any previous act or omission of Landlord under the
Lease, or any claim which shall have previously accrued to Tenant against any
prior Landlord, except, however, to the extent that such act or omission or
claim is continuing; or

      (b) be bound by any prepayment to any prior Landlord of more than one
month's Fixed Rent or Additional Rent, unless the New Landlord shall have
approved the prepayment in writing; or

      (c) be subject to any offsets, claims, defenses, or counterclaims which
Tenant might have against any prior Landlord.

16.3. At either party's request from time to time, Landlord or Tenant, as
applicable, shall, within ten (10) days of such request, execute, acknowledge
and deliver to the other party a written statement (each such statement, an
"Estoppel Certificate") certifying that, except as specifically disclosed in
such Estoppel Certificate, on the date thereof:

      (a) attached to the Estoppel Certificate is a true, correct and complete
copy of this Lease, including any and all amendments and modifications thereof;

      (b) there are no agreements other than this Lease (and, except as attached
hereto, no amendments, modifications, extensions, or other revisions of this
Lease) in effect between Tenant and Landlord (or Tenant and any other Person)
with respect to the Premises;

      (c) this Lease is valid and in full force and effect and to such party's
knowledge, such party has no setoffs, claims or defenses of any kind whatsoever
to enforcement of this Lease;

      (d) to such party's knowledge, such party has no claim, demand, cause of
action or right to institute any Legal Proceeding against the other party
arising out of or by virtue of this Lease or by reason of Tenant's occupancy and
use of the Premises.

In each Estoppel Certificate, such party shall certify, also, the amount of
Fixed Rent then payable under this Lease, the amounts (and elements) of
Additional Rent (if any) then payable and the dates to which the same has been
paid, and such other matters as Landlord or Tenant or the holder of any Senior
Encumbrance may reasonably request. Tenant agrees that a prospective purchaser
or mortgagee of Landlord's interest in this Lease, the Premises, the Building,
and/or the Land, or the holder of any Senior Encumbrance (or the assignee of any
such Person), may rely upon such an Estoppel Certificate.

16.4. If the holder of any Senior Encumbrance requests reasonable modifications
in this Lease as a condition to approval of any financing or refinancing of the
Land or the Building, Tenant will not unreasonably withhold or delay making any
requested modifications which do not increase Fixed Rent or Additional Rent,
impose additional liabilities on Tenant, or shorten or extend the Term or
otherwise reduce Tenant's rights or increase Tenant's obligations under this
Lease.

16.5. Except for the first month's Fixed Rent, Tenant will pay no Rents under
this Lease more than thirty (30) days in advance of the due date.

16.6. Tenant will not exercise any right (or alleged right) to terminate this
Lease based upon any alleged act or omission of Landlord, unless Tenant first
gives written notice of such act or omission to the holder of each Senior
Encumbrance (provided Tenant has received written notice of and contact
information for such holder) and until a reasonable period to remedy such act or
omission elapses after the giving of such notice (during which time such holder
shall have the right, but no obligation, to remedy the alleged act or omission).
Tenant agrees, further, not to exercise any such right if the holder of any such
Senior Encumbrance commences to cure such act or omission within a reasonable
time after such notice and diligently prosecutes such cure to completion.

ARTICLE 17. Surrender of Premises.

17.1. Upon the expiration of the Term or any earlier termination of this Lease,
Tenant shal   l quit and surrender to Landlord the Premises, broom clean, in the
condition required under this Lease, excepting ordinary wear and tear and Damage
(other than Damage caused by the willful misconduct or negligence of Tenant or
its Employees). This Section shall survive the expiration of the Term or any
earlier termination of this Lease.

17.2. If Tenant holds over after the Expiration Date (or any earlier termination
of this Lease) without Landlord's written consent, at Landlord's election, such
holding over shall be deemed a month-to-month tenancy subject to all of the
terms, covenants and conditions herein specified and terminable on

                                       13



thirty (30) days' prior written notice, provided, however, that Fixed Rent shall
be $50,000 per month (i.e., 125% of the amount set forth in the Business Terms
section of this Lease).

ARTICLE 18. Assignment, Mortgaging, Subletting, etc.

18.1. Except as otherwise expressly provided in this Article, Tenant shall not,
without obtaining the prior written consent of Landlord (which consent shall not
be unreasonably withheld or delayed) in each instance:

      (a) assign or otherwise transfer this Lease, or any part of Tenant's
right, title or interest therein;

      (b) sublet all or any part of the Premises or allow all or any part of the
Premises to be used or occupied by any other Persons; or

      (c) mortgage, pledge or otherwise encumber this Lease, or the Premises.

For purposes of this Article:

      (w)the transfer of more than fifty percent (50%) of any class of capital
stock of any corporate tenant or subtenant, or the transfer of more than fifty
percent (50%) of the total interest in any other Person which is a tenant or
subtenant, however accomplished, whether in a single transaction or in a series
of related or unrelated transactions, shall be deemed an assignment of this
Lease, or of such sublease, as the case may be, except however, that such
transfer shall not be deemed an assignment (and shall not require Landlord's
consent) if such transfer is for a bona fide business purpose and not a device
for the transfer of Tenant's interest in this Lease and Tenant so certifies to
Landlord;

      (x) an agreement by any other Person, directly or indirectly, to assume
Tenant's obligations under this Lease (or to reimburse Tenant for any Rents
payable under this Lease) shall be deemed an assignment;

      (y)any Person to whom Tenant's interest under this Lease passes by
operation of law, or otherwise, shall be bound by the provisions of this
Article; and

      (z) each modification, amendment or extension of any sublease to which
Landlord has previously consented shall be deemed a new sublease.

Tenant agrees to furnish to Landlord upon demand at any time such information
and assurances as Landlord may reasonably request that neither Tenant, nor any
previously permitted subtenant, has violated the provisions of this Article.

18.2. Any assignment, whether made with or without Landlord's consent (as
required by Section 18.1), shall not be effective, and shall be null and void as
against Landlord, unless and until the assignee shall execute, acknowledge and
deliver to Landlord an agreement, in form and substance reasonably satisfactory
to Landlord, under which the assignee assumes the obligations and performance of
this Lease and agrees to be bound personally by all of the covenants,
agreements, terms, provisions and conditions hereby on the part of Tenant to be
performed or observed on and after the effective date of any such assignment.

ARTICLE 19. Quiet Enjoyment.

19.1. Upon paying Fixed Rent and Additional Rent and keeping and performing the
terms, covenants, conditions and provisions of this Lease, Tenant may lawfully
and quietly hold and enjoy the Premises during the Term SUBJECT, HOWEVER, to the
terms, covenants, conditions, and provisions of this Lease.

ARTICLE 20. Real Estate Brokers.

20.1. Tenant covenants, represents and warrants that Tenant has had no dealings
with any real estate broker, finder, or sales agent in connection with the
negotiation and execution of this Lease.

20.2. Tenant agrees to indemnify and hold Landlord harmless from and against any
commission or fee claimed by any real estate broker, finder, or other Person
with respect to the negotiation or execution of this Lease if such claim(s) are
based in whole or in part on dealings with Tenant (or by, through, or under any
Person claiming to have had such dealings). Tenant's indemnity shall cover,
also, all Fees-And-Costs which Landlord incurs to defend against any such claim.

20.3. Landlord agrees to indemnify and hold Tenant harmless from and against any
commission or fee claimed by any real estate broker, finder, or other Person
with respect to the negotiation or execution of this Lease if such claim(s) are
based in whole or in part on dealings with Landlord (or by, through, or under
any Person claiming to have had such dealings). Landlord's indemnity shall
cover, also, all Fees-And-Costs which Tenant incurs to defend against any such
claim.

ARTICLE 21. Adjacent Excavation; Shoring; Construction.

      If excavation, foundation, other substructure or superstructure work, or
other construction work shall be made or authorized in, on or upon land adjacent
to the Premises, the Land and/or the Building, Tenant shall afford to the Person
causing (or authorized to cause) such excavation or construction, license to
enter the Premises to do such work as necessary to preserve the walls of the
Building from injury or

                                       14



damage, and to support the same by proper foundations, without any claim for
damages or indemnity against Landlord, or diminution or abatement of Rents.

ARTICLE 22. Defaults; Conditional Limitations; Remedies.

22.1. Each of the following events shall be a "Default" under this Lease:

      (a) Tenant fails to pay any installment of Fixed Rent or Additional Rent
within five days after written notice from Landlord, provided that such notice
and cure period shall be afforded to Tenant only two times in any consecutive
12-month period;

      (b) Tenant admits, in writing, that Tenant is unable to pay Tenant's debts
as such become due;

      (c) Tenant makes an assignment for the benefit of creditors;

      (d) Tenant files a voluntary petition in bankruptcy or a petition is filed
against Tenant and an order for relief is entered, or Tenant files any petition
or answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal,
state or other law, or Tenant seeks or consents to or acquiesces in or suffers
the appointment of any trustee, receiver or liquidator of Tenant or of the
Premises (or Tenant's interest therein) or of all or any substantial part of
Tenant's properties;

      (e) Within sixty (60) days after the commencement of any proceeding
against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal, state or other law, such proceeding is not dismissed; within
sixty (60) days after the appointment (without the consent or acquiescence of
Tenant) of any trustee, receiver or liquidator of Tenant or of all or any
substantial part of Tenant's properties or of the Premises (or Tenant's interest
therein), such appointment is not vacated or stayed on appeal or otherwise, or
within sixty (60) days after the expiration of any such stay, such appointment
shall not have been vacated;

      (f) Tenant sublets the Premises (or any part thereof) or mortgages,
pledges, assigns, transfers, or otherwise disposes of this Lease (or any part of
Tenant's right, title, and interest hereunder) without complying with all
requirements of this Lease;

      (g) Tenant fails to secure or maintain any Required Insurance;

      (h) A levy under execution or attachment is made against Tenant or
Tenant's property and is not vacated or removed by court order, bonding or
otherwise within thirty (30) days thereafter;

      (i) Tenant uses (or permits the use of) the Premises in violation of the
certificate of occupancy for the Premises after five (5) days' written notice
from Landlord; and/or

      (j) Tenant fails to keep or perform any other term, covenant, condition,
or provision of this Lease, and such failure continues for thirty (30) days
after written notice from Landlord - unless such failure is susceptible of cure
and requires work to be performed, acts to be done, or conditions to be removed
which cannot be performed, done or removed within such thirty (30) days, in
which case the Default shall not be deemed to exist as long as Tenant:

            (i) advises Landlord by written notice within ten (10) days after
Landlord's notice that Tenant intends to take all steps necessary to remedy such
failure with due diligence and specifies a reasonable date by which all steps
will have been completed which date shall not be more than ninety (90) days
after Tenant's notice;

            (ii) duly commences curing the same within such period;

            (iii) diligently and continuously prosecutes to completion all steps
necessary to remedy the same and prior to the date specified by Tenant for the
completion thereof.

22.2. If and whenever any Default occurs, at Landlord's option, Landlord may
give written notice to Tenant (the "Termination Notice"), stating that this
Lease and the Term shall expire and terminate on the date specified in such
Termination Notice (which date shall be not less than ten (10) days after the
giving of the Termination Notice). In such event, this Lease and the Term (and
Tenant's entire right, title, and interest therein) shall expire and terminate
as if the date specified in the Termination Notice were the Expiration Date; and
Tenant shall quit and surrender the Premises but shall remain liable as provided
in this Lease.

22.3. If and whenever any Default occurs, and/or if this Lease and the Term
terminate under Section 22.2 or otherwise, Landlord may without notice re-enter
and repossess the Premises using such lawful force for that purpose as may be
necessary without being liable to indictment, prosecution or damages; and Tenant
shall remain liable as provided in this Lease. If Landlord so re-enters, at its
option, and whether or not this Lease and the Term have terminated, Landlord
may:

                                       15



      (a) repair and alter the Premises in such manner as Landlord may deem
necessary or desirable without relieving Tenant of any liability whatsoever
under this Lease; and/or

      (b) let or relet the Premises (or any parts thereof) for the whole or any
part of the remainder of the Term or for a longer period, in Landlord's name or
as agent of Tenant, and pay and apply all rents and other sums thus collected or
received as follows:

            (i) first, to all costs and expenses (including all Fees-And-Costs
which Landlord pays or incurs in terminating this Lease, re-entering, retaking,
repossessing, repairing and/or altering the Premises, and removing all Persons
and property therefrom;

            (ii) second, to all costs and expenses which Landlord incurs in
securing any new tenant(s) of the Premises (including in such costs brokerage
commissions and expenses of preparing the Premises for reletting, and all
Fees-And-Costs), and, if Landlord maintains the Premises, all costs and expenses
of maintaining the Premises, including utilities); and

            (iii) third, any balance of Rents and other amounts then remaining
on account of Tenant's liability to Landlord under this Lease.

In no case shall re-entry by Landlord, whether under summary proceedings or
otherwise, absolve or discharge Tenant from any liability whatsoever under this
Lease.

22.4. If Tenant Defaults and/or if this Lease and the Term terminate under
Section 22.2 or otherwise, and/or if Landlord re-enters the Premises under
Section 22.3 or by any summary proceeding or other Legal Proceeding, then, in
any of such events:

      (a) Tenant shall pay Landlord all Fixed Rent and Additional Rent due under
this Lease to the date upon which this Lease and the Term have terminated or to
the date of re-entry upon the Premises by Landlord, as the case may be; and

      (b) Tenant shall pay Landlord, also, as damages, any deficiency (a
"Deficiency") between (i) the Fixed Rent and all Additional Rent reserved in
this Lease for the period which otherwise would have constituted the unexpired
portion of the Term and (ii) the amount, if any, of rents actually collected by
Landlord under any reletting effected pursuant to Section 22.3(c) for any part
of such period (after deducting from such collections all Fees-and-Costs and
other amounts paid or incurred by Landlord pursuant to Section 22.3. Tenant
shall pay any Deficiency in installments on the days specified in this Lease for
payments of Fixed Rent. Landlord shall be entitled to recover from Tenant each
Deficiency installment as the same arises; and no Legal Proceeding to collect
any Deficiency installment shall prejudice Landlord's right to collect any
subsequent installment by a similar or other Legal Proceeding.

Whether or not Landlord collects any unpaid Deficiency installments under (b)
above, Tenant shall pay Landlord, on demand, in lieu of any further Deficiency,
as and for liquidated and agreed final damages (it being agreed that it would be
impractical or extremely difficult to fix the actual damages), a sum equal to
the amount by which Fixed Rent and Additional Rent reserved in this Lease for
the period which otherwise would have constituted the unexpired portion of the
Term exceeds the then fair and reasonable rental value of the Premises for the
same period, both discounted to present worth at the rate of four (4%) per cent
per annum. If, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Premises (or any party thereof) shall have
been relet for the period which otherwise would have constituted the unexpired
portion of the Term, the amount of rent reserved upon such reletting shall be
deemed prima facie the fair and reasonable rental value for the part or the
whole of the Premises so relet during the term of such reletting.

22.5. Landlord may bring Legal Proceedings from time to time, at Landlord's
election, for the recovery of damages, or for a sum equal to any installment or
installments of Fixed Rent or Additional Rent or any Deficiency or other sum
payable by Tenant to Landlord pursuant to this Article; and nothing in this
Lease shall require Landlord to await the originally scheduled Expiration Date
for any such purpose.

22.6. No receipt of moneys by Landlord from Tenant after the giving of a
Termination Notice, or after a termination of this Lease, shall reinstate,
continue or extend the Term or affect any Termination Notice or other written
notice previously given to Tenant, or operate as a waiver of Landlord's right to
enforce payment of Fixed Rent or Additional Rent then or subsequently becoming
due, or operate as a waiver of Landlord's right to recover possession of the
Premises. Tenant agrees that after the giving of a Termination Notice or
commencement of summary proceedings or other Legal Proceeding, or after final
order or judgment for possession of the Premises, Landlord may demand, receive
and collect all moneys without invalidating or rescinding such Termination
Notice, proceeding, order, suit or judgment; and at Landlord's election, all
moneys so collected shall be deemed payments either on account of the use and
occupancy of the Premises or on account of Tenant's liability hereunder.

22.7. If Tenant is dispossessed by judgment or warrant of any court, or in the
event of re-entry or repossession by Landlord or in the event of expiration or
any termination of

                                       16



this Lease, Tenant (on behalf of Tenant and all Persons claiming by, through, or
under Tenant) hereby expressly waives to the fullest extent permitted by law (a)
service of any notice of intention to re-enter now or hereafter provided by law,
or of commencement of Legal Proceedings for such purpose; (b) any and all right
of redemption now or hereafter provided by law; and (c) any re-entry or
repossession or right to restore the Term or legal continuance of this Lease.

22.8. Landlord and Tenant hereby waive trial by jury in any Legal Proceeding
brought by either against the other with respect to any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claims of
injury or damage.

22.9. No failure by Landlord or Tenant to insist upon the strict performance of
any covenant, agreement, term or condition of this Lease or to exercise any
right or remedy after any Default, and no acceptance of full or partial Fixed
Rent or Additional Rent during the continuance of any Default shall constitute a
waiver of any such covenant, agreement, term, condition, or Default. No
covenant, agreement, term or condition of this Lease to be performed or complied
with by Tenant, and no Default, shall be waived, altered or modified except by a
written instrument executed by Landlord.

22.10. In event of any Default, or any actual or threatened breach by either
party of any term, covenant, condition or provision of this Lease, the other
party shall be entitled to enjoin such Default or actual or threatened breach
and shall have the right to invoke all rights and remedies allowed at law or in
equity as though this Lease did not provide for re-entry, summary proceedings,
or other remedies.

22.11. Each right and remedy of Landlord in this Lease shall be cumulative and
in addition to every other right or remedy in this Lease, or now or hereafter
existing at law or in equity; and the exercise (or beginning of exercise) by
Landlord of any one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of any and all other rights or
remedies.

ARTICLE 23. Indemnification.

23.1. Tenant hereby agrees, to the fullest extent permitted by law, to indemnify
each and every Indemnitee and hold each and every Indemnitee harmless from and
against (and to pay the full amount of) all loss, liability, obligation, damage,
penalty, tax, cost, claim, demand, judgment, charge, or expense of every kind
whatsoever which any Indemnitee may suffer, incur, or pay out, or which may be
asserted against any Indemnitee, in whole or in part, by reason of, or in
connection with:

      (a) Tenant's use, occupancy, management or control of the Premises, or
Tenant's operations, conduct or activities in the Premises;

      (b) any Legal Proceeding by Landlord to terminate the Lease, or any other
Legal Proceeding by Landlord against Tenant, in which Landlord secures a
judgment against Tenant, final beyond appeal, or in which Landlord receives any
payment from Tenant pursuant to any written settlement agreement disposing of
such Legal Proceeding;

      (c) any Default by Tenant in the observance or performance of any
obligation under the Lease;

      (d) any bodily injury, sickness, disease or death of or to any person or
persons, or any Damage to or of the Premises, (or to property of any other
Person), resulting (or alleged to result) from any acts or omissions of Tenant
or Tenant's Employees;

      (e) any failure of Tenant to comply with Laws or Insurance Requirements;

      (f) any failure of Tenant to secure and maintain Required Insurance (or
any loss of coverage under any Required Insurance); and/or

      (g) any other appearance by Landlord (or any Employee of Landlord) as a
witness or otherwise in any Legal Proceeding whatsoever involving or affecting
Tenant or this Lease.

23.2. Tenant shall defend any and all Legal Proceedings commenced against
Landlord by any Person (other than Tenant) concerning any matter covered by any
indemnity or obligation under Section 23.1 (regardless of any alleged fault or
cause). Tenant shall deliver to Landlord copies of documents served in any such
Legal Proceeding and, whenever requested by Landlord, shall advise as to the
status of such Legal Proceeding. If Tenant fails to defend diligently any such
Legal Proceeding, or if Landlord elects to defend by written notice to Tenant at
any time, Landlord shall have the right (but no obligation) to defend the same
at Tenant's expense. Tenant shall not settle any such Legal Proceeding without
Landlord's prior written consent unless such settlement (i) provides solely for
the payment of money by the Tenant, (ii) provides a complete release of the
Landlord from all matters that were or could have been asserted in connection
with such Legal Proceedings and (iii) does not involve any finding or admission
of any violation of law or any violation of the rights of any Person and does
not affect any other claims that may be made against the Landlord.

23.3. Tenant's indemnities and obligations under Sections 23.1 and 23.2 shall
cover and include all Fees-And-Costs

                                       17



incurred by Landlord in connection with any and every matter and amount referred
to in Sections 23.1 and 23.2, as well as Fees-And-Costs incurred by Landlord to
enforce Landlord's rights and remedies under this Article. Tenant shall pay all
such Fees-And-Costs to Landlord upon demand.

23.4. Tenant shall notify Landlord immediately of every Legal Proceeding or
claim which may or might be covered by any indemnity under this Article 23
and/or by any Required Insurance. Tenant shall also give timely notice of such
Legal Proceedings and claims to each insurer which has issued an applicable
policy of Required Insurance.

ARTICLE 24. Notices.

      All notices, requests, demands, elections, consents, approvals and other
communications hereunder must be in writing (each such, a "notice") and
addressed to the parties at their Notice Addresses (or to any other address
which either party may designate by notice). Any notice required by this Lease
to be given or made within a specified period of time, or on or before a date
certain, shall be deemed to have been duly given only if delivered by hand,
evidenced by written receipt, or mailed by first class, certified or registered
mail, return receipt requested, postage and fees prepaid. A notice sent by
certified or registered mail (as above) shall be deemed given two (2) Business
Days after mailing. All other notices shall be deemed given when received.

ARTICLE 25. No Waivers.

25.1. No agreement to accept a surrender of this Lease shall be valid unless in
writing signed by Landlord. No Employee of Landlord shall have any power to
accept the keys of the Premises prior to the Expiration Date. The delivery of
keys to any Employee of Landlord shall not operate as a termination of this
Lease or a surrender of the Premises. If Tenant at any time desires to have
Landlord sublet the premises for Tenant's account, Landlord or Landlord's
Employees are authorized to receive said keys for such purpose without releasing
Tenant from any of the obligations under this Lease. The failure of Landlord to
seek redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this Lease or any of the Rules and Regulations (now or
hereafter in effect) shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of Rent with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach.

25.2. This Lease contains the entire agreement between the parties, and any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.

ARTICLE 26. No Representations by Landlord; Landlord's Interest; Transferee
Landlords.

26.1. Tenant agrees that Landlord and Landlord's Employees have made no
representations or promises with respect to the Land, the Building, the
Premises, or any terms, covenants, conditions, or provisions of this Lease,
except as expressly set forth in this Lease; and, except as expressly set forth
in this Lease or in that certain Stock and Asset Purchase Agreement entered into
between Landlord and Capital Assurance Corporation as of February 9, 2005.
Tenant accepts the Premises "as is" in the condition existing on the date of
this Lease.

26.2. Tenant agrees to look solely to Landlord's interest in the Premises for
the satisfaction of any right or remedy of Tenant for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
(or Landlord's Affiliates), in the event of any liability by Landlord, and no
other property or assets of Landlord (or Landlord's Affiliates) shall be subject
to levy, execution, attachment, or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of
the Premises, or any other liability of Landlord (or Landlord's Affiliates) to
Tenant.

26.3. In the event of any transfer of title to the Land or the Building, or in
the event of a lease of the Building, or of the Land and Building, upon written
notification to Tenant of such transfer or lease the transferor Landlord shall
be released from future covenants, obligations and liabilities of Landlord under
this Lease accruing or arising thereafter; and it shall be deemed a covenant
running with the land that the transferee or lessee, as applicable, has assumed
and agreed to carry out any and all covenants, obligations and liabilities of
Landlord under this Lease accruing or arising after such event.

ARTICLE 27. Consent to Jurisdiction.

      Tenant hereby agrees that any Legal Proceeding with respect to this Lease
may be brought in the courts of the State. Tenant hereby accepts with regard to
any such Legal Proceeding, for itself and in respect of its property, generally
and unconditionally, the jurisdiction of such courts. Nothing in this Article
shall affect Landlord's rights to commence Legal Proceedings or otherwise
proceed against Tenant in any other jurisdiction in which assets of Tenant are
located or to serve process in any other manner permitted by applicable law.
Tenant agrees that final judgment in any such Legal Proceeding shall be
conclusive and, to the extent permitted by applicable law, may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment (a

                                       18



certified or exemplified copy of which shall be conclusive evidence of the fact
and of the amount of Tenant's indebtedness).

ARTICLE 28. Termination of Current Lease.

28.1. That certain Office Building Lease dated December 28, 2001 (the "Prior
Lease") entered into between Landlord and Tenant with respect to the Premises,
is terminated effective as of the Commencement Date hereof and Landlord
represents and warrants that: (a) there are no other leases or occupancy
agreements now in effect or pending with respect to the Premises, other than
this Lease, and (b) no obligations or liabilities of Tenant (including any
obligation to remove or restore or pay for the removal or restoration of any
existing improvements in the Premises) under the Prior Lease survive termination
of such Prior Lease.

ARTICLE 29. Miscellaneous.

29.1. This Lease shall be governed by and construed in accordance with the laws
of the State of Indiana (without giving effect to principles of conflicts of
laws). This Lease shall be construed without regard to any presumption or other
rule requiring construction against the party causing this Lease to be drafted.
Unless otherwise specifically provided in this Lease, each covenant, agreement,
obligation or other provision of this Lease to be performed by Tenant shall be
deemed as a separate and independent covenant of Tenant, not dependent on any
other provision of this Lease. The captions of this document are for convenience
and do not define, limit or describe the scope of this Lease or the intent of
any provisions thereof.

29.2. Any interest payable by Tenant under this Lease shall be at the Interest
Rate, unless otherwise provided. If and whenever Tenant is in arrears in payment
of Fixed Rent or Additional Rent, Tenant waives Tenant's right (if any) to
designate the items against which any payments made by Tenant are to be
credited; and Tenant agrees that Landlord may apply any payments by Tenant, in
Landlord's judgment, among amounts owed by Tenant to Landlord, notwithstanding
any specific designation or request by Tenant.

29.3. All Exhibits, Schedules, and Riders to this Lease form part of this Lease
and are incorporated in this Lease.

29.4. The terms, covenants, conditions, and provisions of this Lease shall bind
and inure to the benefit of Landlord and Tenant and, subject to Article 18,
their respective legal representatives, successors, and assigns.

29.5. No remedy or election of Landlord under this Lease shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.

29.6. If any term, covenant, condition or provision of this Lease (or the
application thereof) shall be invalid or unenforceable to any extent, the
remaining terms, covenants, conditions and provisions of this Lease shall not be
affected thereby; and each remaining term, covenant, condition and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.

29.7. Landlord's acceptance of any name for listing on the Building directory or
signage will not be deemed, nor will it substitute for, Landlord's consent, as
required by this Lease, to any sublease, assignment, or other occupancy of the
Premises.

                                       19



            IN WITNESS WHEREOF, LANDLORD AND TENANT HAVE RESPECTIVELY EXECUTED
THIS LEASE AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.

                               LANDLORD:

                               STANDARD MANAGEMENT CORPORATION

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

                               TENANT:

                               STANDARD LIFE INSURANCE COMPANY OF INDIANA

                               By: /s/ Stephen M. Coons
                                   ---------------------------------------------
                                   Name:  Stephen M. Coons
                                   Title: Executive Vice President and Secretary



                                                                       Exhibit A

                                  The Premises

            A portion of the first and the entire second floor of the Building
comprising approximately 22,294 square feet as shown on the floor plans attached
hereto as Exhibit A-1.

                                      E-A-1



                                                                     Exhibit A-1

                                    [Attach]

                                     E-A-1-1



                                                                       Exhibit B

                         BUILDING RULES AND REGULATIONS

1.    WINDOW TREATMENTS, SIGNS AND EXTERIOR APPEARANCE: No signs, pictures,
      advertisements or notices visible from the exterior of the Premises shall
      be installed, affixed, inscribed, painted or otherwise displayed by Tenant
      on any part of the Premises or the Building unless the same is first
      approved by Landlord. Any such sign, picture, advertisement or notice
      approved by Landlord shall be painted or installed for Tenant at Tenant's
      cost by Landlord or by a party approved by Landlord. No awnings, curtains,
      blinds, shades or screens shall be attached to or hung in, or used in
      connection with any window or door of the Premises without the prior
      consent of the Landlord, including approval by the Landlord of the
      quality, type, design, color and manner of attachment. In the event of any
      breach of the foregoing, Landlord may remove the applicable item, and
      Tenant agrees to pay the cost and expense of such removal and associated
      repairs.

2.    ELECTRICAL LOAD: Tenant agrees that its electrical load shall never exceed
      the capacity of existing feeders, risers or wiring installation if a
      specific capacity is described in Section 4.10 of the Lease. Any wires and
      wiring installed by or on behalf of Tenant within any riser of the
      Building shall be bundled together within such riser and a tag shall be
      placed on such bundle at each floor of the Building identifying the
      floor(s) served by each bundle and the name and telephone number of a
      representative of Tenant to contact in the case of an emergency.

3.    APPROPRIATE USES FOR INTERIOR AND EXTERIOR SPACE: The interior and
      exterior of the Premises shall not be used for storage of any types of
      materials other than business related items in designated areas to be
      determined by Landlord. Tenant shall not do or permit to be done in or
      about the Premises or Building anything which shall increase the rate of
      insurance on said Building or obstruct or interfere with the rights of
      other lessees of Landlord or annoy them in any way, including, but not
      limited to, using any musical instrument, making loud or unseemly noises,
      or singing, etc. The Premises shall not be used for sleeping or lodging.
      No cooking or related activities shall be done or permitted by Tenant in
      the Premises except with permission of Landlord. Tenant will be permitted
      to use for its own employees within the Premises a refrigerator, a small
      microwave oven and Underwriters' Laboratory approved equipment for brewing
      coffee, tea, hot chocolate and similar beverages, provided that such use
      is in accordance with all applicable federal, state, county and city laws,
      codes, ordinances, rules and regulations, and provided that such use shall
      not result in the emission of odors from the Premises into the common area
      of the Building. No vending machines of any kind will be installed,
      permitted or used on any part of the Premises without the prior consent of
      Landlord. No part of said Building or Premises shall be used for gambling,
      immoral or other unlawful purposes. No intoxicating beverage shall be sold
      in said Building or Premises without prior written consent of the
      Landlord.

4.    ANIMALS AND VEHICLES: No birds or animals of any kind shall be brought
      into the Building (other than trained assist dogs required to be used by
      the visually impaired). No bicycles, motorcycles or other motorized
      vehicles shall be brought into the Building.

5.    APPROPRIATE USE OF BUILDING. The sidewalks, entrances, passages,
      corridors, halls, elevators, and stairways in the Building shall not be
      obstructed by Tenant or used for any purposes other than those for which
      same were intended as ingress and egress. No windows, floors or skylights
      that reflect or admit light into the Building shall be covered or
      obstructed by Tenant and no articles shall be placed on the windowsills of
      the Building. Toilets, wash basins and sinks shall not be used for any
      purpose other than those for which they were constructed, and no sweeping,
      rubbish, or other obstructing or improper substances shall be thrown
      therein. Any damage resulting from the Tenant's or its employees' misuse
      of the building shall be borne by Tenant.

6.    KEYS AND LOCKS: Only one key for each office in the Premises will be
      furnished Tenant without charge. Landlord may make a reasonable charge for
      any additional keys. No additional lock, latch or bolt of any kind shall
      be placed upon any door nor shall any changes be made in existing locks
      without written consent of Landlord and Tenant shall in each such case
      furnish Landlord with a key for any such lock. At

                                      E-B-1



      the termination of the Lease, Tenant shall return to Landlord all keys
      furnished to Tenant by Landlord, or otherwise procured by Tenant, and in
      the event of loss of any keys so furnished, Tenant shall pay to Landlord
      the cost thereof.

7.    HEAVY ARTICLES AND FREIGHT: Landlord shall have the right to prescribe the
      weight, position and manner of installation of heavy articles such as
      safes, machines and other equipment brought into the Building. Tenant
      shall not allow the building structure within the Premises, nor shall
      Tenant cause the elevators of the Building, to be loaded beyond rated
      capacities. No safes, furniture, boxes, large parcels or other kind of
      freight shall be taken to or from the Premises or allowed in any elevator,
      hall or corridor except upon prior notice to Landlord. Tenant shall make
      prior arrangements with Landlord for use of freight elevator for the
      purpose of transporting such articles and such articles may be taken in or
      out of said Building during Business Hours and otherwise as reasonably
      approved by Landlord. Landlord reserves the right to inspect and, where
      deemed appropriate by Landlord, to open all freight coming into the
      Building and to exclude from entering the Building all freight which is in
      violation of any of these Rules and Regulations and all freight as to
      which inspection is not permitted. No hand trucks, mail carts, floats or
      dollies shall be used in passenger elevators. All hand trucks, mail carts,
      floats or dollies used by Tenant or its service providers for the delivery
      or receipt of any freight shall be equipped with rubber tires.

8.    BUILDING AIR QUALITY: Tenant shall not cause or permit any gases, liquids
      or odors to be produced upon or permeate from the Premises, and no
      flammable, combustible or explosive fluid, chemical or substance shall be
      brought into the Building. Tenant shall prevent inadequate ventilation
      from and will assure proper operation of any HVAC systems and/or office
      equipment under Tenant's control, and Tenant will not allow any unsafe
      levels of chemical or biological contaminants in the Premises and will
      take all steps necessary to prevent the release of such contaminants from
      adhesives, machinery, and cleaning agents. Tenant shall cooperate in all
      respects with Landlord regarding the management of the indoor air quality
      in the Building and in connection with the development and implementation
      of an indoor air quality management plan for the Building. Smoking will
      not be permitted in any common areas of the Building or the Project or in
      any premises within the Building. If Tenant shall assert that the air
      quality in the Premises is unsatisfactory or if Tenant shall request any
      air quality testing within the Premises, Landlord may elect to cause its
      consultant to test the air quality within the Premises and to issue a
      report regarding same. If the report from such tests indicates that the
      air quality within the Premises is comparable to the air quality of other
      first-class office buildings in the market area of the Building, or if the
      report from such tests indicates that the air quality does not meet such
      standard as a result of the activities caused or permitted by Tenant in
      the Premises, Tenant shall reimburse Landlord for all costs of the
      applicable tests and report. Additionally, in the event Tenant shall cause
      or permit any activity that shall adversely affect the air quality in the
      Premises, in the common area of the Building or in any premises within the
      Building, Tenant shall be responsible for all costs of remedying same.

9.    HOURS OF OPERATION AND ACCESS: The Building's normal hours of operation
      will be from 8:00 a.m. to 6:00 p.m. - Monday through Friday. All
      non-building personnel (i.e., visitors, guests, vendors, and/or
      contractors) will only be allowed access to the Building through its
      Southeast entrance and will be required to sign in at the Security Desk. A
      call will be placed to the appropriate party announcing their guest has
      arrived. On all weekends and national holidays, the Building will be
      closed. Notwithstanding the Building's normal hours of operation, Tenant
      and its employees shall have the right to enter the Building and Premises
      with card access twenty-four hours per day, seven days per week (including
      weekends and national holidays).

10.   SERVICE CONTRACTS: Unless agreed to in writing by Landlord, Tenant shall
      not employ any person other than Landlord's contractors for the purpose of
      cleaning and taking care of the Premises. Cleaning service will not be
      furnished on nights when rooms are occupied after 6:30 p.m., unless, by
      agreement in writing, service is extended to a later hour for specifically
      designated rooms. Only persons authorized by the Landlord may furnish ice,
      drinking water, towels, and other similar services within the Building and
      only at hours and under regulations fixed by Landlord.

11.   MAINTENANCE: Connection shall not be made to the electric wires or gas or
      electric fixtures, without the consent in writing on each occasion of
      Landlord. All glass, locks and trimmings in or upon the doors and

                                      E-B-2



      windows of the Premises shall be kept whole and in good repair. Tenant
      shall not injure, overload or deface the Building, the woodwork or the
      walls of the Premises, nor permit upon the Premises any noisome, noxious,
      noisy or offensive business.

12.   ELECTRICAL WORK: If Tenant requires wiring for a bell or buzzer system,
      such wiring shall be done by any of the electricians indicated on the list
      of contractors approved by Landlord attached hereto, and no other
      electrician shall be allowed to do work of this kind unless by the written
      permission of Landlord or its representatives, such permission not to be
      unreasonably withheld, delayed or conditioned. If telegraph or telephonic
      service is desired, the wiring for same shall be approved by Landlord, and
      no boring or cutting for wiring shall be done unless approved by Landlord
      or its representatives, as stated. The electric current shall not be used
      for space heaters unless written permission to do so shall first have been
      obtained from Landlord or its representatives in writing, and at an agreed
      cost to Tenant.

13.   PARKING AND VEHICLES: Tenant and its employees and invitees shall observe
      and obey all parking and traffic regulations as imposed by Landlord. All
      vehicles shall be parked only in areas designated by Landlord.

14.   SOLICITATION: Canvassing, peddling, soliciting and distribution of
      handbills or any other written materials in the Building are prohibited,
      and Tenant shall cooperate to prevent the same.

15.   WASTE RECYLCLING PROGRAMS: Tenant agrees to participate in the waste
      recycling programs implemented by Landlord for the Building, including any
      programs and procedures for recycling writing paper, computer paper,
      shipping paper, boxes, newspapers and magazines and aluminum cans. If
      Landlord elects to provide collection receptacles for recyclable paper
      and/or recyclable aluminum cans in the Premises, Tenant shall designate an
      appropriate place within the Premises for placement thereof, and Tenant
      shall cause its employees to place their recyclable papers and/or cans
      into the applicable such receptacles on a daily basis.

16.   SPECIAL WORK OR SERVICES: Any special work or services requested by Tenant
      to be provided by Landlord shall be provided by Landlord only upon request
      received at the Building Operations and Security Services office. Building
      personnel shall not perform any work or provide any services outside of
      their regular duties unless special instructions have been issued from
      Landlord or its managing agent.

17.   CHANGING THE BUILDING'S NAME OR STREET ADDRESS: Landlord shall have the
      right to change the name of the Building and to change the street address
      of the Building, provided that in the case of a change in the street
      address, Landlord shall give Tenant not less than 180 days' prior notice
      of the change, unless the change is required by governmental authority.

18.   SUPPLEMENTAL RULES AND REGULATIONS. These Rules and Regulations are
      supplemental to, and shall not be construed to in any way modify or amend,
      in whole or in part, the terms, covenants, agreements and conditions of
      any lease of any premises in the Building.

19.   ADDITIONAL RULES AND REGULATIONS: Landlord reserves the right to make such
      other and reasonable Rules and Regulations as in its judgment may from
      time to time be needed for the safety, care and cleanliness of the Project
      and/or the Building, and for the preservation of good order therein.

                                      E-B-3



                          List of Permitted Contractors

EX-10.11

                                                                   EXHIBIT 10.11
                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "AGREEMENT") is made and entered into as
of June 1, 2004 (the "Effective Date"), by and between U.S. Health Services
Corporation, a Delaware corporation, (the "COMPANY"), Standard Management
Corporation, an Indiana corporation, (the "GUARANTOR"), and Martial R. Knieser,
M.D., an individual, (the "EXECUTIVE").

                                    RECITALS

      WHEREAS, the Company desires to hire Executive and Executive desires to
become employed by the Company; and

      WHEREAS, the Company and Executive have determined that it is in their
respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

      1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.

      2. DUTIES. Executive shall serve as President, and such other positions as
may be mutually agreed upon by Executive and the Board of Directors of the
Company (the "Board"). Executive shall perform all reasonable duties assigned by
the Chairman and the Board and agrees to be subject to the general supervision,
orders, advice and direction of the Chairman and the Board.

      3. EXTENT OF SERVICES. During the term of Executive's employment
hereunder, Executive shall devote his full working time and efforts to the
performance of his duties and the furtherance of the interests of the Company
and shall not be otherwise employed. Notwithstanding the above, Executive may
serve as a director or trustee of other organizations, may practice medicine, or
engage in charitable, civic, and/or governmental activities provided that such
service and activities do not prevent Executive from performing the duties
required of Executive under this Agreement and further provided that Executive
obtains written consent for all such activities from the Company, which consent
will not be unreasonably withheld. Executive may engage in personal activities,
including, without limitation, personal investments, provided that such
activities do not interfere with Executive's performance of duties hereunder
and/or the provisions of Executive's written agreements with the Company.

      4. TERM. Subject to the provisions for termination in Section 8 below, the
initial term of employment of Executive under this Agreement shall be two (2)
years from and after the Effective Date (the "INITIAL TERM"). This Agreement
shall automatically renew annually for successive one (1) year periods (the
"RENEWAL TERM," and together with the Initial Term, the "EMPLOYMENT TERM"),
unless the Company or Executive elects not to renew this Agreement by serving
written notice of such intention not to renew on the other party at least ninety
(90) days



prior to the succeeding Effective Date. If such an election is made, this
Agreement shall be in full force and effect for the remaining portion of the
then-current one (1) year period, subject to the provisions for termination in
Section 8 of this Agreement.

      5. COMPENSATION AND BENEFITS.

            5.1 BASE SALARY. In consideration of the services rendered to the
      Company hereunder by Executive and Executive's covenants hereunder, the
      Company shall, during the Employment Term, pay Executive a salary at the
      annual rate of Three Hundred Fifty Thousand Dollars ($350,000) (the "BASE
      SALARY"), less statutory deductions and withholdings, payable in
      accordance with the Company's regular payroll practices. Executive may
      receive annual salary increases based upon his performance in his
      executive and management capacity. The amount of such salary increases
      shall be determined by the Board or the Compensation Committee of the
      Board (the "COMPENSATION COMMITTEE").

            5.2 BONUS. In addition to base salary, within ninety (90) days after
      the end of each calendar year of the Company, Executive shall be entitled
      to receive a bonus equal to one percent (1%) of the Company's earnings, on
      a consolidated basis, before interest and taxes for such calendar year of
      the Company; provided, however, that no bonus shall be paid unless the
      Company earns a profit for the calendar year, and provided further that
      Executive must be actively employed by the Company on December 31 of the
      calendar year for which the bonus is to be paid. The bonus shall be
      calculated from the books and records of the Company and its affiliates,
      which shall be kept in accordance with generally accepted accounting
      principles applied by the Company in the preparation of its financial
      statements. In addition to the bonus described above, Executive may
      receive additional bonuses based upon his performance in his executive and
      management capacity. Whether to award such bonus increases and the amounts
      thereof shall be determined solely by the Board or the Compensation
      Committee.

            5.3 BENEFITS PACKAGE. During the Employment Term, Executive shall be
      entitled to participate in such employee benefit plans and insurance
      programs offered by the Company, from time to time for its executive,
      management or supervisory personnel generally, at such time as Executive
      shall have fulfilled the eligibility requirements for participation
      therein.

            5.4 VACATION. Executive shall be entitled to four (4) weeks' paid
      vacation each year of the Employment Term.

            5.5 EXPENSES. The Company shall, upon receipt from Executive of
      supporting receipts to the extent required by applicable income tax
      regulations and the Company's reimbursement policies, reimburse Executive
      for all out-of-pocket business expenses reasonably incurred by Executive
      in connection with his employment hereunder.

            5.6 LIFE INSURANCE. During the Employment Term, the Company shall at
      its expense maintain a term life insurance policy or policies on the life
      of Executive in the

                                       2


      face amount of Five Hundred Thousand Dollars ($500,000). Four Hundred
      Thousand Dollars ($400,000) of the policy or policies is payable to the
      Company and One Hundred Thousand Dollars ($100,000) of the policy or
      policies is payable to such beneficiaries as Executive may designate.
      Following termination or expiration of this Agreement for any reason, for
      a period of sixty (60) days following the later of (i) termination or
      expiration of this Agreement and (ii) the date upon which the Company is
      no longer required to maintain such insurance for the benefit of
      Executive, Executive shall have the option to purchase from the Company
      the policy of insurance (other than group insurance) on the life of
      Executive. The purchase price of such policy shall be equal to the
      applicable portion of any prepaid premium thereon.

      6. STOCK OPTION. Subject to approval by the Board, Executive shall receive
an option to purchase a total of 100,000 shares (the "OPTION SHARES") of the
Guarantor's common stock (the "OPTION"). The Option shall vest over two (2)
years in accordance with the following vesting schedule, and at the closing
market price on the Effective Date: 33% on the Effective Date, 33% after
Executive's completion of one (1) year of service and the remaining 33% upon
Executive's completion of two (2) years of service.

            6.1 In the event of Executive's Involuntary Termination (as defined
      below) following a Change in Control (as defined below), the Option shall
      automatically accelerate so that the total number of vested Option Shares
      for which the Option shall be exercisable after taking such acceleration
      into account, shall be equal to the number of Option Shares in which
      Executive would have vested under the normal vesting/exercise schedule in
      effect for the Option had Executive completed service with the Company
      through the Severance Period (as defined below).

                        (i) An INVOLUNTARY TERMINATION shall mean the
            termination of Executive's employment by reason of:

                        1. Executive is terminated by the Company for reasons
            other than for Cause; or

                        2. Executive's voluntary resignation following (a) a
            change in Executive's position with the Company (or Parent or
            Subsidiary employing Executive) that materially reduces Executive's
            level of responsibility, or (b) a reduction in Executive's level of
            compensation (including base salary, bonus and fringe benefits),
            provided and only if such change or reduction is effected by the
            Company without Executive's consent, and

                        (ii) A CHANGE IN CONTROL shall be deemed to occur in the
            event of a change in ownership or control of the Guarantor effected
            through any of the following transactions:

                        1. the acquisition, directly or indirectly, by any
            person or related group of persons (other than the Guarantor or a
            person that directly or indirectly controls, or is controlled by, or
            is under common control with, the Guarantor) of beneficial ownership
            (within the meaning of Rule 13d-3 of the

                                       3


            Securities Exchange Act of 1934, as amended) of securities
            possessing more than fifteen percent (15%) of the total combined
            voting power of the Guarantor's outstanding securities pursuant to a
            tender or exchange offer made directly to the Guarantor's
            stockholders; or

                        2. the sale, transfer or other disposition of all or
            substantially all of the Guarantor's assets; or

                        3. a change in the composition of the Board of Directors
            of the Guarantor over a period of thirty-six (36) consecutive months
            or less such that a majority of the Board members ceases, by reason
            of one or more contested elections for Board membership, to be
            comprised of individuals who either (i) have been Board members
            continuously since the beginning of such period or (ii) have been
            elected or nominated for election as Board members during such
            period by at least a majority of the Board members described in
            clause (i) who were still in office at the time such election or
            nomination was approved by the Board; or

                        4. the consummation of a merger or consolidation of the
            Guarantor with or into another entity or any other corporate
            reorganization, if more than fifteen percent (15%) of the combined
            voting power of the continuing or surviving entity's securities
            outstanding immediately after such merger, consolidation or other
            reorganization is owned by persons who were not stockholders of the
            Guarantor immediately prior to such merger, consolidation or other
            reorganization.

                                    A transaction shall not constitute a Change
                        in Control if its sole purpose is to change the state of
                        the Guarantor's incorporation or to create a holding
                        company that will be owned in substantially the same
                        proportions by the persons who held the Guarantor's
                        securities immediately before such transaction.

            6.2 The Option is to remain exercisable for three (3) months
      following the Involuntary Termination of Executive's employment.

      7. TERMINATION. Executive's employment and this Agreement (except as
otherwise provided hereunder) shall terminate upon the occurrence of any of the
following, at the time set forth therefor (the "TERMINATION DATE"):

            7.1 DEATH OR DISABILITY. Immediately upon the death of Executive or
      a determination by the Company that Executive has ceased to be able to
      perform the essential functions of his duties, with or without reasonable
      accommodation, for a period of not less than ninety (90) days, due to a
      mental or physical illness or incapacity ("DISABILITY") (termination
      pursuant to this Section 7.1 being referred to herein as termination for
      "DEATH OR DISABILITY"); or

            7.2 VOLUNTARY TERMINATION. Ninety (90) days following Executive's
      written notice to the Company of termination of employment; provided,
      however, that the Company may waive all or a portion of the ninety (90)
      days' notice and accelerate the

                                       4


      effective date of such termination (and the Termination Date) (termination
      pursuant to this Section 7.2 being referred to herein as "VOLUNTARY"
      termination); or

            7.3 TERMINATION FOR CAUSE. Immediately following notice of
      termination for "CAUSE" (as defined below), specifying such Cause, given
      by the Company (termination pursuant to this Section 7.3 being referred to
      herein as termination for "CAUSE"). As used herein, "Cause" means (i)
      termination based on Executive's conviction or plea of "guilty" or "no
      contest" to any crime constituting a felony in the jurisdiction in which
      committed, any crime involving moral turpitude (whether or not a felony),
      or any other violation of criminal law involving dishonesty or willful
      misconduct that materially injures the Company (whether or not a felony);
      (ii) Executive's substance abuse that in any manner interferes with the
      performance of his duties; (iii) Executive's failure or refusal to perform
      his duties at all or in an acceptable manner, or to follow the lawful and
      proper directives of the Chairman, the Board or Executive's supervisor(s)
      that is not corrected within thirty (30) days after written notice from
      the Company to the Executive identifying such failure or refusal; (iv)
      Executive's breach of this Agreement; (v) misconduct by Executive that has
      or could discredit or damage the Company; (vi) Executive's indictment for
      a felony violation of the federal securities laws; or (vii) Executive's
      chronic absence from work for reasons other than illness.

            7.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions
      contained herein, including, but not limited to Section 4 above, the
      Company may terminate Executive's employment thirty (30) days following
      notice of termination without Cause given by the Company; provided,
      however, that during any such thirty (30) day notice period, the Company
      may suspend, with no reduction in pay or benefits, Executive from his
      duties as set forth herein (including, without limitation, Executive's
      position as a representative and agent of the Company) (termination
      pursuant to this Section 7.4 being referred to herein as termination
      "WITHOUT CAUSE").

            7.5 OTHER REMEDIES. Termination pursuant to Section 7.3 above shall
      be in addition to and without prejudice to any other right or remedy to
      which the Company may be entitled at law, in equity, or under this
      Agreement.

      8.    SEVERANCE AND TERMINATION.

            8.1 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR
      DEATH OR DISABILITY. In the case of a termination of Executive's
      employment hereunder for Death or Disability in accordance with Section
      7.1 above, or Executive's Voluntary termination of employment hereunder in
      accordance with Section 7.2 above, or a termination of Executive's
      employment hereunder for Cause in accordance with Section 7.3 above, (i)
      Executive shall not be entitled to receive payment of, and the Company
      shall have no obligation to pay, any severance or similar compensation
      attributable to such termination, other than Base Salary earned but
      unpaid, accrued but unused vacation to the extent required by the
      Company's policies, vested benefits under any employee benefit plan, and
      any unreimbursed expenses pursuant to Section 5.5 hereof incurred by
      Executive as of the Termination Date, and (ii) the Company's obligations
      under this Agreement shall immediately cease.

                                       5


            8.2 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth
      in this Agreement, in the case of a termination of Executive's employment
      hereunder Without Cause in accordance with Section 7.4 above, the Company
      shall pay Executive twelve (12) months' salary (hereinafter the "SEVERANCE
      PAYMENT"), payable in installments in accordance with the Company's normal
      payroll practices and subject to the tax withholding specified in Section
      5.1 above. The Company shall also provide Executive with health benefits
      equal to and under the same terms as such benefits were provided to
      Executive immediately prior to the Termination Date, or pay the same level
      of premiums for such benefits required of Executive under COBRA, 29 U.S.C.
      Section 1161, et seq. (hereinafter "BENEFIT CONTINUATION"), throughout any
      period in which Executive receives the Severance Payment under this
      Section or until Executive receives comparable benefits from any other
      source, whichever occurs first. Nothing contained herein shall interfere
      with Executive's right to purchase continuation coverage under COBRA. In
      the event of Executive's Involuntary Termination following a Change in
      Control under Section 6.1 of this Agreement, Executive shall be entitled
      to the Severance Payment and Benefit Continuation set forth in this
      paragraph, a lump-sum payment equal to two hundred ninety-nine percent
      (299%) of Executive's then-current base salary as set out in Section 5.1,
      and the accelerated vesting described in Section 6.1.

            The Company's obligation to pay and Executive's right to receive the
      Severance Payment and Benefit Continuation shall cease in the event of
      Executive's breach of his obligations under Section 9 of this Agreement,
      as reasonably determined in the sole discretion of the Company.

            8.3 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's
      obligation to provide Executive with the Severance Payment and Benefit
      Continuation set forth in Section 8.2 is contingent upon Executive's
      execution of a satisfactory release of all claims in favor of the Company.

                                       6


      9.    CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION.

            9.1 CONFIDENTIALITY. The Executive agrees that he shall not,
      directly or indirectly, use, make available, sell, disclose or otherwise
      communicate to any person, other than in the course of the Executive's
      assigned duties and for the benefit of the Company, either during the
      period of the Executive's employment or at any time thereafter, any
      nonpublic, proprietary or confidential information, knowledge or data
      relating to the Company or any of its subsidiaries, affiliated companies
      or businesses. The foregoing shall not apply to information that (i) was
      known to the public prior to its disclosure to the Executive; (ii) becomes
      known to the public subsequent to disclosure to the Executive through no
      wrongful act of the Executive or any representative of the Executive; or
      (iii) the Executive is required to disclose by applicable law, regulation
      or legal process (provided that the Executive provides the Company with
      prior notice of the contemplated disclosure and reasonably cooperates with
      the Company at its expense in seeking a protective order or other
      appropriate protection of such information). Notwithstanding clauses (i)
      and (ii) of the preceding sentence, the Executive's obligation to maintain
      such disclosed information in confidence shall not terminate where only
      portions of the information are in the public domain. Furthermore,
      Executive shall deliver promptly to the Company upon termination of his
      employment, or at any time the Company may so request, all memoranda,
      notes, records, reports, manuals, software, models, designs, and other
      documents and computer records (and all copies thereof) relating to the
      business of the Company or any of its affiliates or subsidiaries, and all
      property associated therewith, which he may then possess or have under his
      control. This Agreement supplements and does not supersede Executive's
      obligations under statute or the common law to protect the Company's or
      any of its affiliates' or subsidiaries' trade secrets and confidential
      information.

            9.2 NONSOLICITATION. During the Executive's employment with the
      Company and for the two (2) year period thereafter, the Executive agrees
      that he will not, directly or indirectly, individually or on behalf of any
      other person, firm, corporation or other entity, knowingly solicit, aid or
      induce (i) any managerial level employee of the Company or any of its
      subsidiaries or affiliates to leave such employment to accept employment
      with or render services to or with any other person, firm, corporation or
      other entity unaffiliated with the Company or knowingly take any action to
      materially assist or aid any other person, firm, corporation or other
      entity in identifying or hiring any such employee or (ii) any customer of
      the Company or any of its subsidiaries or affiliates to purchase goods or
      services then sold by the Company or any of its subsidiaries or affiliates
      from another person, firm, corporation or other entity or assist or aid
      any other persons or entity in identifying or soliciting any such
      customer.

            9.3 NONCOMPETITION. The Executive acknowledges that he performs
      services of a unique nature for the Company that are irreplaceable, and
      that his performance of such services to a competing business will result
      in irreparable harm to the Company. Accordingly, during the Executive's
      employment hereunder and for the two (2) year period thereafter
      (regardless of the reason for the separation), the Executive agrees that
      the Executive will not:

                                       7


                        (i) directly or indirectly, own, manage, operate,
            control, be employed by (whether as an employee, consultant,
            independent contractor or otherwise, and whether or not for
            compensation) or render services to any person, firm, corporation or
            other entity, in whatever form, engaged in any business of the same
            type as any business in which the Company or any of its subsidiaries
            or affiliates is engaged on the date of termination or in which they
            have proposed, on or prior to such date, to be engaged in on or
            after such date and in which the Executive has been involved to any
            extent at any time during the 12-month period ending with the date
            of termination, within the geographical area in which Executive has
            been performing services on behalf of the Company or for which he
            has been assigned responsibility at anytime within the twelve (12)
            months preceding his separation. This Section 9.3(i) shall not
            prevent the Executive from owning not more than one percent of the
            total shares of all classes of stock outstanding of any publicly
            held entity engaged in such business, nor will it restrict the
            Executive from rendering services to charitable organizations, as
            such term is defined in Section 501(c) of the Internal Revenue Code.

                        (ii) within the geographical area in which Executive has
            been performing services on behalf of the Company or for which he
            has been assigned responsibility at anytime within the twelve (12)
            months preceding his separation, directly or indirectly in any
            competitive capacity, work for, advise, manage, or act as an agent
            or consultant for or have any business connection or business or
            employment relationship with any entity or person engaged in
            research, development, production, sale or distribution of a product
            or service that competes with or is substantially similar to any
            product or service in research, development or design, or produced,
            sold or distributed by the Company or any of its subsidiaries or
            affiliates.

                        (iii) directly or indirectly market, sell or otherwise
            provide any products or services that are competitive with or
            substantially similar to any product or service in research,
            development or design, or produced, sold or distributed by the
            Company, or any of its subsidiaries or affiliates, to any customer
            of the Company with whom Executive has had contact (either directly
            or indirectly) or over which he has had responsibility at any time
            during the twelve (12) months preceding his separation.

            9.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The
      Executive acknowledges and agrees that the Company's remedies at law for a
      breach or threatened breach of any of the provisions of this Section would
      be inadequate and, in recognition of this fact, the Executive agrees that,
      in the event of such a breach or threatened breach, in addition to any
      remedies at law, the Company, without posting any bond, shall be entitled
      to obtain equitable relief in the form of specific performance, temporary
      restraining order, a temporary or permanent injunction or any other
      equitable remedy which may then be available. With respect to any suit,
      action, or other proceeding for equitable relief under Section 9 of this
      Agreement, the Company and Executive hereby irrevocably agree to the
      exclusive personal jurisdiction and venue of the United States District
      Court for the

                                       8


      Southern District of Indiana (and any Indiana State Court within Marion
      County, Indiana).

            9.5 REFORMATION. If it is determined by a court of competent
      jurisdiction (or the arbitrators pursuant to Section 13.6) that any
      restriction in this Section 9 is excessive in duration or scope or is
      unreasonable or unenforceable under the laws of that state, it is the
      intention of the parties that such restriction may be modified or amended
      by the court to render it enforceable to the maximum extent permitted by
      the law of that state.

            9.6 SURVIVAL OF PROVISIONS. The obligations contained in this
      Section 9 shall survive the termination or expiration of the Executive's
      employment with the Company and shall be fully enforceable thereafter.

      10. REPRESENTATIONS AND WARRANTIES BY EXECUTIVE. Executive represents and
warrants to the Company that (i) this Agreement is valid and binding upon and
enforceable against him in accordance with its terms, (ii) Executive is not
bound by or subject to any contractual or other obligation that would be
violated by his execution or performance of this Agreement, including, but not
limited to, any non-competition agreement presently in effect, and (iii)
Executive is not subject to any pending or, to Executive's knowledge, threatened
claim, action, judgment, order, or investigation that could adversely affect his
ability to perform his obligations under this Agreement or the business
reputation of the Company. Executive has not entered into, and agrees that he
will not enter into, any agreement either written or oral in conflict herewith.

      11.   CHANGE IN CONTROL BENEFIT LIMIT.

            11.1 BENEFIT LIMIT. The aggregate Present Value (measured as of the
      Change in Control) of the benefits to which Executive becomes entitled
      under this Agreement either at the time of the Change in Control or at the
      time of his subsequent termination of employment (namely, the Severance
      Payment and Benefit Continuation in Section 8.2 and Option Parachute
      Payment attributable to his accelerated options) will in all events be
      limited to the amount (the "BENEFIT LIMIT") that yields Executive the
      greatest after-tax amount payable to him under this Agreement after taking
      into account the excise tax (if any) imposed under Code Section 4999 ) on
      the payments and benefits that are provided Executive under this Agreement
      or that constitute Other Parachute Payments.

            11.2 DEFINITIONS For purposes of applying Code Sections 280(G) and
      4999 and the Treasury Regulations thereunder to determine the Benefit
      Limit in effect under this Section 11.2, the following definitions shall
      be in effect:

            CODE means the Internal Revenue Code of 1986, as amended from time
            to time.

            OPTION PARACHUTE PAYMENT means, with respect to any of Executive's
            options accelerated pursuant to this Agreement, the portion of that
            option deemed to be a parachute payment under Code Section 280G and
            the Treasury Regulations issued thereunder. The portion of such
            Option which is categorized as an

                                       9


            Option Parachute Payment will be calculated in accordance with the
            valuation provisions established under Code Section 280G and the
            applicable Treasury Regulations and will include an appropriate
            dollar adjustment to reflect the lapse of Executive's obligation to
            remain in the Company's employ as a condition to the vesting of the
            accelerated installment. In no event, however, will the Option
            Parachute Payment attributable to any accelerated option (or
            accelerated installment) exceed the spread (the excess of the fair
            market value of the accelerated option shares over the option
            exercise price payable for those shares) existing at the time of
            acceleration.

            OTHER PARACHUTE PAYMENT means any payment in the nature of
            compensation (other than the benefits to which Executive becomes
            entitled under this Agreement) which are made to him in connection
            with the Change in Control and which accordingly qualify as
            parachute payments within the meaning of Code Section 280G(b)(2) and
            the Treasury Regulations issued thereunder.

            PARACHUTE PAYMENT means any payment or benefit provided Executive
            under this Agreement (other than the Option Parachute Payment) which
            is deemed to constitute a parachute payment within the meaning of
            Code Section 280G(b)(2) and the Treasury Regulations issued
            thereunder.

            PRESENT VALUE means the value, determined as of the date of the
            Change in Control, of any payment in the nature of compensation to
            which Executive becomes entitled in connection with the Change in
            Control or the subsequent termination of his employment, including
            (without limitation) the Option Parachute Payment attributable to
            the accelerated vesting of his options and any additional benefits
            to which Executive becomes entitled under this Agreement. The
            Present Value of each such payment shall be determined in accordance
            with the provisions of Code Section 280G(d)(4), utilizing a discount
            rate equal to one hundred twenty percent (120%) of the applicable
            Federal rate in effect at the time of such determination, compounded
            semi-annually to the effective date of the Change in Control.

            11.3 RESOLUTION PROCEDURE. In the event there is any disagreement
      between Executive and the Company as to whether one or more payments to
      which Executive becomes entitled in connection with either the Change in
      Control or his subsequent termination of employment constitute Parachute
      Payments, Option Parachute Payments or Other Parachute Payments or as to
      the determination of the Present Value thereof, such dispute will be
      resolved as follows:

                                       10


                        (i) In the event temporary, proposed or final Treasury
            Regulations in effect at the time under Code Section 280G (or
            applicable judicial decisions) specifically address the status of
            any such payment or the method of valuation therefor, the
            characterization afforded to such payment by the Regulations (or
            such decisions) will, together with the applicable valuation
            methodology, be controlling.

                        (ii) In the event Treasury Regulations (or applicable
            judicial decisions) do not address the status of any payment in
            dispute, the matter will be submitted for resolution to the
            Company's independent auditors ("INDEPENDENT AUDITORS"). The
            resolution reached by the Independent Auditors will be final and
            controlling. All expenses incurred in connection with the retention
            of the Independent Auditors to resolve the dispute shall be shared
            equally by Executive and the Company.

                        (iii) In the event Treasury Regulations (or applicable
            judicial decisions) do not address the appropriate valuation
            methodology for any payment in dispute, the Present Value thereof
            will, at the Independent Auditor's election, be determined through
            an independent third-party appraisal, and the expenses incurred in
            obtaining such appraisal shall be shared equally by Executive and
            the Company.

            11.4 STATUS OF BENEFITS.

                        (i) No Severance Payment or Benefit Continuation will be
            made to Executive under this Agreement and none of his options shall
            vest and become exercisable on an accelerated basis hereunder, until
            the Present Value of the Option Parachute Payment attributable to
            the accelerated vesting of such options has been determined and the
            status of any payments in dispute under Section 11.3 has been
            resolved in accordance therewith. The post-termination exercise
            period for any options which cannot be exercised by reason of the
            foregoing limitation shall automatically be stayed and shall not be
            deemed to run during any period the option remains so unexercisable.

                        (ii) Once the requisite determinations under Section
            11.3 have been made, then to the extent the aggregate Present Value,
            measured as of the Change in Control, of (1) the Option Parachute
            Payment attributable to the accelerated options (or installments
            thereof) plus (2) the Parachute Payment attributable to the
            Executive's Severance Payment and Benefit Continuation under this
            Agreement would, when added to the Present Value of all of the
            Executive's Other Parachute Payments, exceed the Benefit Limit, the
            Executive's Severance Payment will first be reduced, then the
            Benefit Continuation shall be reduced, and lastly then the number of
            option shares subject to accelerated vesting shall be reduced (based
            on their Option Parachute Value) to the extent necessary to assure
            the Benefit Limit is not exceeded.

                                       11


      12. GUARANTEE OF STANDARD MANAGEMENT CORPORATION. The Guarantor
unconditionally guarantees the financial obligations of the Company payable to
Executive as provided in Sections 5, 6 and 8 in this Agreement.

      13. MISCELLANEOUS.

            13.1 NOTICES. All notices, requests, and other communications
      hereunder must be in writing and will be deemed to have been duly given
      only if delivered personally against written receipt or by facsimile
      transmission with answer back confirmation or mailed (postage prepaid by
      certified or registered mail, return receipt requested) or by overnight
      courier to the parties at the following addresses or facsimile numbers:

            If to the Executive, to:

                  Martial R. Knieser, M.D.

                  9654 Halsey Drive

                  Indianapolis, Indiana 46256

            If to the Company, to:

                  U.S. Health Services Corporation

                  10689 N. Pennsylvania

                  Indianapolis, Indiana 46280

                  Attn: Ronald D. Hunter, Chairman

            If to the Guarantor, to:

                  Standard Management Corporation

                  10689 N. Pennsylvania

                  Indianapolis, Indiana 46280

                  Attn: Ronald D. Hunter, Chairman

      All such notices, requests and other communications will (i) if delivered
      personally to the address as provided in this Section 13.1, be deemed
      given upon delivery, (ii) if delivered by facsimile transmission to the
      facsimile number as provided in this Section 13.1, be deemed given upon
      receipt, and (iii) if delivered by mail in the manner described above to
      the address as provided in this Section 13.1, be deemed given upon receipt
      (in each case regardless of whether such notice, request, or other
      communication is received by any other person to whom a copy of such
      notice, request or other communication is to be delivered pursuant to this
      Section). Any party from time to time may change its address, facsimile
      number, or other information for the purpose of notices to that party by
      giving written notice specifying such change to the other parties hereto.

                                       12


            13.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Executive's
      employment hereunder, is subject to Executive providing the Company with
      legally required proof of Executive's authorization to be employed in the
      United States of America.

            13.3 ENTIRE AGREEMENT. This Agreement supersedes all prior
      discussions and agreements among the parties with respect to the subject
      matter hereof and contains the sole and entire agreement between the
      parties hereto with respect thereto.

            13.4 WAIVER. Any term or condition of this Agreement may be waived
      at any time by the party that is entitled to the benefit thereof, but no
      such waiver shall be effective unless set forth in a written instrument
      duly executed by or on behalf of the party waiving such term or condition.
      No waiver by any party hereto of any term or condition of this Agreement,
      in any one or more instances, shall be deemed to be or construed as a
      waiver of the same or any other term or condition of this Agreement on any
      future occasion. All remedies, either under this Agreement or by law or
      otherwise afforded, will be cumulative and not alternative.

            13.5 AMENDMENT. This Agreement may be amended, supplemented, or
      modified only by a written instrument duly executed by or on behalf of
      each party hereto.

            13.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or
      claim arising out of or relating to this Agreement or the breach thereof,
      other than injunctive relief under Section 9.4, shall be settled by
      binding arbitration in the City of Indianapolis, Indiana, in accordance
      with the laws of the State of Indiana, by three arbitrators, one of whom
      shall be appointed by the Company, one by Executive and the third of whom
      shall be appointed by the first two arbitrators. If the first two
      arbitrators cannot agree on the appointment of a third arbitrator, then
      the third arbitrator shall be appointed by the Chief Judge of the United
      States District Court for the Southern District of Indiana. The
      arbitration shall be conducted in accordance with the rules of the
      American Arbitration Association, except with respect to the selection of
      arbitrators, which shall be as provided in this Section. Judgment upon the
      award rendered by the arbitrators may be entered in any court having
      jurisdiction thereof.

            13.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or
      arbitration arising from or relating to this Agreement, the prevailing
      party in such litigation or arbitration proceedings shall be entitled to
      recover, from the non-prevailing party, the prevailing party's reasonable
      costs and attorney's fees, in addition to all other legal or equitable
      remedies to which it may otherwise be entitled.

            13.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
      Agreement are intended solely for the benefit of each party hereto and the
      Company's successors or assigns, and it is not the intention of the
      parties to confer third-party beneficiary rights upon any other person.

                                       13


            13.9 NO ASSIGNMENT; BINDING EFFECT. This Agreement shall inure to
      the benefit of any successors or assigns of the Company. Executive shall
      not be entitled to assign his obligations under this Agreement.

            13.10 HEADINGS. The headings used in this Agreement have been
      inserted for convenience of reference only and do not define or limit the
      provisions hereof.

            13.11 SEVERABILITY. The Company and Executive intend all provisions
      of this Agreement to be enforced to the fullest extent permitted by law.
      Accordingly, if a court of competent jurisdiction determines that the
      scope and/or operation of any provision of this Agreement is too broad to
      be enforced as written, the Company and Executive intend that the court
      should reform such provision to such narrower scope and/or operation as it
      determines to be enforceable. If, however, any provision of this Agreement
      is held to be illegal, invalid, or unenforceable under present or future
      law, and not subject to reformation, then (i) such provision shall be
      fully severable, (ii) this Agreement shall be construed and enforced as if
      such provision was never a part of this Agreement, and (iii) the remaining
      provisions of this Agreement shall remain in full force and effect and
      shall not be affected by illegal, invalid, or unenforceable provisions or
      by their severance.

            13.12 GOVERNING LAW. This Agreement shall be governed by and
      construed in accordance with the laws of the State of Indiana applicable
      to contracts executed and performed in such state without giving effect to
      conflicts of laws principles.

            13.13 COUNTERPARTS. This Agreement may be executed in any number of
      counterparts and by facsimile, each of which will be deemed an original,
      but all of which together will constitute one and the same instrument.

                [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

                                       14


      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.

                            "EXECUTIVE"

                            /s/ MARTIAL R. KNIESER, M.D.
                            ----------------------------------------------
                            Executive's Signature

                            10689 N. Pennsylvania St.
                            ----------------------------------------------
                            Address

                            Indianapolis, IN 46280
                            ----------------------------------------------
                            Address

                            "COMPANY"

                            U.S. HEALTH SERVICES CORPORATION

                            By: /s/ Ronald D. Hunter
                                ------------------------------------------

                            Name: Ronald D. Hunter
                                  ----------------------------------------

                            Title: Chairman and CEO
                                   ---------------------------------------

                            "GUARANTOR"

                            STANDARD MANAGEMENT CORPORATION

                            By: /s/ Ronald D. Hunter
                                ------------------------------------------

                            Name: Ronald D. Hunter
                                  ----------------------------------------

                            Title: Chairman and CEO
                                   ---------------------------------------

                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

                                       15

EX-10.20

                                                                   EXHIBIT 10.20

                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "AGREEMENT") is made and entered into as
of July 1, 2005 (the "Effective Date"), by and between Standard Management
Corporation (the "COMPANY"), and Michael B. Berry, a resident of the State of
Indiana, (the "EMPLOYEE").

                                    RECITALS

      A. Employee is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company;

      B. The Company and Employee have determined that it is in their respective
best interest to enter into this Agreement on the terms and conditions as set
forth herein.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement.

2. DUTIES. Employee shall serve as Vice President of Corporate Finance and
agrees to be subject to the general supervision, orders, advice and direction of
the President or Chairman of the Board of Directors for the Company (the
"President" or the "Chairman") in a manner consistent with The Articles of
Incorporation and By-Laws of the Company.

3. EXTENT OF SERVICES. During the term of Employee's employment hereunder,
Employee shall devote his full working time and efforts to the performance of
his duties and the furtherance of the interests of the Company and shall not be
otherwise employed.

4. TERM. Subject to the provisions for termination in Section 6 below, the
initial term of employment of Employee under this Agreement shall be one (1)
year from and after the Effective Date and it shall automatically renew annually
for successive one (1) year periods (the "RENEWAL TERM," and together with the
Initial Term, the "EMPLOYMENT TERM"), unless the Company or Employee elects not
to renew this Agreement by serving written notice of such intention not to renew
on the other party at least ninety (90) days prior to the succeeding Effective
Date. If such an election is made, this Agreement shall be in full force and
effect for the remaining portion of the then-current one (1) year period,
subject to the provisions for termination in Section 6 of this Agreement. Any
reference in this Agreement to "the Employment Term" means the initial term and
any renewal terms, each of which shall be considered a separate term.

5. COMPENSATION AND BENEFITS.



      5.1 SALARY. In consideration of the services rendered to the Company
hereunder by Employee and Employee's covenants hereunder, the Company shall,
during the Employment Term, pay Employee a salary at the annual rate of One
Hundred Forty-Five Thousand Dollars ($145,000), less statutory deductions and
withholdings, payable in accordance with the Company's regular payroll
practices. In addition, Employee will be eligible to receive an annual salary
increase in an amount to be determined by the Chairman.

      5.2 BONUS. Employee may receive bonuses based upon his performance in his
Employee and management capacity. Whether to award such bonuses and the amounts
thereof shall be determined solely by the Chairman of the Company.

      5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be
entitled to participate in the Company's corporate, medical and disability
insurance plans, at such time as Employee shall have fulfilled the eligibility
requirements for participation therein. Employee shall be entitled to all other
fringe benefits generally provided for salaried employees of the Company as
provided under such fringe benefit programs.

      5.4 STOCK OPTION. Employee shall be entitled to participate in the
Standard Management Corporation ("SMC") Incentive Stock Option Plan at the
discretion of the "SMC's" Stock Option Committee.

      5.5 VACATION. Employee shall be entitled to the greater of (i) 20 days
Paid Time Off ("PTO") for each year of the Employment Term; or (ii) the number
of PTO days to which Employee would be entitled in accordance with the PTO
policy and years of service with the Company or it affiliates.

      5.6 EXPENSES. The Company shall, during the Employment Term, reimburse
Employee for all reasonable travel, business entertainment and other business
expenses incurred by Employee in rendering services under this Contract. Such
reimbursement shall be subject to compliance with the applicable policies and
procedures established by the Company.

6. TERMINATION. Employee's employment and this Agreement (except as otherwise
provided hereunder) shall terminate upon the occurrence of any of the following,
at the time set forth therefor (the "TERMINATION DATE"):

      6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a
determination by the Company that Employee has ceased to be able to perform the
essential functions of his duties, with or without reasonable accommodation, for
a period of not less than ninety (90) days, due to a mental or physical illness
or incapacity ("DISABILITY") (termination pursuant to this Section 6.1 being
referred to herein as termination for "DEATH OR DISABILITY"); or

      6.2 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written
notice to the Company of termination of employment or;

                                       2



      6.3 TERMINATION FOR CAUSE. Immediately following notice of termination for
"Cause" (as defined below), specifying such Cause, given by the Company
(termination pursuant to this Section 6.3 being referred to herein as
termination for "CAUSE"). As used herein, "Cause" means (i) termination based on
Employee's conviction or plea of "guilty" or "no contest" to any crime
constituting a felony in the jurisdiction in which committed, any crime
involving moral turpitude (whether or not a felony), or any other violation of
criminal law involving dishonesty or willful misconduct that materially injures
the Company (whether or not a felony); (ii) Employee's substance abuse that in
any manner interferes with the performance of his duties; (iii) Employee's
failure or refusal to perform his duties at all or in an acceptable manner as
reasonably determined in the sole discretion of the Company, or to follow the
lawful orders, advice, directions, policies, standards and regulations of the
Company and its Chairman or President, as promulgated from time to time; (iv)
Employee's breach of this Agreement; (v) misconduct by Employee that has or
could discredit or damage the Company; (vi) an act or acts of fraud or
dishonesty by Employee resulting in or tending to result in gain to or personal
enrichment of Employee at the Company's expense; (vii) Employee's indictment for
a felony violation of the federal securities laws; or (viii) Employee's chronic
absence from work for reasons other than illness.

      6.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions
contained herein, including, but not limited to Section 4 above, the Company may
terminate Employee's employment thirty (30) days following notice of termination
without Cause given by the Company; provided, however, that during any such
thirty (30) day notice period, the Company may suspend, with no reduction in pay
or benefits, Employee from his duties as set forth herein (including, without
limitation, Employee's position as a representative and agent of the Company)
(termination pursuant to this Section 6.4 being referred to herein as
termination "WITHOUT CAUSE").

      6.5 OTHER REMEDIES. Termination pursuant to Section 6.3 above shall be in
addition to and without prejudice to any other right or remedy to which the
Company may be entitled at law, in equity, or under this Agreement.

7. SEVERANCE AND TERMINATION.

      7.1 CHANGE OF CONTROL. In the event a change of control (as defined below)
occurs during the Employment Term and the Employee's employment with the Company
terminates within six (6) months following such change of control for any reason
other than any termination provided for in Section 6, the Employee shall be
entitled to a severance payment consisting of twelve (12) months salary. In
addition, Employee shall continue to be entitled to all benefits throughout the
severance period.

            (a) The Employee shall be entitled to the severance payments
      described in Section 7.1 if the Company's principal executive offices are
      moved outside, or if the Employee is relocated outside the geographic area
      consisting, of Hamilton County, Indiana and the counties contiguous to
      Hamilton County, Indiana.

                                       3



            (b) As used in this Agreement, the term "change of control" means:
      (i) a change of ownership of 50% or more of the shares of voting stock of
      the Company by any person or group (other than a person or group including
      Employee or with whom or which Employee is affiliated), (ii) the
      occurrence of a "change of control" required to be described under the
      proxy disclosure rules of the Securities and Exchange Commission or (iii)
      any person or group (other than (A) a person or group including Employee
      or with whom or which Employee is affiliated or (B) Parent or any of its
      affiliates) is or becomes a beneficial owner, directly or indirectly, of
      securities of the Company representing more than fifty percent (50%) of
      the combined voting power of the Company's then-outstanding securities.

      7.2 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR
DISABILITY. In the case of a termination of Employee's employment hereunder for
Death or Disability in accordance with Section 6.1 above, or Employee's
Voluntary termination of employment hereunder in accordance with Section 6.2
above, or a termination of Employee's employment hereunder for Cause in
accordance with Section 6.3 above, (i) Employee shall not be entitled to receive
payment of, and the Company shall have no obligation to pay, any severance or
similar compensation attributable to such termination, other than Salary earned
but unpaid, accrued but unused vacation to the extent required by the Company's
policies, vested benefits under any employee benefit plan, and any unreimbursed
expenses pursuant to Section 5.6 hereof incurred by Employee as of the
Termination Date, and (ii) the Company's obligations under this Agreement shall
immediately cease.

      7.3 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in this
Agreement, in the case of a termination of Employee's employment hereunder
Without Cause in accordance with Section 6.4 above, the Company shall pay
Employee, the greater of twelve (12) months' salary or the salary due for the
remainder of the Employment Term (thereinafter the "Severance Payment"), payable
in installments in accordance with the Company's normal payroll practices and
subject to the tax withholding specified in Section 5.1 above. The Company shall
also provide Executive with health benefits equal to and under the same terms as
such benefits are provided to Employees similarly situated to Employee during
the severance period, or pay the same level of premiums for such benefits
required of Employee under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter
"Benefit Continuation"), throughout any period in which Employee receives the
Severance Payment under this Section or until Employee receives comparable
benefits from any other source, whichever occurs first. Nothing contained herein
shall interfere with Employee's right to purchase continuation coverage under
COBRA. Any Benefit Continuation under this Agreement shall run concurrently with
any continuation coverage under COBRA.

      The Company's obligation to pay and Employee's right to receive the
Severance Payment shall cease in the event of Employee's breach of his
obligations under Section 8 of this Agreement, as reasonably determined in the
sole discretion of the Company.

                                       4



      7.4 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation
to provide Employee with the Severance Payment and Benefit Continuation set
forth in Sections 7.1 and 7.3 is contingent upon Employee's execution of a
satisfactory release of all claims in favor of the Company.

8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND
NON-COMPETITION.

      8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term
and for a period of one year thereafter, (for the purpose of perfecting
ownership) he will assign to the Company or its nominees all of his right, title
and interest in and to all "Technical Information" (as hereinafter defined) that
he made developed or conceived, either alone or in conjunction with others
during the employment term; he will disclose promptly to the Company all such
Technical Information; and he will cooperate with the Company in its efforts to
protect its or any of its affiliates' or subsidiaries' rights of ownership in
such Technical Information. For purposes of this Contract, "Technical
Information" shall mean and include, but not be limited to, all software,
processes, devices, trademarks, trade names, copyrights, marketing plans,
improvements, and ideas relating to the business of the Company, or any of its
affiliates or subsidiaries, and all goodwill associated with any such item.

      8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
person, other than in the course of the Employee's assigned duties and for the
benefit of the Company, either during the period of the Employee's employment or
at any time thereafter, any nonpublic, proprietary or confidential information,
knowledge, data or trades secrets (including, but not limited to, the identity
and needs of any customer of the Company, or any of its affiliates or
subsidiaries, the method and techniques of any of the business of the Company,
or any of its affiliates or subsidiaries, the marketing, sales, costs and
pricing plans and objectives of the Company, or any of its affiliates or
subsidiaries, the problems, developments, research records, and Technical
Information) of the Company or any of its subsidiaries, affiliated companies or
businesses. The foregoing shall not apply to information that (i) was known to
the public prior to its disclosure to the Employee; (ii) becomes known to the
public subsequent to disclosure to the Employee through no wrongful act of the
Employee or any representative of the Employee; or (iii) the Employee is
required to disclose by applicable law, regulation or legal process (provided
that the Employee provides the Company with prior notice of the contemplated
disclosure and reasonably cooperates with the Company at its expense in seeking
a protective order or other appropriate protection of such information).
Notwithstanding clauses (i) and (ii) of the preceding sentence, the Employee's
obligation to maintain such disclosed information in confidence shall not
terminate where only portions of the information are in the public domain.
Furthermore, Employee shall deliver promptly to the Company upon termination of
his employment, or at any time the Company may so request, all memoranda, notes,
records, reports, manuals, software, models, designs, and other documents and
computer records (and all copies thereof) relating to the business of the
Company or any of its affiliates or subsidiaries, and all property associated
therewith, which he may then possess or have under his control. This

                                       5



Agreement supplements and does not supersede Employee's obligations under
statute or the common law to protect the Company's or any of its affiliates' or
subsidiaries' trade secrets and confidential information.

      8.3 NONSOLICITATION. During the Employee's employment hereunder and for
the two (2) year period thereafter (regardless of the reason for the
separation), the Employee agrees that he will not, directly or indirectly,
individually or on behalf of any other person, firm, corporation or other
entity, knowingly solicit, aid or induce (i) any employee of the Company or any
of its subsidiaries or affiliates to leave such employment to accept employment
with or render services to or with any other person, firm, corporation or other
entity unaffiliated with the Company or knowingly take any action to materially
assist or aid any other person, firm, corporation or other entity in identifying
or hiring any such employee or (ii) any customer of the Company or any of its
subsidiaries or affiliates to purchase goods or services then sold by the
Company or any of its subsidiaries or affiliates from another person, firm,
corporation or other entity or assist or aid any other persons or entity in
identifying or soliciting any such customer.

      8.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee
acknowledges and agrees that the Company's remedies at law for a breach or
threatened breach of any of the provisions of this Section would be inadequate
and, in recognition of this fact, the Employee agrees that, in the event of such
a breach or threatened breach, in addition to any remedies at law, the Company,
, shall be entitled to seek equitable relief in the form of specific
performance, temporary restraining order, a temporary or permanent injunction or
any other equitable remedy which may then be available. With respect to any
suit, action, or other proceeding for equitable relief under Section 8 of this
Agreement, the Company and Employee hereby irrevocably agree to the exclusive
personal jurisdiction and venue of the United States District Court for the
Southern District of Indiana (and any Indiana State Court within Marion County,
Indiana).

      8.5 REFORMATION. If it is determined by a court of competent jurisdiction
(or the arbitrators pursuant to Section 10.6) that any restriction in this
Section 8 is excessive in duration or scope or is unreasonable or unenforceable
under the laws of that state, it is the intention of the parties that such
restriction may be modified or amended by the court to render it enforceable to
the maximum extent permitted by the law of that state.

      8.6 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8
shall survive the termination or expiration of the Employee's employment with
the Company and shall be fully enforceable thereafter.

9.0 REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants
to the Company that (i) this Agreement is valid and binding upon and enforceable
against him in accordance with its terms, (ii) Employee is not bound by or
subject to any contractual or other obligation that would be violated by his
execution or performance of this Agreement, including, but not limited to, any
non-competition agreement presently in effect, and (iii) Employee is not subject
to any pending or, to Employee's knowledge, threatened claim, action, judgment,
order, or investigation that could adversely affect his ability to perform his
obligations under this Agreement or the

                                       6



business reputation of the Company. Employee has not entered into, and agrees
that he will not enter into, any agreement either written or oral in conflict
herewith.

10. MISCELLANEOUS.

      10.1 NOTICES. All notices, requests, and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:

            If to the Employee, to:

                  Michael B. Berry

                  3118 Saddlehorn Drive

                  Carmel, IN 46033

            If to the Company, to:

                  Standard Management Corporation

                  10689 N. Pennsylvania

                  Indianapolis, IN 46280

                  Attn: Ronald D. Hunter, Chairman, President and Chief
                  Executive Officer

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.1, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10.1, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 10.1, be deemed given upon receipt (in each case regardless of
whether such notice, request, or other communication is received by any other
person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that party by giving written notice specifying such change to the other parties
hereto.

      10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's
employment hereunder, is subject to Employee providing the Company with legally
required proof of Employee's authorization to be employed in the United States
of America.

                                       7



      10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements among the parties with respect to the subject matter hereof and
contains the sole and entire agreement between the parties hereto with respect
thereto.

      10.4 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.

      10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified
only by a written instrument duly executed by or on behalf of each party hereto.

      10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof, other than
injunctive relief under Section 8.5, shall be settled by binding arbitration in
the City of Indianapolis, Indiana, in accordance with the laws of the State of
Indiana, by three arbitrators, one of whom shall be appointed by the Company,
one by Employee and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the Chief
Judge of the United States District Court for the Southern District of Indiana.
The arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators,
which shall be as provided in this Section. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.

      10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or
arbitration arising from or relating to this Agreement, the prevailing party in
such litigation or arbitration proceedings shall be entitled to recover, from
the non-prevailing party, the prevailing party's reasonable costs and attorney's
fees, in addition to all other legal or equitable remedies to which it may
otherwise be entitled.

      10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person.

      10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the
services to be rendered by him are unique and personal; accordingly, Employee
may not assign any of his rights or delegate any of his duties or obligations
under this Agreement. This Agreement shall inure to the benefit of any
successors or assigns of the Company.

                                       8



      10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

      10.11 SEVERABILITY. The Company and Employee intend all provisions of this
Agreement to be enforced to the fullest extent permitted by law. Accordingly, if
a court of competent jurisdiction determines that the scope and/or operation of
any provision of this Agreement is too broad to be enforced as written, the
Company and Employee intend that the court should reform such provision to such
narrower scope and/or operation as it determines to be enforceable. If, however,
any provision of this Agreement is held to be illegal, invalid, or unenforceable
under present or future law, and not subject to reformation, then (i) such
provision shall be fully severable, (ii) this Agreement shall be construed and
enforced as if such provision was never a part of this Agreement, and (iii) the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by illegal, invalid, or unenforceable provisions or by
their severance.

      10.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts
executed and performed in such state without giving effect to conflicts of laws
principles.

      10.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

                [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

                                       9



      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.

                                       "EMPLOYEE"

                                       Michael B. Berry

                                       /s/ Michael B. Berry
                                       -----------------------------------------
                                       Employee's Signature

                                       Address
                                       3118 Saddlehorn Drive
                                       Carmel, IN 46033

                                       "COMPANY"

                                       STANDARD MANAGEMENT CORPORATION

                                       By:  /s/ Ronald D. Hunter
                                            ------------------------------------

                                       Name:  Ronald D. Hunter

                                       Title:  Chairman, President and Chief
                                               Executive Officer

                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

                                       10

EX-10.21

                                                                   EXHIBIT 10.21

                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "AGREEMENT") is made and entered into as
of July 1, 2005 (the "Effective Date"), by and between Standard Management
Corporation (the "COMPANY"), and Mark B. L. Long, a resident of the State of
Indiana, (the "EMPLOYEE").

                                    RECITALS

      A. Employee is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company;

      B. The Company and Employee have determined that it is in their respective
best interest to enter into this Agreement on the terms and conditions as set
forth herein.

                                   AGREEMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement.

2. DUTIES. Employee shall serve as Executive Vice President - Pharmacy
Operations and agrees to be subject to the general supervision, orders, advice
and direction of the President or Chairman of the Board of Directors for the
Company (the "President" or the "Chairman") in a manner consistent with The
Articles of Incorporation and By-Laws of the Company.

3. EXTENT OF SERVICES. During the term of Employee's employment hereunder,
Employee shall devote his full working time and efforts to the performance of
his duties and the furtherance of the interests of the Company and shall not be
otherwise employed.

4. TERM. Subject to the provisions for termination in Section 6 below, the
initial term of employment of Employee under this Agreement shall be one (1)
year from and after the Effective Date and it shall automatically renew annually
for successive one (1) year periods (the "RENEWAL TERM," and together with the
Initial Term, the "EMPLOYMENT TERM"), unless the Company or Employee elects not
to renew this Agreement by serving written notice of such intention not to renew
on the other party at least ninety (90) days prior to the succeeding Effective
Date. If such an election is made, this Agreement shall be in full force and
effect for the remaining portion of the then-current one (1) year period,
subject to the provisions for termination in Section 6 of this Agreement. Any
reference in this Agreement to "the Employment Term" means the initial term and
any renewal terms, each of which shall be considered a separate term.

5. COMPENSATION AND BENEFITS.



      5.1 SALARY. In consideration of the services rendered to the Company
hereunder by Employee and Employee's covenants hereunder, the Company shall,
during the Employment Term, pay Employee a salary at the annual rate of
Two-Hundred, Ten Thousand Dollars ($210,000), less statutory deductions and
withholdings, payable in accordance with the Company's regular payroll
practices. In addition, Employee will be eligible to receive an annual salary
increase in an amount to be determined by the Chairman.

      5.2 BONUS. Employee may receive bonuses based upon his performance in his
Employee and management capacity. Whether to award such bonuses and the amounts
thereof shall be determined solely by the Chairman of the Company.

      5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be
entitled to participate in the Company's corporate, medical and disability
insurance plans, at such time as Employee shall have fulfilled the eligibility
requirements for participation therein. Employee shall be entitled to all other
fringe benefits generally provided for salaried employees of the Company as
provided under such fringe benefit programs.

      5.4 STOCK OPTION. Employee shall be entitled to participate in the
Standard Management Corporation ("SMC") Incentive Stock Option Plan at the
discretion of the "SMC's" Stock Option Committee.

      5.5 VACATION. Employee shall be entitled to the greater of (i) 20 days
Paid Time Off ("PTO") for each year of the Employment Term; or (ii) the number
of PTO days to which Employee would be entitled in accordance with the PTO
policy and years of service with the Company or it affiliates.

      5.6 EXPENSES. The Company shall, during the Employment Term, reimburse
Employee for all reasonable travel, business entertainment and other business
expenses incurred by Employee in rendering services under this Contract. Such
reimbursement shall be subject to compliance with the applicable policies and
procedures established by the Company.

      6. TERMINATION. Employee's employment and this Agreement (except as
otherwise provided hereunder) shall terminate upon the occurrence of any of the
following, at the time set forth therefor (the "TERMINATION DATE"):

      6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a
determination by the Company that Employee has ceased to be able to perform the
essential functions of his duties, with or without reasonable accommodation, for
a period of not less than ninety (90) days, due to a mental or physical illness
or incapacity ("DISABILITY") (termination pursuant to this Section 6.1 being
referred to herein as termination for "DEATH OR DISABILITY"); or

      6.2 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written
notice to the Company of termination of employment or;

                                       2


      6.3 TERMINATION FOR CAUSE. Immediately following notice of termination for
"Cause" (as defined below), specifying such Cause, given by the Company
(termination pursuant to this Section 6.3 being referred to herein as
termination for "CAUSE"). As used herein, "Cause" means (i) termination based on
Employee's conviction or plea of "guilty" or "no contest" to any crime
constituting a felony in the jurisdiction in which committed, any crime
involving moral turpitude (whether or not a felony), or any other violation of
criminal law involving dishonesty or willful misconduct that materially injures
the Company (whether or not a felony); (ii) Employee's substance abuse that in
any manner interferes with the performance of his duties; (iii) Employee's
failure or refusal to perform his duties at all or in an acceptable manner as
reasonably determined in the sole discretion of the Company, or to follow the
lawful orders, advice, directions, policies, standards and regulations of the
Company and its Chairman or President, as promulgated from time to time; (iv)
Employee's breach of this Agreement; (v) misconduct by Employee that has or
could discredit or damage the Company; (vi) an act or acts of fraud or
dishonesty by Employee resulting in or tending to result in gain to or personal
enrichment of Employee at the Company's expense; (vii) Employee's indictment for
a felony violation of the federal securities laws; or (viii) Employee's chronic
absence from work for reasons other than illness.

      6.4 TERMINATION WITHOUT CAUSE. Notwithstanding any other provisions
contained herein, including, but not limited to Section 4 above, the Company may
terminate Employee's employment thirty (30) days following notice of termination
without Cause given by the Company; provided, however, that during any such
thirty (30) day notice period, the Company may suspend, with no reduction in pay
or benefits, Employee from his duties as set forth herein (including, without
limitation, Employee's position as a representative and agent of the Company)
(termination pursuant to this Section 6.4 being referred to herein as
termination "WITHOUT CAUSE").

      6.5 OTHER REMEDIES. Termination pursuant to Section 6.3 above shall be in
addition to and without prejudice to any other right or remedy to which the
Company may be entitled at law, in equity, or under this Agreement.

7. SEVERANCE AND TERMINATION.

      7.1 CHANGE OF CONTROL. In the event a change of control (as defined below)
occurs during the Employment Term and the Employee's employment with the Company
terminates within six (6) months following such change of control for any reason
other than any termination provided for in Section 6, the Employee shall be
entitled to a severance payment consisting of twelve (12) months salary. In
addition, Employee shall continue to be entitled to all benefits throughout the
severance period.

            (a) The Employee shall be entitled to the severance payments
      described in Section 7.1 if the Company's principal executive offices are
      moved outside, or if the Employee is relocated outside the geographic area
      consisting, of Hamilton County, Indiana and the counties contiguous to
      Hamilton County, Indiana.

                                       3


            (b) As used in this Agreement, the term "change of control" means:
      (i) a change of ownership of 50% or more of the shares of voting stock of
      the Company by any person or group (other than a person or group including
      Employee or with whom or which Employee is affiliated), (ii) the
      occurrence of a "change of control" required to be described under the
      proxy disclosure rules of the Securities and Exchange Commission or (iii)
      any person or group (other than (A) a person or group including Employee
      or with whom or which Employee is affiliated or (B) Parent or any of its
      affiliates) is or becomes a beneficial owner, directly or indirectly, of
      securities of the Company representing more than fifty percent (50%) of
      the combined voting power of the Company's then-outstanding securities.

      7.2 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR
DISABILITY. In the case of a termination of Employee's employment hereunder for
Death or Disability in accordance with Section 6.1 above, or Employee's
Voluntary termination of employment hereunder in accordance with Section 6.2
above, or a termination of Employee's employment hereunder for Cause in
accordance with Section 6.3 above, (i) Employee shall not be entitled to receive
payment of, and the Company shall have no obligation to pay, any severance or
similar compensation attributable to such termination, other than Salary earned
but unpaid, accrued but unused vacation to the extent required by the Company's
policies, vested benefits under any employee benefit plan, and any unreimbursed
expenses pursuant to Section 5.6 hereof incurred by Employee as of the
Termination Date, and (ii) the Company's obligations under this Agreement shall
immediately cease.

      7.3 TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in this
Agreement, in the case of a termination of Employee's employment hereunder
Without Cause in accordance with Section 6.4 above, the Company shall pay
Employee, the greater of twelve (12) months' salary or the salary due for the
remainder of the Employment Term (thereinafter the "Severance Payment"), payable
in installments in accordance with the Company's normal payroll practices and
subject to the tax withholding specified in Section 5.1 above. The Company shall
also provide Executive with health benefits equal to and under the same terms as
such benefits are provided to Employees similarly situated to Employee during
the severance period, or pay the same level of premiums for such benefits
required of Employee under COBRA, 29 U.S.C. Section 1161, et seq. (hereinafter
"Benefit Continuation"), throughout any period in which Employee receives the
Severance Payment under this Section or until Employee receives comparable
benefits from any other source, whichever occurs first. Nothing contained herein
shall interfere with Employee's right to purchase continuation coverage under
COBRA. Any Benefit Continuation under this Agreement shall run concurrently with
any continuation coverage under COBRA.

      The Company's obligation to pay and Employee's right to receive the
Severance Payment shall cease in the event of Employee's breach of his
obligations under Section 8 of this Agreement, as reasonably determined in the
sole discretion of the Company.

                                       4


      7.4 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation
to provide Employee with the Severance Payment and Benefit Continuation set
forth in Sections 7.1 and 7.3 is contingent upon Employee's execution of a
satisfactory release of all claims in favor of the Company.

8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND
NON-COMPETITION.

      8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term
and for a period of one year thereafter, (for the purpose of perfecting
ownership) he will assign to the Company or its nominees all of his right, title
and interest in and to all "Technical Information" (as hereinafter defined) that
he made developed or conceived, either alone or in conjunction with others
during the employment term; he will disclose promptly to the Company all such
Technical Information; and he will cooperate with the Company in its efforts to
protect its or any of its affiliates' or subsidiaries' rights of ownership in
such Technical Information. For purposes of this Contract, "Technical
Information" shall mean and include, but not be limited to, all software,
processes, devices, trademarks, trade names, copyrights, marketing plans,
improvements, and ideas relating to the business of the Company, or any of its
affiliates or subsidiaries, and all goodwill associated with any such item.

      8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
person, other than in the course of the Employee's assigned duties and for the
benefit of the Company, either during the period of the Employee's employment or
at any time thereafter, any nonpublic, proprietary or confidential information,
knowledge, data or trades secrets (including, but not limited to, the identity
and needs of any customer of the Company, or any of its affiliates or
subsidiaries, the method and techniques of any of the business of the Company,
or any of its affiliates or subsidiaries, the marketing, sales, costs and
pricing plans and objectives of the Company, or any of its affiliates or
subsidiaries, the problems, developments, research records, and Technical
Information) of the Company or any of its subsidiaries, affiliated companies or
businesses. The foregoing shall not apply to information that (i) was known to
the public prior to its disclosure to the Employee; (ii) becomes known to the
public subsequent to disclosure to the Employee through no wrongful act of the
Employee or any representative of the Employee; or (iii) the Employee is
required to disclose by applicable law, regulation or legal process (provided
that the Employee provides the Company with prior notice of the contemplated
disclosure and reasonably cooperates with the Company at its expense in seeking
a protective order or other appropriate protection of such information).
Notwithstanding clauses (i) and (ii) of the preceding sentence, the Employee's
obligation to maintain such disclosed information in confidence shall not
terminate where only portions of the information are in the public domain.
Furthermore, Employee shall deliver promptly to the Company upon termination of
his employment, or at any time the Company may so request, all memoranda, notes,
records, reports, manuals, software, models, designs, and other documents and
computer records (and all copies thereof) relating to the business of the
Company or any of its affiliates or subsidiaries, and all property associated
therewith, which he may then possess or have under his control. This

                                       5


Agreement supplements and does not supersede Employee's obligations under
statute or the common law to protect the Company's or any of its affiliates' or
subsidiaries' trade secrets and confidential information.

      8.3 NONSOLICITATION. During the Employee's employment hereunder and for
the one (1) year period thereafter (regardless of the reason for the
separation), the Employee agrees that he will not, directly or indirectly,
individually or on behalf of any other person, firm, corporation or other
entity, knowingly solicit, aid or induce (i) any employee of the Company or any
of its subsidiaries or affiliates to leave such employment to accept employment
with or render services to or with any other person, firm, corporation or other
entity unaffiliated with the Company or knowingly take any action to materially
assist or aid any other person, firm, corporation or other entity in identifying
or hiring any such employee or (ii) any customer of the Company or any of its
subsidiaries or affiliates to purchase goods or services then sold by the
Company or any of its subsidiaries or affiliates from another person, firm,
corporation or other entity or assist or aid any other persons or entity in
identifying or soliciting any such customer.

      8.4 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee
acknowledges and agrees that the Company's remedies at law for a breach or
threatened breach of any of the provisions of this Section would be inadequate
and, in recognition of this fact, the Employee agrees that, in the event of such
a breach or threatened breach, in addition to any remedies at law, the Company,
, shall be entitled to seek equitable relief in the form of specific
performance, temporary restraining order, a temporary or permanent injunction or
any other equitable remedy which may then be available. With respect to any
suit, action, or other proceeding for equitable relief under Section 8 of this
Agreement, the Company and Employee hereby irrevocably agree to the exclusive
personal jurisdiction and venue of the United States District Court for the
Southern District of Indiana (and any Indiana State Court within Marion County,
Indiana).

      8.5 REFORMATION. If it is determined by a court of competent jurisdiction
(or the arbitrators pursuant to Section 10.6) that any restriction in this
Section 8 is excessive in duration or scope or is unreasonable or unenforceable
under the laws of that state, it is the intention of the parties that such
restriction may be modified or amended by the court to render it enforceable to
the maximum extent permitted by the law of that state.

      8.6 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8
shall survive the termination or expiration of the Employee's employment with
the Company and shall be fully enforceable thereafter.

9.0 REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants
to the Company that (i) this Agreement is valid and binding upon and enforceable
against him in accordance with its terms, (ii) Employee is not bound by or
subject to any contractual or other obligation that would be violated by his
execution or performance of this Agreement, including, but not limited to, any
non-competition agreement presently in effect, and (iii) Employee is not subject
to any pending or, to Employee's knowledge, threatened claim, action, judgment,
order, or investigation that could adversely affect his ability to perform his
obligations under this Agreement or the

                                       6


business reputation of the Company. Employee has not entered into, and agrees
that he will not enter into, any agreement either written or oral in conflict
herewith.

10. MISCELLANEOUS.

      10.1 NOTICES. All notices, requests, and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:

                  If to the Employee, to:

                        Mark B. L. Long
                        8526 Oakmont Lane
                        Indianapolis, IN 46260

                  If to the Company, to:

                        Standard Management Corporation

                        10689 N. Pennsylvania

                        Indianapolis, IN 46280

                        Attn: Ronald D. Hunter, Chairman, Chief Executive
                        Officer and President

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.1, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10.1, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 10.1, be deemed given upon receipt (in each case regardless of
whether such notice, request, or other communication is received by any other
person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number, or other information for the purpose of notices to
that party by giving written notice specifying such change to the other parties
hereto.

      10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's
employment hereunder, is subject to Employee providing the Company with legally
required proof of Employee's authorization to be employed in the United States
of America.

      10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements among the parties with respect to the subject matter hereof and
contains the sole and entire agreement between the parties hereto with respect
thereto.

                                       7


      10.4 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.

      10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified
only by a written instrument duly executed by or on behalf of each party hereto.

      10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof, other than
injunctive relief under Section 8.5, shall be settled by binding arbitration in
the City of Indianapolis, Indiana, in accordance with the laws of the State of
Indiana, by three arbitrators, one of whom shall be appointed by the Company,
one by Employee and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the Chief
Judge of the United States District Court for the Southern District of Indiana.
The arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators,
which shall be as provided in this Section. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.

      10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or
arbitration arising from or relating to this Agreement, the prevailing party in
such litigation or arbitration proceedings shall be entitled to recover, from
the non-prevailing party, the prevailing party's reasonable costs and attorney's
fees, in addition to all other legal or equitable remedies to which it may
otherwise be entitled.

      10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person.

      10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the
services to be rendered by him are unique and personal; accordingly, Employee
may not assign any of his rights or delegate any of his duties or obligations
under this Agreement. This Agreement shall inure to the benefit of any
successors or assigns of the Company.

      10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

      10.11 SEVERABILITY. The Company and Employee intend all provisions of this
Agreement to be enforced to the fullest extent permitted by law. Accordingly, if
a court

                                       8


of competent jurisdiction determines that the scope and/or operation of any
provision of this Agreement is too broad to be enforced as written, the Company
and Employee intend that the court should reform such provision to such narrower
scope and/or operation as it determines to be enforceable. If, however, any
provision of this Agreement is held to be illegal, invalid, or unenforceable
under present or future law, and not subject to reformation, then (i) such
provision shall be fully severable, (ii) this Agreement shall be construed and
enforced as if such provision was never a part of this Agreement, and (iii) the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by illegal, invalid, or unenforceable provisions or by
their severance.

      10.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts
executed and performed in such state without giving effect to conflicts of laws
principles.

      10.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

                [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

                                       9


      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.

                              "EMPLOYEE"

                              Mark B. L. Long

                              /s/ Mark B.L. Long
                              --------------------------------------------------

                              Employee's Signature

                              Address

                              8526 Oakmont Lane
                              Indianapolis, IN 46260

                              STANDARD MANAGEMENT CORPORATION

                              By: /s/ Ronald D. Hunter
                                  ----------------------------------------------

                              Name:  Ronald D. Hunter

                              Title: Chairman, Chief Executive Officer and

                                     President

                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

                                       10

EX-10.22

                                                                   EXHIBIT 10.22
                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "AGREEMENT") is made and entered into as
of July 21, 2005 (the "Effective Date"), by and between Rainier Home Health Care
Pharmacy, Inc., a Washington corporation (the "COMPANY"), and John T. Tran, a
resident of the State of Washington (the "EMPLOYEE").

                                    RECITALS

      A. Employee is expected to continue to make a major contribution to the
profitability, growth and financial strength of the Company.

      B. The Company and Employee have determined that it is in their respective
best interest to enter into this Agreement on the terms and conditions as set
forth herein.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement.

2. DUTIES. Employee shall serve as President of the Company and agrees to be
subject to the general supervision, orders, advice and direction of the Chairman
of the Board of Directors for the Company (the "CHAIRMAN") in a manner
consistent with The Certificate of Incorporation and By-Laws of the Company. As
President, Employee shall be entitled to enter into agreements for the purchase
or sale of products and services in the ordinary course of the Company's
business and shall have the ability to hire and fire employees of the Company.
Employee shall not be obligated to receive any training from the Company in
connection with his duties hereunder.

3. EXTENT OF SERVICES. During the term of Employee's employment hereunder,
Employee shall devote his full working time and efforts to the performance of
his duties and the furtherance of the interests of the Company and shall not be
otherwise employed; provided, however, that Employee's ownership of a property
management business and other entities that own real estate shall not be
considered a violation of this Section 3.

4. TERM. Subject to the provisions for termination in Section 6 below, the
initial term of employment of Employee under this Agreement shall
be three (3) years from and after the Effective Date (the "INITIAL TERM") and it
shall automatically renew annually for successive one (1) year periods (each, a
"RENEWAL TERM"), unless the Company or Employee elects not to renew this
Agreement by serving written notice of such intention not to renew on the other
party at least ninety (90) days prior to the end of the Employment Term (as
hereinafter defined). If such an election is made, this Agreement shall be in
full force and effect for the remaining portion of the Employment Term,



subject to the provisions for termination in Section 6 of this Agreement. Any
reference in this Agreement to the "EMPLOYMENT TERM" shall mean the period
beginning on the date hereof and continuing until Employee's employment is
terminated under the terms of this Agreement.

5. COMPENSATION AND BENEFITS.

      5.1 SALARY. In consideration of the services rendered to the Company
hereunder by Employee and Employee's covenants hereunder, the Company shall,
during the Employment Term, pay Employee a salary at the annual rate of
$180,000, less statutory deductions and withholdings, payable in accordance with
the Company's regular payroll practices. In addition, Employee will be eligible
to receive an annual salary increase in an amount to be determined by the
Chairman.

      5.2 BONUS. Employee will receive bonuses based upon his performance in his
capacity as an employee and manager of the Company during the Employment Term.
The Employee's bonus for calendar year 2005 shall be an amount equal to the
lesser of (i) $150,000, or (ii) the Company's actual EBITDA for calendar year
2005 minus the Company's target EBITDA for such year of $1,800,000. The
Employee's bonus for calendar year 2006 shall be an amount equal to the lesser
of (v) $150,000, or (vi) the Company's actual EBITDA for calendar year 2006
minus the Company's target EBITDA for such year of 2,160,000. The Employee's
bonus for calendar year 2007 shall be an amount equal to the lesser of (x)
$150,000, or (xi) the Company's actual EBITDA for calendar year 2007 minus the
Company's target EBITDA for such year of $2,592,000. If the Company's target
EBITDA for any calendar year exceeds actual EBITDA for such year, then no bonus
shall be paid to Employee for such year. Actual EBITDA shall be calculated by
the Company no later than 120 days after the end of each calendar year, and the
bonus shall be paid no later than 10 business days after EBITDA is calculated by
the Company.

      5.3 BENEFITS PACKAGE. During the Employment Term, Employee shall be
entitled to participate in the Company's corporate, medical and disability
insurance plans. Employee shall be entitled to all other fringe benefits
generally provided for salaried employees of the Company as provided under the
Company's fringe benefit programs.

      5.4 STOCK OPTION. Employee shall be entitled to options to purchase 50,000
shares of Standard Management Corporation ("SMC") under the Standard Management
Corporation 2002 Stock Incentive Plan (THE "PLAN"). In addition, Employee shall
be entitled to receive options to purchase additional shares of SMC under the
Plan at the discretion of SMC's Stock Option Committee.

      5.5 VACATION. Employee shall be entitled to the greater of (a) 20 days
paid time off ("PTO") for each year of the Employment Term; and (b) the number
of PTO days to which Employee would be entitled in accordance with the Company's
PTO policy and years of service with the Company or it affiliates. Employee
shall receive credit for his prior years of service to the Company and its
predecessor in interest.

Confidential                         Page 2



      5.6 EXPENSES. The Company shall, during the Employment Term, reimburse
Employee for all reasonable travel, business entertainment and other business
expenses incurred by Employee in rendering services under this Agreement. Such
reimbursement shall be subject to compliance with the applicable policies and
procedures established by the Company.

      5.7 BOARD OF DIRECTORS. During the Employment Term, Employee may serve, or
select another person to serve, on the Board of Directors of the Company. Upon
the termination of Employee's employment under this Agreement, the director
selected by Employee shall resign from the Company's Board of Directors.

6. TERMINATION. Employee's employment and this Agreement (except as otherwise
provided hereunder) shall terminate upon the occurrence of any of the following,
at the time set forth therefor (the "TERMINATION DATE"):

      6.1 DEATH OR DISABILITY. Immediately upon the death of Employee or a
determination by the Company that Employee has ceased to be able to perform the
essential functions of his duties, with or without reasonable accommodation, for
a period of not less than ninety (90) days, due to a mental or physical illness
or incapacity (termination pursuant to this Section 6.1 being referred to herein
as termination for "DEATH OR DISABILITY").

      6.2 TERMINATION FOR GOOD REASON. Thirty (30) days following Employee's
written notice to the Company of termination of employment as a result of (a)
the Company's material breach of this Agreement or a material breach of the
Merger Agreement (as hereinafter defined), if the Company fails to cure such
breach within such thirty (30) day period, (b) a substantial diminution not
consented to by Employee, in the nature or scope of Employee's responsibilities,
authorities, powers, functions or duties, or (c) the Company's principal
executive offices are moved outside, or if the Employee is relocated outside the
geographic area consisting, of King County, Washington and the counties
contiguous to King County, Washington ("GOOD REASON").

      6.3 VOLUNTARY TERMINATION. Thirty (30) days following Employee's written
notice to the Company of termination of employment other than for Good Reason
("VOLUNTARY TERMINATION").

      6.4 TERMINATION FOR CAUSE. Immediately following notice of termination for
Cause (as hereinafter defined), which notice shall specify such Cause, given by
the Company (termination pursuant to this Section 6.4 being referred to herein
as termination for Cause). As used herein, "CAUSE" means (a) termination based
on Employee's conviction or plea of "guilty" or "no contest" to any crime
constituting a felony in the jurisdiction in which committed, any crime
involving moral turpitude (whether or not a felony), or any other crime
involving dishonesty or willful misconduct that materially injures the Company
(whether or not a felony); (b) Employee's failure or refusal to perform his
duties at all or in an acceptable manner as reasonably determined in the sole
discretion of the Company, (c) Employee's failure or refusal to follow the
lawful orders, advice, directions, policies, standards and regulations of the
Company and its Chairman,

Confidential                         Page 3


as promulgated from time to time; (d) Employee's material breach of this
Agreement; (e) misconduct by Employee that has or could discredit or damage the
Company; (f) an act or acts of fraud or dishonesty by Employee resulting in or
tending to result in gain to or personal enrichment of Employee at the Company's
expense; (g) Employee's indictment for a felony violation of the federal
securities laws; or (h) Employee's chronic absence from work for reasons other
than illness.

      6.5 TERMINATION WITHOUT CAUSE. Thirty (30) days following notice to
Employee of termination for any reason other than Cause, notwithstanding any
other provisions contained herein, including, but not limited to Section 4
above; provided, however, that during any such thirty (30) day notice period,
the Company may suspend, with no reduction in pay or benefits, Employee from his
duties as set forth herein (including, without limitation, Employee's position
as a representative and agent of the Company) (termination pursuant to this
Section 6.4 being referred to herein as termination "WITHOUT CAUSE").

      6.6 TERMINATION UPON CHANGE OF CONTROL. Upon notice to Employee of
termination within six (6) months following a change of control (as defined
below) for any reason other than termination for Death or Disability or
termination for Cause ("TERMINATION UPON CHANGE OF CONTROL").

As used in this Agreement, the term "change of control" means: (a) a change of
ownership of 50% or more of the shares of voting stock of the Company by any
person or group (other than a person or group including Employee or with whom or
which Employee is affiliated), (b) the occurrence of a "change of control"
required to be described under the proxy disclosure rules of the Securities and
Exchange Commission or (c) any person or group is or becomes a beneficial owner,
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of the Company's
then-outstanding securities.

      6.7 OTHER REMEDIES. Termination pursuant to Section 6.4 above shall be in
addition to and without prejudice to any other right or remedy to which the
Company may be entitled at law, in equity, or under this Agreement.

7. SEVERANCE AND TERMINATION.

      7.1 VOLUNTARY TERMINATION, TERMINATION FOR CAUSE, TERMINATION FOR DEATH OR
DISABILITY. In the case of Employee's Voluntary Termination of employment
hereunder in accordance with Section 6.3 above or a termination of Employee's
employment hereunder for Cause in accordance with Section 6.4 above, (a)
Employee shall not be entitled to receive payment of, and the Company shall have
no obligation to pay, any severance or similar compensation attributable to such
termination, other than salary earned but unpaid, accrued but unused vacation to
the extent required by the Company's policies, vested benefits under any
employee benefit plan, and any unreimbursed expenses pursuant to Section 5.6
hereof incurred by Employee as of the Termination Date, (b) the Company will not
be obligated to make any further payments on the Earn-Out (as defined in
Agreement and Plan of Merger dated July ___, 2005 by

Confidential                         Page 4



and among Standard Management Corporation, Rainier Acquisition Corporation, the
Company, Employee, Cynthia J. Wareing-Tran and The Jonathan Tran Irrevocable
Trust, u/a/d 8/23/2004 ("MERGER AGREEMENT"), and (c) the Company's obligations
under this Agreement shall immediately cease.

      7.3 TERMINATION FOR DEATH OR DISABILITY. In the case of a termination of
Employee's employment hereunder for Death or Disability in accordance with
Section 6.1 above, (a) Employee shall not be entitled to receive payment of, and
the Company shall have no obligation to pay, any severance or similar
compensation attributable to such termination, other than salary earned but
unpaid, accrued but unused vacation to the extent required by the Company's
policies, vested benefits under any employee benefit plan, and any unreimbursed
expenses pursuant to Section 5.6 hereof incurred by Employee as of the
Termination Date, and (b) the Company's obligations under this Agreement shall
immediately cease.

      7.4 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. Subject to the
provisions set forth in this Agreement, in the case of a (a) termination of
Employee's employment hereunder for Good Reason in accordance with Section 6.2
above or (b) termination of Employee's termination hereunder Without Cause,
unless such termination is also a Termination Upon Change of Control, in
accordance with Section 6.4 above, the Company shall pay Employee, the greater
of twelve (12) months' salary or the salary due for the remainder of the Initial
Term or Renewal Term, as applicable (thereinafter the "SEVERANCE PAYMENT"),
payable in installments in accordance with the Company's normal payroll
practices and subject to the tax withholding specified in Section 5.1 above. The
Company shall also provide Employee with health benefits equal to and under the
same terms as such benefits are provided to employees similarly situated to
Employee during the severance period, or pay the same level of premiums for such
benefits required of Employee under COBRA, 29 U.S.C. Section 1161, et seq.
(hereinafter "BENEFIT CONTINUATION"), throughout any period in which Employee
receives the Severance Payment under this Section 7.4 or until Employee receives
comparable benefits from any other source, whichever occurs first. Nothing
contained herein shall interfere with Employee's right to purchase continuation
coverage under COBRA. Any Benefit Continuation under this Agreement shall run
concurrently with any continuation coverage under COBRA.

      The Company's obligation to pay and Employee's right to receive the
Severance Payment shall cease in the event of Employee's breach of his
obligations under Section 8 of this Agreement, as reasonably determined in the
sole discretion of the Company.

      7.5 TERMINATION UPON CHANGE OF CONTROL. In the event the Employee is
Terminated Upon Change of Control, the Employee shall be entitled to a severance
payment consisting of twelve (12) months salary. In addition, Employee shall
continue to be entitled to all benefits throughout the twelve (12) month
severance period.

      7.6 SEVERANCE CONDITIONED ON RELEASE OF CLAIMS. The Company's obligation
to provide Employee with the benefits set forth in Sections 7.1, 7.4 and 7.5

Confidential                         Page 5



above is contingent upon Employee's execution of a release, reasonably
satisfactory to the Company, of all claims Employee may have against the Company
and SMC.

8. TECHNICAL INFORMATION, CONFIDENTIALITY, NON-SOLICITATION, AND
NON-COMPETITION.

      8.1 TECHNICAL INFORMATION. Employee agrees that during the Employment Term
and for a period of one year thereafter, (for the purpose of perfecting
ownership) he will (a) assign to the Company or its nominees all of his right,
title and interest in and to all "Technical Information" (as hereinafter
defined) that he made, developed or conceived, either alone or in conjunction
with others during the Employment Term; (b) disclose promptly to the Company all
such Technical Information; and (c) cooperate with the Company in its efforts to
protect its or any of its affiliates' or subsidiaries' rights of ownership in
such Technical Information. For purposes of this Contract, "TECHNICAL
INFORMATION" shall mean and include, but not be limited to, all software,
processes, devices, trademarks, trade names, copyrights, marketing plans,
improvements, and ideas relating to the business of the Company, or any of its
affiliates or subsidiaries, and all goodwill associated with any such item.

      8.2 CONFIDENTIALITY. The Employee agrees that he shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to any
person, other than in the course of the Employee's assigned duties and for the
benefit of the Company, either during the Employment Term or at any time
thereafter, any nonpublic, proprietary or confidential information, knowledge,
data or trades secrets (including, but not limited to, the identity and needs of
any customer of the Company, or any of its affiliates or subsidiaries, the
method and techniques of any of the business of the Company, or any of its
affiliates or subsidiaries, the marketing, sales, costs and pricing plans and
objectives of the Company, or any of its affiliates or subsidiaries, the
problems, developments, research records, and Technical Information) of the
Company or any of its subsidiaries, affiliated companies or businesses. The
foregoing shall not apply to information that (a) was known to the public prior
to its disclosure to the Employee; (b) becomes known to the public subsequent to
disclosure to the Employee through no wrongful act of the Employee or any
representative of the Employee; or (c) the Employee is required to disclose by
applicable law, regulation or legal process (provided that the Employee provides
the Company with prior notice of the contemplated disclosure and reasonably
cooperates with the Company at its expense in seeking a protective order or
other appropriate protection of such information). Notwithstanding clauses (a)
and (b) of the preceding sentence, the Employee's obligation to maintain such
disclosed information in confidence shall not terminate where only portions of
the information are in the public domain. Furthermore, Employee shall deliver
promptly to the Company upon termination of his employment, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
software, models, designs, and other documents and computer records (and all
copies thereof) relating to the business of the Company or any of its affiliates
or subsidiaries, and all property associated therewith, which he may then
possess or have under his control. This Agreement supplements and does not
supersede Employee's obligations under statute or the common law to protect

Confidential                         Page 6



the Company's or any of its affiliates' or subsidiaries' trade secrets and
confidential information.

      8.3 NON-SOLICITATION. During the Employment Term and for a period of two
(2) years thereafter (regardless of the reason for the separation), the Employee
agrees that he will not, directly or indirectly, individually or on behalf of
any other person, firm, corporation or other entity, knowingly (a) solicit, aid
or induce any employee of the Company or any of its subsidiaries or affiliates
to leave such employment to accept employment with or render services to or with
any other person, firm, corporation or other entity unaffiliated with the
Company or knowingly take any action to materially assist or aid any other
person, firm, corporation or other entity in identifying or hiring any such
employee, (b) hire or engage as a consultant, independent contractor or in a
similar capacity, any person who is (or was during the preceding 12-month
period) an employee, independent contractor or consultant of the Company, or (c)
solicit, aid or induce any customer of the Company or any of its subsidiaries or
affiliates to purchase goods or services then sold by the Company or any of its
subsidiaries or affiliates from another person, firm, corporation or other
entity or assist or aid any other persons or entity in identifying or soliciting
any such customer.

      8.4 NON-COMPETITION. During the Employment Term and for a period of one
(1) year thereafter (regardless of the reason for the separation), Employee
shall not, anywhere in the areas described in Exhibit A, directly or indirectly,
invest in, own, or operate any person engaged in any business that is directly
competitive with the business of the Company; provided, however, that Employee
may purchase or otherwise acquire up to (but not more than) five percent (5%) of
any class of the securities of any entity if such securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934. The Employee acknowledges that the
provisions of this Section 8.4 shall be in addition to, and shall not relieve
the Employee of, his non-competition obligations under Section 9.2(b) of the
Agreement and Plan of Merger dated as of July ___, 2005 by and among Standard
Management Corporation, the Company, the Employee, Cynthia J. Wareing Tran and
the Jonathan Tran Irrevocable Trust, u/a/d 8/23/2004.

      8.5 EQUITABLE RELIEF, OTHER REMEDIES, AND JURISDICTION. The Employee
acknowledges and agrees that the Company's remedies at law for a breach or
threatened breach of any of the provisions of this Section 8.5 would be
inadequate and, in recognition of this fact, the Employee agrees that, in the
event of such a breach or threatened breach, in addition to any remedies at law,
the Company shall be entitled to seek equitable relief in the form of specific
performance, temporary restraining order, a temporary or permanent injunction or
any other equitable remedy which may then be available. With respect to any
suit, action, or other proceeding for equitable relief under this Section 8.5,
the Company and Employee hereby irrevocably agree to the exclusive personal
jurisdiction and venue of the United States District Court for the Southern
District of Indiana (and any Indiana State Court within Marion County, Indiana).

      8.6 REFORMATION. If it is determined by a court of competent jurisdiction
(or the arbitrators pursuant to Section 10.6) that any restriction in this
Section 8 is excessive

Confidential                         Page 7



in duration or scope or is unreasonable or unenforceable under the laws of that
state, it is the intention of the parties that such restriction may be modified
or amended by the court to render it enforceable to the maximum extent permitted
by the law of that state.

      8.7 SURVIVAL OF PROVISIONS. The obligations contained in this Section 8
shall survive the termination or expiration of the Employee's employment with
the Company and shall be fully enforceable thereafter.

9. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee represents and warrants
to the Company that (a) this Agreement is valid and binding upon and enforceable
against him in accordance with its terms, (b) Employee is not bound by or
subject to any contractual or other obligation that would be violated by his
execution or performance of this Agreement, including, but not limited to, any
non-competition agreement presently in effect, and (c) Employee is not subject
to any pending or, to Employee's knowledge, threatened claim, action, judgment,
order, or investigation that could adversely affect his ability to perform his
obligations under this Agreement or the business reputation of the Company.
Employee has not entered into, and agrees that he will not enter into, any
agreement either written or oral in conflict herewith.

10. MISCELLANEOUS.

      10.1 NOTICES. All notices, requests, and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:

             If to the Employee, to:
                      John T. Tran
                      7716 B Seward Park Ave. South
                      Seattle, WA  98118
                      FAX:

             If to the Company, to:
                      Rainier Home Health Care Pharmacy, Inc.
                      10689 N. Pennsylvania
                      Indianapolis, IN  46280
                      Attn:  Stephen M. Coons, Secretary
                      FAX:  317-574-6227

All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 10.1, be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10.1, be deemed given upon receipt, and (c) if
delivered by mail in the manner described above to the address as provided in
this Section 10.1, be deemed given upon receipt (in each case regardless of
whether such notice, request, or other communication is received by any other
person to whom a copy of such notice, request or other communication is to be

Confidential                         Page 8



delivered pursuant to this Section 10.1). Any party from time to time may change
its address, facsimile number, or other information for the purpose of notices
to that party by giving written notice specifying such change to the other
parties hereto.

      10.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Employee's
employment hereunder, is subject to Employee providing the Company with legally
required proof of Employee's authorization to be employed in the United States
of America.

      10.3 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements among the parties with respect to the subject matter hereof and
contains the sole and entire agreement between the parties hereto with respect
thereto.

      10.4 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.

      10.5 AMENDMENT. This Agreement may be amended, supplemented, or modified
only by a written instrument duly executed by or on behalf of each party hereto.

      10.6 ARBITRATION OF DISPUTES; INJUNCTIVE RELIEF. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof, other than
injunctive relief under Section 8.5, shall be settled by binding arbitration in
the City of Indianapolis, Indiana, in accordance with the laws of the State of
Indiana, by three arbitrators, one of whom shall be appointed by the Company,
one by Employee and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the Chief
Judge of the United States District Court for the Southern District of Indiana.
The arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators,
which shall be as provided in this Section 10.6. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.

      10.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation or
arbitration arising from or relating to this Agreement, the prevailing party in
such litigation or arbitration proceedings shall be entitled to recover, from
the non-prevailing party, the prevailing party's reasonable costs and attorney's
fees, in addition to all other legal or equitable remedies to which it may
otherwise be entitled.

      10.8 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and the
Company's

Confidential                         Page 9


successors or assigns, and it is not the intention of the parties to confer
third-party beneficiary rights upon any other person.

      10.9 NO ASSIGNMENT; BINDING EFFECT. Employee acknowledges that the
services to be rendered by him are unique and personal; accordingly, Employee
may not assign any of his rights or delegate any of his duties or obligations
under this Agreement. This Agreement shall inure to the benefit of any
successors or assigns of the Company.

      10.10 HEADINGS; DEFINITIONS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

      10.11 SEVERABILITY. The Company and Employee intend all provisions of this
Agreement to be enforced to the fullest extent permitted by law. Accordingly, if
a court of competent jurisdiction determines that the scope and/or operation of
any provision of this Agreement is too broad to be enforced as written, the
Company and Employee intend that the court should reform such provision to such
narrower scope and/or operation as it determines to be enforceable. If, however,
any provision of this Agreement is held to be illegal, invalid, or unenforceable
under present or future law, and not subject to reformation, then (a) such
provision shall be fully severable, (b) this Agreement shall be construed and
enforced as if such provision was never a part of this Agreement, and (c) the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by illegal, invalid, or unenforceable provisions or by
their severance.

      10.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts
executed and performed in such state without giving effect to conflicts of laws
principles.

      10.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

                [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

Confidential                         Page 10




      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.

                                   "EMPLOYEE"

                                   /s/ John T. Tran
                                   ---------------------------------------
                                   John T. Tran

                                   "COMPANY"

                                   RAINIER HOME HEALTH CARE PHARMACY, INC.

                                   By:  /s/ Stephen M. Coons
                                   ---------------------------------------
                                   Stephen M. Coons, Secretary

                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

Confidential

EX-21

                                                                               .
                                                                               .
                                                                               .

                                                                      EXHIBIT 21

              STANDARD MANAGEMENT CORPORATION AND ITS SUBSIDIARIES



                                                      STATE OR
                                                     COUNTRY IN
                                                       WHICH
              NAME OF SUBSIDIARY                    INCORPORATED
                                                 
Health Services:
    U.S. Health Services Corporation ............     Delaware
    HomeMed Channel, Inc. .......................     Indiana
    PCA, LLC ....................................     Indiana
    HomeDoc Corporation .........................     Indiana
    Apothecary Solutions Corporation ............     Indiana
    Long Term Rx, Inc............................     Indiana
    Precision Healthcare, Inc....................    Tennessee
    Rainier Home Health Care Pharmacy, Inc. .....    Washington

Other Services:
    Standard Marketing Corporation ..............     Indiana
    Standard Management Financial Corporation ...     Delaware
    Premier Life (Bermuda) Limited ..............     Bermuda
    Standard Development LLC ....................     Indiana
    Standard Management LLC Capital Trust .......     Delaware

EX-23.1

                                                                    EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Standard Management Corporation
Indianapolis, Indiana

      We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-124160 and 333-117004) and Form S-8 (Nos.
33-92906, 333-41119, 333-41117 and 333-101359) of Standard Management
Corporation of our report dated April 14, 2006, relating to the 2005 and 2004
consolidated financial statements of Standard Management Corporation which
appears in this Form 10-K. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.

/s/ BDO Seidman, LLP

Chicago, Illinois
April 14, 2006

EX-23.2

                                                                    EXHIBIT 23.2

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration
Statements:

(1)   Registration Statement (Form S-8 No. 33-92906) pertaining to the Second
      Amended and Restated Stock Option Plan of Standard Management Corporation,

(2)   Registration Statement (Form S-8 No. 333-41117) pertaining to the Standard
      Management Corporation Savings Plan,

(3)   Registration Statement (Form S-8 No. 333-41119) pertaining to the Amended
      and Restated Stock Option Plan of Standard Management Corporation,

(4)   Registration Statement (Form S-8 No. 333-101359) pertaining to the 2002
      Stock Incentive Plan of Standard Management Corporation,

(5)   Registration Statement (Form S-3 No. 333-117004) of Standard Management
      Corporation, and

(6)   Registration Statement (Form S-3 No. 333-124160) of Standard Management
      Corporation;

of our report dated March 2, 2004, with respect to the 2003 consolidated
statements of operations and cash flows and 2003 information included in the
schedule of Standard Management Corporation included in its 2005 Annual Report
(Form 10-K), filed with the Securities and Exchange Commission.

                                                    /s/ Ernst & Young LLP

Indianapolis, Indiana
April 14, 2006

EX-31.1

                                                                    EXHIBIT 31.1

                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003

I, Ronald D. Hunter, certify that:

1.    I have reviewed this report on Form 10-K of Standard Management
      Corporation;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a)    designed such disclosure controls and procedures or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of registrant's board
      of directors (or persons performing the equivalent functions):

            a)    all significant deficiencies and material weaknesses in the
                  design or operation of internal controls over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: April 17, 2006

      /s/ Ronald D. Hunter
      Ronald D. Hunter
      Chairman, Chief Executive Officer, and President

EX-31.2

                                                                    EXHIBIT 31.2

                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003

I, Michael B. Edwards, certify that:

1.    I have reviewed this report on Form 10-K of Standard Management
      Corporation;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

            a)    designed such disclosure controls and procedures or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of registrant's board
      of directors (or persons performing the equivalent functions):

            a)    all significant deficiencies and material weaknesses in the
                  design or operation of internal controls over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: April 17, 2006

      /s/ Michael B. Edwards
      Michael B. Edwards
      Chief Financial Officer

EX-32

                                                                      EXHIBIT 32

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

      In connection with the accompanying Annual Report on Form 10-K of Standard
Management Corporation for the year ended December 31, 2005, we Ronald D. Hunter
and Michael B. Edwards, Chairman, Chief Executive Officer, and President and
Chief Financial Officer of Standard Management Corporation, hereby certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2003, to the best of our knowledge and belief, that:

            (1)   such Report fully complies with the requirements of section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

            (2)   the information contained in such Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of Standard Management Corporation.

April 17, 2006

/s/ Ronald D. Hunter
Ronald D. Hunter
Chairman, Chief Executive Officer and President

/s/ Michael B. Edwards
Michael B. Edwards
Chief Financial Officer