STANDARD MANAGEMENT CORP, S-4, 1997-09-11

STANDARD MANAGEMENT CORP
S-4, 1997-09-11
LIFE INSURANCE

Previous: WESTPOINT STEVENS INC, 8-K, 1997-09-11

Next: QUORUM HEALTH GROUP INC, 8-K, 1997-09-11

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

STANDARD MANAGEMENT CORPORATION
(Exact Name of Registrant as Specified in Its charter)

<TABLE>
<S> <C> <C>
INDIANA 6719 35-1773567
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

9100 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240
(317) 574-6200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)

STEPHEN M. COONS
9100 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240
(317) 574-6200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

------------------------
Copies To:
JOHN M. O'HARE
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603

APPROXIMATE DATE COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Standard Acquisition Corporation,
a wholly owned subsidiary of Standard Management Corporation ("SMC"), with and
into Savers Life Insurance Company ("Savers Life"), pursuant to the Merger
Agreement described herein.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value....... (2) (2) $21,090,841 $6,392(3)(4)
================================================================================================================
</TABLE>

(1) Based on the maximum aggregate value of the shares of SMC Common Stock
issuable in the Merger assuming the exercise of all currently outstanding
options of to purchase shares of Savers Life Common Stock and the payment of
the maximum possible Performance Premium.

(2) The amount to be registered and the proposed maximum offering price per
share have been omitted pursuant to Rule 457(o) under the Securities Act.

(3) The registration fee was calculated pursuant to Rule 457(o) under the
Securities Act.

(4) Pursuant to Rule 457(b) under the Securities Act, $3,495 of the registration
fee was paid on February 19, 1997 in connection with the filing of
preliminary proxy materials.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA 27106
(910) 759-3888

September 19, 1997

Dear Stockholder:

We are pleased to invite you to a Special Meeting of Stockholders of Savers
Life Insurance Company ("Savers Life") to be held on Wednesday, October 22,
1997, at 11:00 A.M., local time, at the Graylyn International Conference Center,
1900 Reynolda Road, Winston-Salem, North Carolina.

Savers Life has entered into an Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 19, 1996, as amended, among Standard Management
Corporation ("SMC"), Standard Acquisition Corporation, a wholly-owned subsidiary
of SMC ("SAC"), and Savers Life pursuant to which SAC would merge with and into
Savers Life and the stockholders of Savers Life would receive for each share of
Common Stock, no par value, of Savers Life ("Savers Life Common Stock"), held by
them immediately prior to the Effective Time of the Merger (1) $1.50 in cash or,
at the election of each stockholder, $1.50 in value of Common Stock, without par
value, of SMC ("SMC Common Stock"), (2) $6.50 in value of shares of SMC Common
Stock, plus (3) rights to certain performance premiums, if any. At the Special
Meeting, you will be asked to approve the Merger Agreement.

After careful consideration, your Board of Directors unanimously approved
the Merger Agreement and the transactions contemplated thereby. The Board
believes that the proposed Merger is fair, equitable and in the best interests
of Savers Life and its stockholders and recommends that you vote FOR the
proposal to approve the Merger Agreement. The accompanying Proxy
Statement/Prospectus provides a detailed description of the proposed
transactions. Please give this material your thoughtful attention.

Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Savers Life Common Stock.
Accordingly, your vote is very important. To ensure that your shares are
represented, please vote, date, sign and mail the enclosed proxy in the envelope
provided, whether or not you expect to be present at the Special Meeting.

PLEASE NOTICE THAT, IF YOU DESIRE TO ELECT TO RECEIVE SHARES OF SMC COMMON
STOCK IN LIEU OF THE $1.50 CASH PORTION OF THE MERGER CONSIDERATION IN EXCHANGE
FOR YOUR SHARES OF SAVERS LIFE COMMON STOCK, YOU MUST SUBMIT THE ENCLOSED FORM
OF ELECTION, IN ACCORDANCE WITH THE INSTRUCTIONS ON THAT FORM, NO LATER THAN
5:00 P.M., LOCAL TIME, ON OCTOBER 21, 1997. PLEASE SEND THE FORM OF ELECTION TO
SAVERS LIFE WITH YOUR PROXY.

STOCKHOLDERS DESIRING TO KNOW THE EXCHANGE RATIO TO BE USED FOR DETERMINING
THE NUMBER OF SHARES OF SMC COMMON STOCK TO BE RECEIVED FOR EACH SHARE OF SAVERS
LIFE COMMON STOCK AS A RESULT OF THE MERGER MAY CALL 1-800-642-0483, EXTENSION
112, AFTER OCTOBER 17, 1997.

Sincerely,

Jerry D. Stoltz, Sr.
President
<PAGE> 3

SAVERS LIFE INSURANCE COMPANY

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 22, 1997

To the Stockholders of Savers Life Insurance Company:

A Special Meeting of Stockholders of Savers Life Insurance Company ("Savers
Life") will be held at 11:00 A.M., local time, on Wednesday, October 22, 1997,
at the Graylyn International Conference Center, 1900 Reynolda Road,
Winston-Salem, North Carolina, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of December 19, 1996, as amended (the "Merger
Agreement"), among Standard Management Corporation ("SMC"), Standard
Acquisition Corporation, a wholly-owned subsidiary of SMC ("SAC"), and
Savers Life.

2. To transact such other business as may be properly brought before the
meeting.

As described more fully in the accompanying Proxy Statement/Prospectus, the
Merger Agreement provides for, among other things:

(i) the merger (the "Merger") of SAC with and into Savers Life; and

(ii) the conversion of each share of Savers Life Common Stock
outstanding immediately prior to the Merger (other than shares held by
Savers' stockholders who properly exercise their dissenters' appraisal
rights under North Carolina law) into (1) $1.50 in cash or, at the election
of the holder thereof, $1.50 in value of Common Stock, without par value,
of SMC ("SMC Common Stock"), (2) $6.50 in value of shares of SMC Common
Stock, plus (3) rights to certain performance premiums, if any.

After careful consideration, your Board of Directors unanimously approved
the Merger Agreement. The Board recommends that you vote FOR the proposal to
approve the Merger Agreement.

Stockholders of record at the close of business on August 22, 1997, are
entitled to notice of and to vote at the meeting.

Under North Carolina law, the affirmative vote of holders of a majority of
the outstanding shares of Savers Life Common Stock is required to approve the
Merger Agreement. It is, therefore, important that your shares be represented at
the Special Meeting regardless of the number of shares you may hold. ANY
STOCKHOLDER SHALL HAVE THE RIGHT TO OBJECT TO THE MERGER AND TO RECEIVE PAYMENT
OF THE FAIR VALUE OF HIS SHARES OF SAVERS LIFE COMMON STOCK UPON COMPLIANCE WITH
SECTION 55-13-01, ET. SEQ., OF THE NORTH CAROLINA BUSINESS CORPORATION ACT. FOR
A DESCRIPTION OF DISSENTERS' APPRAISAL RIGHTS, SEE THE INFORMATION PROVIDED IN
THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS UNDER THE CAPTION "DISSENTERS'
RIGHTS." See also Annex B to the accompanying Proxy Statement/Prospectus for the
text of Sections 55-13-01 through 55-13-31 of the North Carolina Business
Corporation Act. Notwithstanding the above, under the Merger Agreement, if the
holders of more than 5% of Savers Life Common Stock exercise dissenters'
appraisal rights, then SMC has the right to terminate the Merger Agreement,
unless it waives such right.

STOCKHOLDERS ARE URGED TO VOTE, SIGN AND MAIL THE ACCOMPANYING PROXY IN THE
ENVELOPE PROVIDED, WHETHER OR NOT THEY EXPECT TO BE PRESENT AT THE SPECIAL
MEETING.
<PAGE> 4

Please check to be certain of the manner in which your shares are
registered -- whether individually, as joint tenants, or in a representative
capacity -- and sign the proxy accordingly. Failure to do so may disqualify your
vote.

Patricia G. Landy
Secretary

Winston-Salem, North Carolina
September 19, 1997

IMPORTANT

STOCKHOLDERS ARE URGED TO FILL OUT, DATE AND RETURN THE ENCLOSED FORM OF
PROXY IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE, EVEN
THOUGH THEY PLAN TO ATTEND THE MEETING. ANY STOCKHOLDER PRESENT AT THE
MEETING MAY, NEVERTHELESS, VOTE PERSONALLY ON ALL MATTERS.

PLEASE NOTE THAT, IF YOU DESIRE TO ELECT TO RECEIVE SMC COMMON STOCK IN LIEU
OF THE $1.50 CASH PORTION OF THE MERGER CONSIDERATION IN EXCHANGE FOR YOUR
SHARES OF SAVERS LIFE COMMON STOCK, YOU MUST SUBMIT THE ENCLOSED FORM OF
ELECTION, IN ACCORDANCE WITH THE INSTRUCTIONS ON THAT FORM, NO LATER THAN
5:00 P.M., LOCAL TIME, ON OCTOBER 21, 1997. PLEASE SEND THE FORM OF ELECTION
TO SAVERS LIFE WITH YOUR PROXY.

STOCKHOLDERS DESIRING TO KNOW THE EXCHANGE RATIO TO BE USED FOR DETERMINING
THE NUMBER OF SHARES OF SMC COMMON STOCK TO BE RECEIVED FOR EACH SHARE OF
SAVERS LIFE COMMON STOCK AS A RESULT OF THE MERGER MAY CALL 1-800-642-0483,
EXTENSION 112, AFTER OCTOBER 17, 1997.
<PAGE> 5

STANDARD MANAGEMENT CORPORATION
9100 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240

September 19, 1997

To the Stockholders of
STANDARD MANAGEMENT CORPORATION

You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Standard Management Corporation ("SMC") to be held at 9:30 a.m., local time,
on Wednesday, October 22, 1997, at the Woodland Country Club, 100 Woodland Lane,
Carmel, Indiana.

At the SMC Annual Meeting, holders of Common Stock, without par value of
SMC ("SMC Common Stock") will be asked to consider and act upon a proposal to
approve the issuance (the "Common Stock Issuance") of SMC Common Stock pursuant
to the Agreement and Plan of Merger dated as of December 19, 1996, as amended
(the "Merger Agreement"), among SMC, Standard Acquisition Corporation, a wholly-
owned subsidiary of SMC ("SAC"), and Savers Life Insurance Company ("Savers
Life"). The Merger Agreement provides for the merger (the "Merger") of SAC with
and into Savers Life, with Savers Life surviving as a wholly-owned subsidiary of
SMC. Subject to the terms and conditions of the Merger Agreement, holders of
Savers Life Common Stock will receive the following consideration for each share
of Savers Life Common Stock held immediately prior to the Effective Time (as
defined in the Merger Agreement) of the Merger: (i) $1.50 in cash, which the
holder of such share of Savers Life Common Stock may elect to receive in shares
of SMC Common Stock, (ii) $6.50 in value of shares of SMC Common Stock, plus
(iii) the right to receive the Performance Premium (as defined in the
accompanying Proxy Statement/Prospectus), if any.

The SMC Board of Directors (the "SMC Board") has unanimously determined
that the Merger and the Common Stock Issuance are advisable and fair to and in
the best interests of SMC and its stockholders and has unanimously approved the
Merger Agreement and the transactions contemplated thereby. THE SMC BOARD
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF SMC VOTE IN FAVOR OF APPROVAL OF
THE COMMON STOCK ISSUANCE AT THE SMC ANNUAL MEETING.

At the SMC Annual Meeting, holders of SMC Common Stock will also be asked
to consider and act upon proposals to: (i) elect directors, (ii) approve an
amendment (the "Stock Option Plan Amendment") to SMC's Amended and Restated 1992
Stock Option Plan and (iii) ratify the appointment of SMC's principal
independent auditors, and to transact such other business as may properly come
before the SMC Annual Meeting. Consummation of the Merger is not contingent upon
the approval of any proposal to be considered at the SMC Annual Meeting other
than the proposal to approve the Common Stock Issuance. THE SMC BOARD
UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE FOR: EACH PERSON NOMINATED BY THE SMC
BOARD TO SERVE AS A MEMBER OF THE SMC BOARD, THE STOCK OPTION PLAN AMENDMENT AND
RATIFICATION OF THE APPOINTMENT OF SMC'S PRINCIPAL INDEPENDENT AUDITORS.

Regardless of your plans for attending in person, it is important that your
shares be represented at the meeting. Therefore, please complete, sign, date and
return the enclosed proxy card in the enclosed, post-paid envelope. This will
enable you to vote on the business to be transacted whether or not you attend
the meeting.

We look forward to seeing you at the 1997 Annual Meeting.

Sincerely,

Ronald D. Hunter
Chairman, President and
Chief Executive Officer
<PAGE> 6

STANDARD MANAGEMENT CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 22, 1997

To the Stockholders of
STANDARD MANAGEMENT CORPORATION:

The Annual Meeting of Stockholders (the "SMC Annual Meeting") of Standard
Management Corporation ("SMC") will be held at 9:30 a.m., local time, on
Wednesday, October 22, 1997, at the Woodland Country Club, 100 Woodland Lane,
Carmel, Indiana, to consider and vote on the following matters:

Proposal 1. To approve the issuance of SMC Common Stock in connection with
the acquisition by SMC of Savers Life Insurance Company;

Proposal 2. To elect three Class II directors to the Board of Directors of
SMC for a term of three years;

Proposal 3. To approve an amendment to SMC's Amended and Restated 1992
Stock Option Plan to increase the number of shares of SMC
Common Stock available for issuance pursuant thereto from
1,500,000 to 2,500,000 and to allow the Board of Directors of
SMC to vary, from year to year, the number of shares subject to
options granted to Outside Directors; and

Proposal 4. To ratify the appointment of Ernst & Young LLP as principal
independent auditors for SMC for the year ending December 31,
1997.

These items are more fully described in the accompanying Proxy
Statement/Prospectus. In addition, the stockholders will transact such other
business as may properly come before the SMC Annual Meeting or any adjournment
or postponements thereof. Only stockholders of record at the close of business
on August 22, 1997 are entitled to notice of, and to vote at, the SMC Annual
Meeting or any adjournments thereof.

Your attention is directed to the accompanying Proxy Statement/Prospectus
and proxy card. Whether or not you plan to attend the SMC Annual Meeting in
person, you are urged to complete, sign, date and return the enclosed proxy card
in the enclosed, post-paid envelope. If you attend the SMC Annual Meeting and
wish to vote in person, you may withdraw your proxy and vote your shares
personally.

By order of the Board of Directors

Stephen M. Coons
Executive Vice President and Secretary
September 19, 1997
Indianapolis, Indiana
<PAGE> 7

SUBJECT TO COMPLETION
SEPTEMBER 11, 1997

STANDARD MANAGEMENT CORPORATION
AND

SAVERS LIFE INSURANCE COMPANY
JOINT PROXY STATEMENT
-------------------------

STANDARD MANAGEMENT CORPORATION
PROSPECTUS
-------------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to the holders of Common Stock, without par value ("SMC Common
Stock"), of Standard Management Corporation, an Indiana corporation ("SMC"), in
connection with the solicitation of proxies by the Board of Directors of SMC
(the "SMC Board") for use at its Annual Meeting of Stockholders to be held at
the Woodland Country Club, 100 Woodland Lane, Carmel, Indiana, on October 22,
1997 at 9:30 a.m., local time, and any adjournments or postponements thereof
(the "SMC Annual Meeting").

This Proxy Statement/Prospectus is also being furnished to the holders of
Common Stock, no par value ("Savers Life Common Stock"), of Savers Life
Insurance Company, a North Carolina domestic stock insurance company ("Savers
Life"), in connection with the solicitation of proxies by the Board of Directors
of Savers Life (the "Savers Life Board") for use at its Special Meeting of
Stockholders to be held at the Graylyn International Conference Center, 1900
Reynolda Road, Winston-Salem, North Carolina, on October 22, 1997 at 11:00 a.m.,
local time, and any adjournments thereof (the "Savers Life Special Meeting").

This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger
dated as of December 19, 1996, as amended February 17, 1997, May 7, 1997, June
27, 1997 and July 31, 1997 (the "Merger Agreement"), among SMC, Standard
Acquisition Corporation, a North Carolina corporation and wholly-owned
subsidiary of SMC ("SAC"), and Savers Life. The Merger Agreement provides for
the merger (the "Merger") of SAC with and into Savers Life, with Savers Life
surviving as a wholly-owned subsidiary of SMC. Subject to the terms and
conditions of the Merger
(continued on next page)

SEE "RISK FACTORS" COMMENCING ON PAGE 24 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS OF SAVERS LIFE COMMON STOCK AND SMC
COMMON STOCK BEFORE VOTING ON MATTERS PERTAINING TO THE MERGER.

The consummation of the Merger is subject, among other things, to (i) the
approval of the Merger Agreement by a majority of the votes entitled to be cast
at the Savers Life Special Meeting; (ii) the approval of the issuance of SMC
Common Stock: (a) pursuant to the Merger in accordance with the terms of the
Merger Agreement and (b) upon the payment of the Performance Premium
(collectively, the "Common Stock Issuance") by a majority of the votes cast on
the proposal to approve the Common Stock Issuance at the SMC Annual Meeting; and
(iii) the receipt of certain regulatory approvals.

The holders of SMC Common Stock will also be asked to consider and vote
upon (i) the election of directors; (ii) an amendment (the "Stock Option Plan
Amendment") to SMC's Amended and Restated 1992 Stock Option Plan (the "Stock
Option Plan"); and (iii) ratification of the appointment of SMC's principal
independent auditors. CONSUMMATION OF THE MERGER IS NOT CONTINGENT UPON THE
APPROVAL OF ANY PROPOSAL TO BE CONSIDERED AT THE SMC ANNUAL MEETING OTHER THAN
THE PROPOSAL TO APPROVE THE COMMON STOCK ISSUANCE.

This Proxy Statement/Prospectus also constitutes the Prospectus of SMC
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of SMC Common Stock constituting the Common Stock Issuance.

SMC Common Stock trades on Nasdaq under the symbol "SMAN." There is no
established public trading market for Savers Life Common Stock. On December 20,
1996, the last trading day ending prior to the public announcement of the
execution of the Merger Agreement, the last reported sale price of SMC Common
Stock, as reported by Nasdaq, was $4.375 per share. On September 16, 1997, the
last trading day prior to the date of this Proxy Statement/Prospectus, the last
reported sale price of SMC Common Stock, as reported by Nasdaq, was $[ ]
per share.

This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of SMC and Savers Life on or about September
19, 1997.
-------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------

The date of this Proxy Statement/Prospectus is September 17, 1997.
<PAGE> 8

(continued from previous page)

Agreement, holders of Savers Life Common Stock will receive the following
consideration for each share of Savers Life Common Stock held immediately prior
to the Effective Time (as defined in the Merger Agreement) of the Merger: (i)
$1.50 in cash, which the holder of such share of Savers Life Common Stock may
elect to receive in shares of SMC Common Stock, (ii) $6.50 in value of shares of
SMC Common Stock, the number of such shares, to be rounded to the nearest
hundredth of a share, determined by dividing $6.50 by the average of the closing
trading prices as reported by The Nasdaq National Market ("Nasdaq") (the
"Average Trading Price") of SMC Common Stock for the ten consecutive trading
days ending on the fifth day prior to the earlier of the SMC Annual Meeting or
the Savers Life Special Meeting, plus (iii) the right to receive the Performance
Premium (as hereinafter defined), if any. Assuming that the number of shares of
Savers Life Common Stock outstanding immediately prior to the Effective Time is
the same as the number outstanding at the close of business on August 1, 1997,
the aggregate Merger consideration will be $14,239,264 plus any Performance
Premium payable in the future. The actual number of shares of SMC Common Stock
issued to holders of Savers Life Common Stock will vary depending upon the
Average Trading Price of SMC Common Stock, the extent to which stockholders of
Savers Life elect to receive SMC Common Stock in lieu of cash for the $1.50
portion of the merger consideration and the amount of any Performance Premium.
If the Average Trading Price of SMC Common Stock for the applicable period is
$7.00 and disregarding the Performance Premium, based on the number of shares of
Savers Life Common Stock outstanding at the close of business on August 1, 1997,
holders of Savers Life Common Stock will receive an aggregate of between
approximately 1,652,772 and 2,034,181 newly issued shares of SMC Common Stock
upon consummation of the Merger depending upon the extent to which such holders
elect to receive shares of SMC Common Stock in lieu of the $1.50 per share cash
consideration they would otherwise be entitled to receive. There can be no
assurance that any Performance Premium will be earned; however, for a table
illustrating a range of number of shares which may be issued if a Performance
Premium is earned, see "THE MERGER AGREEMENT -- Performance Premium."
Notwithstanding the foregoing, holders of Savers Life Common Stock have the
right to dissent from the Merger and to receive payment of the fair value of
their stock upon full compliance with Section 55-13-01, et. seq., of the North
Carolina Business Corporation Act (the "NCBCA"). A vote in favor of the Merger
proposal precludes the exercise of dissenters' rights; an abstention, a failure
to vote or a vote against the Merger proposal neither waives the right to
dissent nor constitutes notice of intent to exercise dissenters' rights. See
"DISSENTERS' RIGHTS." If holders of more than 5% of the shares of Savers Life
Common Stock outstanding immediately prior to the Effective Time properly demand
dissenters' rights, SMC will have the right to decline to consummate the Merger.
See "THE MERGER AGREEMENT -- Conditions Precedent to the Merger."

HOLDERS OF SAVERS LIFE COMMON STOCK WHO WISH TO RECEIVE SMC COMMON STOCK IN
LIEU OF THE $1.50 CASH PORTION OF THE MERGER CONSIDERATION MUST RETURN THE FORM
OF ELECTION THAT ACCOMPANIES THIS PROXY STATEMENT/PROSPECTUS TO SAVERS LIFE BY
5:00 P.M., LOCAL TIME, ON OCTOBER 21, 1997. HOLDERS OF SAVERS LIFE COMMON STOCK
WHO DO NOT WISH TO RECEIVE SHARES OF SMC COMMON STOCK IN LIEU OF THE $1.50 CASH
PORTION OF THE MERGER CONSIDERATION NEED NOT RETURN SUCH FORM OF ELECTION.

HOLDERS OF SMC COMMON STOCK AND HOLDERS OF SAVERS LIFE COMMON STOCK MAY
SUBMIT OR REVOKE PROXIES BY FACSIMILE TRANSMISSION. SEE "SMC ANNUAL MEETING --
PROXIES" AND "SAVERS LIFE SPECIAL MEETING -- PROXIES."
<PAGE> 9

TABLE OF CONTENTS

<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................... 1
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 1
SUMMARY..................................................... 3
SMC Annual Meeting........................................ 3
Savers Life Special Meeting............................... 3
Parties to the Merger Agreement........................... 4
The Merger................................................ 5
The Merger Agreement...................................... 7
Comparative Rights of Stockholders; Description of SMC
Common Stock........................................... 10
Dissenters' Rights........................................ 10
SMC Selected Historical Financial Data.................... 11
Savers Life Selected Historical Financial Data............ 13
SMC Selected Unaudited Pro Forma Combined Financial
Data................................................... 14
Comparative Per Share Data of SMC and Savers Life......... 22
Market Prices and Dividends Paid.......................... 23
RISK FACTORS................................................ 24
SMC ANNUAL MEETING.......................................... 28
Date, Place and Time...................................... 28
Purpose................................................... 28
Record Date; Voting Rights................................ 28
Quorum.................................................... 28
Proxies................................................... 29
Solicitation of Proxies................................... 29
Required Vote............................................. 29
Dissenters' Rights........................................ 30
SAVERS LIFE SPECIAL MEETING................................. 30
Date, Place and Time...................................... 30
Purpose................................................... 30
Record Date; Voting Rights................................ 30
Quorum.................................................... 30
Proxies................................................... 31
Solicitation of Proxies................................... 31
Required Vote............................................. 31
Dissenters' Rights........................................ 32
PARTIES TO THE MERGER AGREEMENT............................. 32
SMC....................................................... 32
Savers Life............................................... 32
SAC....................................................... 32
THE MERGER.................................................. 33
General................................................... 33
Background of the Merger.................................. 33
SMC's Reasons for the Merger; Recommendation of its Board
of Directors........................................... 37
Savers Life's Reasons for the Merger; Recommendation of
its Board of Directors................................. 38
Interests of Certain Persons in the Merger................ 39
Material Federal Income Tax Consequences.................. 40
Anticipated Accounting Treatment.......................... 42
Regulatory Approvals...................................... 42
Percentage Ownership Interest of Savers Life Stockholders
After the Merger....................................... 42
Operation of Savers Life After the Effective Time......... 42
</TABLE>

i
<PAGE> 10
Resales of SMC Common Stock............................... 43
THE MERGER AGREEMENT........................................ 43
Conversion of Shares in the Merger........................ 43
No Fractional Shares...................................... 44
Adjustment of Exchange Ratio.............................. 44
Performance Premium....................................... 44
Exchange Agent; Procedures for Exchange of Certificates
and Delivery of Cash................................... 47
Stock Options............................................. 48
Representations and Warranties............................ 48
Conduct of Business Pending the Merger.................... 48
Conditions Precedent to the Merger........................ 49
Termination............................................... 51
Fees and Expenses......................................... 52
Amendment and Waiver; Governing Law....................... 52
VOTING AGREEMENTS........................................... 53
DESCRIPTION OF SMC COMMON STOCK............................. 53
COMPARATIVE RIGHTS OF STOCKHOLDERS.......................... 54
Common Stock.............................................. 54
Preferred Stock........................................... 54
Voting.................................................... 54
Directors................................................. 55
Dissenters' Rights........................................ 55
Stockholder Suits......................................... 56
Amendment of Charter and Bylaws........................... 56
Nominations of Directors and Business Presented at Annual
Meetings............................................... 56
Indemnification and Limitation of Liability............... 57
Provisions Applicable to Business Combinations and Changes
in Control............................................. 57
DISSENTERS' RIGHTS.......................................... 58
ELECTION OF DIRECTORS OF SMC................................ 59
Nominees for Directors.................................... 59
Members of SMC Board Continuing in Office................. 60
PROPOSAL TO APPROVE STOCK OPTION PLAN AMENDMENT............. 61
Overview.................................................. 61
Description of the Stock Option Plan...................... 62
RATIFICATION OF APPOINTMENT OF SMC'S PRINCIPAL INDEPENDENT
AUDITORS.................................................. 63
ADDITIONAL INFORMATION REGARDING SMC........................ 64
Business of SMC........................................... 64
Introduction........................................... 64
Acquisition Strategy................................... 65
Marketing.............................................. 66
Products............................................... 68
Operations............................................. 72
Investments............................................ 73
Separate Accounts...................................... 76
Underwriting........................................... 76
Reserves............................................... 77
Reinsurance............................................ 77
Competition............................................ 80
Federal Income Taxation................................ 81

ii
<PAGE> 11
Inflation.............................................. 81
Foreign Operations and Currency Risk................... 82
Regulatory Factors..................................... 82
Employees.............................................. 86
Properties............................................. 87
Legal Proceedings...................................... 87
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 88
Introduction........................................... 88
Discussion of Changes in the Consolidated Statement of
Operations from Six Months Ended June 30, 1997 to Six
Months Ended June 30, 1996............................ 91
Discussion of Changes in the Consolidated Statement of
Operations from Year Ended December 31, 1996 to Year
Ended December 31, 1995............................... 94
Discussion of Changes in the Consolidated Statement of
Operations from Year Ended December 31, 1995 to Year
Ended December 31, 1994............................... 97
Liquidity and Capital Resources........................ 99
Factors That May Affect Future Results................. 104
Directors and Executive Officers.......................... 106
Directors and Executive Officers....................... 106
Directors Meetings and Committees of SMC Board......... 106
Compensation of Directors.............................. 107
Report of The Compensation Committee of The Board of
Directors............................................. 107
Report on Repricing of Options......................... 109
Executive Compensation.................................... 110
Summary Compensation Table............................. 110
Option Grants In Last Fiscal Year...................... 111
Aggregated Option Exercises in Last Fiscal Year and
FY-End Option Values.................................. 112
Employment Agreements.................................. 112
Ten-Year Option Repricing Table........................ 114
Compensation Committee Interlocks and Insider
Participation......................................... 114
Voting Securities and Principal Holders Thereof........... 115
Stock Performance Graph................................... 117
Certain Relationships and Related Transactions............ 117
ADDITIONAL INFORMATION REGARDING SAVERS LIFE................ 118
Description of Business................................... 118
Introduction........................................... 118
Marketing.............................................. 118
Products............................................... 119
Operations............................................. 123
Investments............................................ 123
Underwriting........................................... 126
Reserves............................................... 126
Reinsurance............................................ 127
Competition............................................ 127
Federal Income Taxation................................ 128
Inflation.............................................. 128
Regulatory Factors..................................... 128
Employees.............................................. 130
Properties............................................. 131
Legal Proceedings...................................... 131
Market Price and Dividends on Savers Life Common Stock and
Related Stockholder Matters............................ 131
Voting Securities and Principal Holders Thereof........... 132
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 134

iii
<PAGE> 12
Introduction........................................... 134
Discussion of Changes in the Statement of Operations
from Six Months Ended June 30, 1997 to Six Months
Ended June 30, 1996................................... 135
Discussion of Changes in the Statement of Operations
from Year Ended December 31, 1996 to Year Ended
December 31, 1995..................................... 136
Discussion of Changes in the Statement of Operations
from Year Ended December 31, 1995 to Year Ended
December 31, 1994..................................... 138
Liquidity and Capital Resources........................ 139
EXPERTS..................................................... 141
LEGAL OPINIONS.............................................. 141
STOCKHOLDER PROPOSALS....................................... 141
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 141
ANNUAL REPORT TO STOCKHOLDERS OF SMC........................ 142
OTHER MATTERS............................................... 142
GLOSSARY.................................................... 143
SMC CONSOLIDATED FINANCIAL STATEMENTS....................... F-1
SAVERS LIFE FINANCIAL STATEMENTS............................ F-48
SMC UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS....... F-75

Annex A Merger Agreement
Annex B Sections 55-13-01 through 55-13-31 of the NCBCA
Annex C Amended and Restated SMC Stock Option Plan

iv
<PAGE> 13

AVAILABLE INFORMATION

SMC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices
of the SEC: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the SEC maintains a Web site (http://www.sec.gov) that contains
reports, proxy statements and other information regarding registrants who file
electronically with the SEC. SMC files electronically with the SEC. Copies of
such materials relating to SMC can also be inspected at the offices of Nasdaq,
1735 K Street, N.W., Washington, D.C. 20006.

This Proxy Statement/Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Reference is made to the Registration
Statement and the Exhibits thereto for further information. Statements contained
or incorporated by reference herein concerning the provisions of any agreement
or other document filed as an Exhibit to the Registration Statement or otherwise
filed with the SEC are not necessarily complete and reference is hereby made to
the copy thereof so filed for more detailed information, each such statement
being qualified in its entirety by such reference.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
PREVIOUSLY FILED BY SMC WITH THE SEC THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS THERETO WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF SHARES OF SAVERS LIFE COMMON STOCK
OR SMC COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST TO STANDARD MANAGEMENT CORPORATION, 9100 KEYSTONE
CROSSING, INDIANAPOLIS, INDIANA 46240, ATTENTION: KEVIN WEDMORE (TELEPHONE
NUMBER (317) 574-6200). IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE
SAVERS LIFE SPECIAL MEETING OR THE SMC ANNUAL MEETING, AS THE CASE MAY BE, ANY
REQUEST THEREFOR SHOULD BE MADE NOT LATER THAN OCTOBER 15, 1997.

INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents heretofore filed by SMC with the SEC (file number
0-20882) pursuant to the Exchange Act are incorporated herein by reference:

1. SMC's Annual Report on Form 10-K, as amended by SMC's Annual Reports on
Form 10-K/A No. 1 and Form 10-K/A No. 2 for the year ended December 31, 1996;

2. SMC's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997, as amended by SMC's Quarterly Reports on Form 10-Q/A No.
1 for the quarters ended March 31, 1997 and June 30, 1997, respectively;

3. SMC's Current Reports on Form 8-K dated January 22, 1997, January 24,
1997, as amended by SMC's Current Reports on Form 8-K/A filed February 19, 1997,
April 10, 1997, May 20, 1997 and August 29, 1997, and SMC's Current Report on
Form 8-K dated February 17, 1997; and

4. The description of the SMC Common Stock contained in the Registration
Statement on Form 8-A filed by SMC with the SEC on November 20, 1992, including
any amendments or reports filed for the purpose of updating such description.

All documents filed by SMC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Proxy Statement/Prospectus and
prior to the SMC Annual Meeting or the Savers Life Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated by

1
<PAGE> 14

reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/ Prospectus to the extent that a statement contained
herein, or in any other subsequently filed document which also is incorporated
by reference herein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER SMC OR SAVERS LIFE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF SMC OR SAVERS LIFE SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------

As used herein, unless the context otherwise clearly requires, "SMC" refers
to Standard Management Corporation and its consolidated subsidiaries and
"Standard Management" refers to Standard Management Corporation on an
unconsolidated basis. Definitions of certain terms used herein are set forth in
the Glossary included in this Proxy Statement/Prospectus. Capitalized terms not
defined herein have the respective meanings specified in the Merger Agreement.
All financial information contained herein is presented in accordance with
generally accepted accounting principles ("GAAP") unless otherwise specified.
All information contained herein with respect to SMC Common Stock, including
information presented on a per share basis, has been adjusted to reflect a 5%
stock dividend effected on June 21, 1996 for holders of record on May 17, 1996.
All information contained herein with respect to Savers Life Common Stock,
including information presented on a per share basis, has been adjusted to
reflect a five-for-four stock split paid on January 21, 1994 to holders of
record on December 31, 1993.
------------------------

ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO SMC AND SAC HAS BEEN PROVIDED BY SMC. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO SAVERS LIFE HAS BEEN PROVIDED BY SAVERS
LIFE.

2
<PAGE> 15

SUMMARY

The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto.

---------------------------

STOCKHOLDERS OF SMC AND SAVERS LIFE ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH HEREIN UNDER "RISK FACTORS."
---------------------------

SMC ANNUAL MEETING

Date, Place and Time. The SMC Annual Meeting will be held on Wednesday,
October 22, 1997 at 9:30 a.m., local time, at the Woodland Country Club, 100
Woodland Lane, Carmel, Indiana.

Purpose. To consider and act upon proposals to: (i) approve the Common
Stock Issuance, (ii) elect directors, (iii) approve the Stock Option Plan
Amendment and (iv) ratify the appointment of SMC's principal independent
auditors, and to transact such other business as may properly come before the
SMC Annual Meeting. CONSUMMATION OF THE MERGER IS NOT CONTINGENT UPON THE
APPROVAL OF ANY PROPOSAL TO BE CONSIDERED AT THE SMC ANNUAL MEETING OTHER THAN
THE PROPOSAL TO APPROVE THE COMMON STOCK ISSUANCE. See "SMC Annual Meeting --
Purpose."

Record Date, Voting Rights. Only holders of record of SMC Common Stock at
the close of business on August 22, 1997 (the "SMC Record Date") are entitled to
receive notice of and to vote at the SMC Annual Meeting. At the close of
business on August 1, 1997, there were 4,870,240 shares of SMC Common Stock
outstanding, each of which entitles the registered holder thereof to one vote on
each matter voted upon at the SMC Annual Meeting. SMC stockholders do not have
the right to cumulate votes in the election of directors. See "SMC ANNUAL
MEETING -- Record Date; Voting Rights."

Quorum. The holders of a majority of shares of SMC Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
SMC Annual Meeting in order for a quorum to be present. In the event that a
quorum is not present at the SMC Annual Meeting, it is expected that such
meeting will be adjourned or postponed to allow for the solicitation of
additional proxies. See "SMC Annual Meeting -- Quorum."

Required Vote. Approval of each of the Common Stock Issuance, the Stock
Option Plan Amendment and ratification of the appointment of SMC's principal
independent auditors requires the affirmative vote of a majority of the votes
cast thereon at the SMC Annual Meeting. Directors are elected by a plurality of
votes cast. See "SMC Annual Meeting -- Required Vote."

Share Ownership of Management. At the close of business on August 1, 1997,
directors and executive officers of SMC and their affiliates were the beneficial
owners of an aggregate of 1,167,208 (approximately 24.0%) of the shares of SMC
Common Stock then outstanding. SMC expects that all such shares will be voted in
favor of the Common Stock Issuance, the Stock Option Plan Amendment,
ratification of the appointment of SMC's principal independent auditors and for
each person nominated by the SMC Board to serve as a member of the SMC Board.
See "SMC ANNUAL MEETING -- Required Vote."

SAVERS LIFE SPECIAL MEETING

Date, Place and Time. The Savers Life Special Meeting will be held on
Wednesday, October 22, 1997 at 11:00 a.m., local time, at the Graylyn
International Conference Center, 1900 Reynolda Road, Winston-Salem, North
Carolina.
3
<PAGE> 16

Purpose. To consider and vote upon a proposal to approve the Merger
Agreement and to transact such other business as may properly come before the
Savers Life Special Meeting. See "SAVERS LIFE SPECIAL MEETING -- Purpose."

Record Date; Voting Rights. Only holders of record of Savers Life Common
Stock at the close of business on August 22, 1997 (the "Savers Life Record
Date") are entitled to receive notice of and to vote at the Savers Life Special
Meeting. At the close of business on August 1, 1997, there were 1,779,908 shares
of Savers Life Common Stock outstanding, each of which entitles the registered
holder thereof to one vote on each matter voted upon at the Savers Life Special
Meeting. See "SAVERS LIFE SPECIAL MEETING -- Record Date; Voting Rights."

Quorum. The holders of a majority of shares of Savers Life Common Stock
outstanding and entitled to vote must be present in person or represented by
proxy at the Savers Life Special Meeting in order for a quorum to be present. In
the event that a quorum is not present at the Savers Life Special Meeting, it is
expected that such meeting will be adjourned or postponed to allow for the
solicitation of additional proxies. See "Savers Life Special Meeting -- Quorum."

Required Vote. Approval of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Savers Life
Common Stock outstanding on the Savers Life Record Date. See "SAVERS LIFE
SPECIAL MEETING -- Required Vote."

Voting Agreements. Persons who have the power to vote 545,135 shares of
Savers Life Common Stock outstanding at the close of business on August 1, 1997
(approximately 30.6%) of the shares of Savers Life Common Stock then outstanding
have signed agreements obligating them to vote in favor of approval of the
Merger Agreement and against certain other actions. See "VOTING AGREEMENTS."

Share Ownership of Management. At the close of business on August 1, 1997,
directors and officers of Savers Life and their affiliates were the beneficial
owners of an aggregate of 554,955 (approximately 31.2%) of the shares of Savers
Life Common Stock then outstanding. Such shares include the shares subject to
the voting agreements described above. Savers Life expects that all such shares
will be voted in favor of approval of the Merger Agreement. See "SAVERS LIFE
SPECIAL MEETING -- Required Vote" and "ADDITIONAL INFORMATION REGARDING SAVERS
LIFE -- Voting Securities and Principal Holders Thereof."

PARTIES TO THE MERGER AGREEMENT

SMC. SMC is an insurance holding company, which directly and through its
subsidiaries acquires and manages in force life insurance and annuity business
and distributes life insurance and annuity products issued by its subsidiaries
and a select group of unaffiliated insurers. SMC is an Indiana corporation, its
principal executive offices are located at 9100 Keystone Crossing, Indianapolis,
Indiana 46240, and its telephone number is (317) 574-6200. SMC's active
subsidiaries include: (i) Standard Life Insurance Company of Indiana ("Standard
Life") and its subsidiary, Dixie National Life Insurance Company ("Dixie
National Life"), (ii) Standard Management International S.A. ("Standard
Management International") and its subsidiaries, Premier Life (Luxembourg) S.A.
("Premier Life (Luxembourg)") and Premier Life (Bermuda) Ltd. ("Premier Life
(Bermuda)"), and (iii) Standard Marketing Corporation ("Standard Marketing").
For further information concerning SMC, see "-- SMC Selected Consolidated
Financial Data," "PARTIES TO THE MERGER AGREEMENT -- SMC," "ADDITIONAL
INFORMATION REGARDING SMC," "SMC CONSOLIDATED FINANCIAL STATEMENTS," "AVAILABLE
INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE."

Savers Life. Savers Life is a North Carolina domestic stock insurance
company licensed to write life and accident and health insurance. Savers Life's
principal products are annuities, Medicare supplement insurance and major
medical insurance. Savers Life also sells term life insurance, whole life
insurance, annuities issued by another company and sells and administers group
health plan products for an HMO. Savers Life's principal executive offices are
located at 8064 North Point Boulevard, Winston-Salem, North Carolina 27106, and
its telephone number is (910) 759-3888. For further information concerning
Savers Life, see "-- Savers Life
4
<PAGE> 17

Selected Financial Data," "PARTIES TO THE MERGER AGREEMENT -- Savers Life,"
"ADDITIONAL INFORMATION REGARDING SAVERS LIFE" and "SAVERS LIFE FINANCIAL
STATEMENTS."

SAC. SAC was incorporated in North Carolina on December 12, 1996 solely for
the purpose of consummating the Merger and the other transactions contemplated
by the Merger Agreement. SAC has minimal assets and no business and has carried
on no activities which are not directly related to its formation and its
execution of the Merger Agreement. Its principal executive offices are located
at 9100 Keystone Crossing, Indianapolis, Indiana 46240, and its telephone number
is (317) 574-6200. For further information concerning SAC, see "PARTIES TO THE
MERGER AGREEMENT -- SAC."

THE MERGER

Recommendation of the SMC Board. The SMC Board has unanimously determined
that the Merger and the Common Stock Issuance are advisable and fair to and in
the best interests of SMC and its stockholders and has unanimously approved the
Merger Agreement and the transactions contemplated thereby. THE SMC BOARD
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF SMC VOTE IN FAVOR OF APPROVAL OF
THE COMMON STOCK ISSUANCE AT THE SMC ANNUAL MEETING. See "THE MERGER -- SMC's
Reasons for the Merger; Recommendation of its Board of Directors."

Recommendation of the Savers Life Board. The Savers Life Board has
unanimously determined that the Merger is fair, equitable and in the best
interests of Savers Life and its stockholders and has unanimously approved the
Merger Agreement. THE SAVERS LIFE BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF SAVERS LIFE VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT AT
THE SAVERS LIFE SPECIAL MEETING. See "THE MERGER -- Savers Life's Reasons for
the Merger; Recommendation of its Board of Directors."

Interests of Certain Persons in the Merger. No directors or executive
officers of Savers Life, other than Mr. Jerry D. Stoltz, Sr., have interests in
the Merger in addition to their interests as holders of Common Stock and options
to purchase Common Stock of Savers Life. It is a condition to SMC's obligations
under the Merger Agreement that it enter into an employment agreement (the
"Stoltz Employment Agreement") with Mr. Stoltz. Mr. Stoltz is a member of the
Savers Life Board and an executive officer of Savers Life. In addition, pursuant
to the terms of the Merger Agreement, Mr. Stoltz will be appointed to the SMC
Board immediately following the Effective Time. The other executive officers of
Savers Life, Jerry E. Francis, David A. Roberson, Patricia G. Landy and Debra P.
Berg have agreements regarding their employment with Savers Life, which
agreements will not change as a result of the Merger. Holders of options to
purchase Savers Life Common Stock, including, among others, the executive
officers of Savers Life, two of whom are also directors of Savers Life, will
receive, subject to the terms and conditions of the Merger Agreement, cash in
exchange therefor. See "THE MERGER -- Interests of Certain Persons in the
Merger" and "THE MERGER AGREEMENT -- Stock Options."

Material Federal Income Tax Consequences. Under present federal income tax
law, assuming that at least eighty percent (80%) of the merger consideration
(exclusive of the Performance Premium) is paid in SMC Common Stock to the
holders of Savers Life Common Stock, the Merger will constitute a
"reorganization" under the Code. Accordingly, no gain or loss will be recognized
by SMC, Savers Life or SAC as a result of the Merger.

In general, a Savers Life stockholder (i) will recognize no gain or loss
upon the receipt of SMC Common Stock in exchange for his or her Savers Life
Common Stock, (ii) will likely recognize gain (but not loss) should such
stockholder receive cash in exchange for a portion of his or her Savers Life
Common Stock, (iii) will have a tax basis in the SMC Common Stock that he or she
receives equal to the tax basis that he or she had in the Savers Life Common
Stock that he or she surrendered therefor, increased by the amount of gain
recognized and decreased by the amount of cash received that is not treated as
interest or the economic equivalent of interest and (iv) will have a holding
period in the SMC Common Stock received in the Merger (to the extent not treated
as interest) which includes the holding period of the Savers Life Common Stock
surrendered in exchange therefor.
5
<PAGE> 18

Savers Life has received the opinion of Womble Carlyle Sandridge & Rice,
PLLC, counsel to Savers Life, to the effect set forth in paragraphs (i)-(iii),
above. See "THE MERGER -- Material Federal Income Tax Consequences."

A stockholder of Savers Life may recognize interest income (or original
issue discount) to the extent the Performance Premium is determined to be
interest (or the economic equivalent of interest) under Internal Revenue Code
sec.sec.483 and 1275, and related sections and regulations. Such interest (or
the economic equivalent of interest such as original issue discount) may be
required to be recognized by a Savers Life stockholder in a taxable year prior
to the taxable year of actual receipt.

Receipt of cash by a Savers Life stockholder who perfects dissenters'
rights will be a taxable transaction. Such holders should consult their own tax
advisors.

THE FOREGOING SUMMARY IS GENERAL IN NATURE AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. IN
ADDITION, THE SUMMARY DOES NOT ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO PARTICULAR TAXPAYERS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES OR TO
TAXPAYERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE (FOR EXAMPLE, INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, DEALERS IN SECURITIES, TAX-EXEMPT
ORGANIZATIONS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR OTHER FOREIGN
ENTITIES AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES).

NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
THE FOREGOING SUMMARY IS BASED UPON THE PROVISIONS OF THE CODE, APPLICABLE
TREASURY REGULATIONS THEREUNDER, INTERNAL REVENUE SERVICE RULINGS AND JUDICIAL
DECISIONS, AS IN EFFECT AS OF THE DATE HEREOF. THERE CAN BE NO ASSURANCE THAT
FUTURE LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS WILL
NOT AFFECT THE ACCURACY OF THE STATEMENTS OR CONCLUSIONS SET FORTH HEREIN. ANY
SUCH CHANGE COULD APPLY RETROACTIVELY AND COULD AFFECT THE ACCURACY OF SUCH
SUMMARY. NO RULINGS HAVE BEEN OR WILL BE SOUGHT FROM THE INTERNAL REVENUE
SERVICE CONCERNING THE TAX CONSEQUENCES OF THE MERGER.

For a more detailed description of the federal income tax consequences of
the Merger, see "THE MERGER -- Material Federal Income Tax Consequences." Savers
Life stockholders are urged to consult with their own tax advisors with respect
to the potential tax effects of the proposed Merger on such stockholders. EACH
HOLDER OF AN OPTION TO PURCHASE SHARES OF SAVERS LIFE COMMON STOCK IS ALSO URGED
TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
REGARDING THE CONVERSION OF ANY SUCH OPTION INTO THE RIGHT TO RECEIVE CASH FROM
SAVERS LIFE.

Anticipated Accounting Treatment. The Merger will be accounted for as a
"purchase" for accounting and financial reporting purposes in accordance with
Accounting Principles Board Opinion No. 16 ("APB No. 16"). For purposes of
preparing SMC's consolidated financial statements, SMC will establish a new
accounting basis for Savers Life's assets and liabilities based upon the fair
values thereof and SMC's purchase price, including the direct costs of the
acquisition. A final determination of required purchase accounting adjustments
and of the fair value of the assets and liabilities of Savers Life has not yet
been made. Accordingly, the purchase accounting adjustments made in connection
with the development of the pro forma financial information appearing elsewhere
in this Proxy Statement/Prospectus are preliminary and are subject to
adjustment. After the Merger, SMC will undertake a study to determine the fair
value of Savers Life's assets and liabilities and will make appropriate purchase
accounting adjustments upon completion of such study. For financial reporting
purposes, SMC will consolidate the results of Savers Life's operations with
those of SMC's operations, beginning with the consummation of the Merger, but
SMC's financial statements for prior periods will not be restated as a result of
the Merger. See "THE MERGER -- Anticipated Accounting Treatment."

Regulatory Approvals. The consummation of the Merger is conditioned upon
the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Under the HSR Act and the regulations promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of
6
<PAGE> 19

Justice (the "Antitrust Division") and the applicable waiting period has expired
or been terminated. Report forms relating to the Merger have been filed on
behalf of SMC and Savers Life under the HSR Act with the FTC and the Antitrust
Division. The consummation of the Merger is also conditioned upon the approval
of the Commissioner of Insurance of the State of North Carolina (the "North
Carolina Commissioner"). An application is pending to obtain the approval of the
Merger from the North Carolina Commissioner. See "RISK FACTORS -- Insurance
Regulation," "THE MERGER -- Regulatory Approvals" and "-- Conditions Precedent
to the Merger."

Percentage Ownership Interest of Savers Life Stockholders After the
Merger. If the Average Trading Price of SMC Common Stock for the ten consecutive
trading days ending on the fifth day prior to the earlier of the SMC Annual
Meeting or the Savers Life Special Meeting is equal to $7.00 and disregarding
the Performance Premium, based on the number of shares of Savers Life Common
Stock outstanding at the close of business on August 1, 1997, holders of Savers
Life Common Stock will receive an aggregate of between approximately 1,652,772
and 2,034,181 newly issued shares of SMC Common Stock upon consummation of the
Merger depending upon the extent to which such holders elect to receive shares
of SMC Common Stock in lieu of the $1.50 per share cash consideration they would
otherwise be entitled to receive. Such newly issued shares of SMC Common Stock
would constitute between 25.3% and 29.5% of the shares of SMC Common Stock
outstanding immediately after the Effective Time (between 15.8% and 18.7% on a
fully diluted basis), based on the number of shares of SMC Common Stock
outstanding at the close of business on August 1, 1997. See "THE MERGER --
Percentage Ownership Interests of Savers Life Stockholders After the Merger."
There can be no assurance that any Performance Premium will be earned; however,
for a table illustrating a range of number of shares which may be issued if a
Performance Premium is earned, see "THE MERGER AGREEMENT -- Performance
Premium."

THE MERGER AGREEMENT

Conversion of Shares in the Merger. At the Effective Time of the Merger,
SAC will be merged with and into Savers Life, with Savers Life continuing as the
surviving corporation (the "Surviving Corporation") and a wholly-owned
subsidiary of SMC. As a result of the Merger, the separate corporate existence
of SAC will cease, and Savers Life will succeed to all the rights and be
responsible for all the obligations of SAC in accordance with the NCBCA. Subject
to the terms and conditions of the Merger Agreement, each share of Savers Life
Common Stock outstanding immediately prior to the Effective Time of the Merger
will be converted into (i) $1.50 in cash, which the holder of such share of
Savers Life Common Stock may elect to receive in shares of SMC Common Stock,
(ii) $6.50 in value of shares of SMC Common Stock, the number of such shares, to
be rounded to the nearest hundredth of a share, determined by dividing $6.50 by
the Average Trading Price of SMC Common Stock for the ten consecutive trading
days ending on the fifth day prior to the earlier of the SMC Annual Meeting or
the Savers Life Special Meeting, plus (iii) the right to receive the Performance
Premium (as hereinafter defined), if any. Cash will be paid in lieu of any
fractional share of SMC Common Stock. Notwithstanding the foregoing, holders of
Savers Life Common Stock have the right to dissent from the Merger and to
receive payment of the fair value of their stock upon full compliance with
Section 55-13-01, et seq., of the NCBCA. If holders of more than 5% of the
shares of Savers Life Common Stock outstanding immediately prior to the
Effective Time properly exercise dissenters' rights, SMC will have the right to
decline to consummate the Merger. See "THE MERGER AGREEMENT -- Conversion of
Shares in the Merger," "-- Performance Premium," "-- No Fractional Shares," "--
Adjustment of Conversion Number," " -- Conditions Precedent to the Merger" and
"DISSENTERS' RIGHTS."

Assuming that the number of shares of Savers Life Common Stock outstanding
immediately prior to the Effective Time is the same as the number outstanding at
the close of business on August 1, 1997, the aggregate merger consideration will
be $14,239,264 plus any Performance Premium payable in the future. The actual
number of shares of SMC Common Stock issued to holders of Savers Life Common
Stock will vary depending upon the Average Trading Price of SMC Common Stock,
the extent to which stockholders of Savers Life elect to receive SMC Common
Stock in lieu of cash for the $1.50 portion of the merger consideration and the
amount of any Performance Premium. There can be no assurance that any
Performance Premium will be earned. Set forth below is a table illustrating the
percentage of outstanding SMC Common
7
<PAGE> 20

Stock that will be held by Savers Life stockholders after the Merger at a range
of prices of SMC Common Stock and in the event that all holders elect to receive
cash as payment for the entire $1.50 portion of the merger consideration or, in
the alternative, all holders elect to receive SMC Common Stock for such portion.
The table is based upon the number of shares of SMC and Savers Life Common Stock
outstanding at the close of business on August 1, 1997, 4,870,240 and 1,779,908,
respectively, and disregards any Performance Premium that may be paid.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SMC
COMMON STOCK TO
AVERAGE TRADING PRICE NUMBER OF SHARES BE HELD BY
OF SMC COMMON STOCK OF SMC COMMON STOCK SAVERS LIFE STOCKHOLDERS
------------------- ------------------- ------------------------
<S> <C> <C>
$4.00
Cash.......................................... 2,892,351 37.3%
Stock......................................... 3,559,816 42.2%
$5.00
Cash.......................................... 2,313,880 32.2%
Stock......................................... 2,847,853 36.9%
$6.00
Cash.......................................... 1,928,234 28.4%
Stock......................................... 2,373,211 32.8%
$7.00
Cash.......................................... 1,652,772 25.3%
Stock......................................... 2,034,181 29.5%
$8.00
Cash.......................................... 1,446,175 22.9%
Stock......................................... 1,779,908 26.8%
$9.00
Cash.......................................... 1,285,489 20.9%
Stock......................................... 1,582,140 24.5%
</TABLE>

Performance Premium. Subject to the terms and conditions of the Merger
Agreement, each holder of record of Savers Life Common Stock immediately prior
to the Effective Time (a "Performance Premium Holder") will be entitled to
receive a performance premium ("Performance Premium") in the form of a
combination of cash and shares of SMC Common Stock. SMC will make Performance
Premium payments after December 31, 1997 and December 31, 1998 if certain
targets for adjusted after-tax net income of the Surviving Corporation for the
years then ended are met. The Performance Premium payments, if any, will be
allocated on a pro rata basis among Performance Premium Holders on the basis of
the number of shares of Savers Life Common Stock owned of record by Performance
Premium Holders immediately prior to the Effective Time. The maximum aggregate
value of the Performance Premium will be $6,000,000. There can be no assurance
that any Performance Premium will be earned; however, for a table illustrating a
range of number of shares that may be issued if a Performance Premium is earned,
see "THE MERGER AGREEMENT -- Performance Premium."

Exchange Agent. ChaseMellon Shareholder Services has been selected to act
as Exchange Agent under the Merger Agreement. As soon as practicable after the
Effective Time, (i) SMC will deposit with the Exchange Agent, in trust for the
holders of certificates ("Savers Life Certificates") which immediately prior to
the Effective Time represented shares of Savers Life Common Stock converted in
the Merger, certificates ("SMC Certificates") representing the shares of SMC
Common Stock issuable pursuant to the Merger in accordance with the Merger
Agreement, and (ii) SMC will make available to the Surviving Corporation,
8
<PAGE> 21

which in turn will deposit with the Exchange Agent in trust for the holders of
Savers Life Certificates, the cash into which the outstanding shares of Savers
Life Common Stock have been converted. The Exchange Agent will deliver the SMC
Certificates and cash upon the surrender for exchange of the Savers Life
Certificates and a duly executed letter of transmittal. Promptly after the
calculation by SMC of the Performance Premium, if any, for the years ended
December 31, 1997 and 1998, as the case may be, SMC will deliver to the Exchange
Agent in trust for the Performance Premium Holders, the cash and certificates
representing SMC Common Stock payable with respect to such Performance Premium.
See "THE MERGER AGREEMENT -- Exchange Agent; Procedure for Exchange of
Certificates."

Procedures for Exchange of Certificates and Delivery of Cash. As soon as
practicable after the Effective Time, the Exchange Agent will mail to each
record holder of a Savers Life Certificate a letter of transmittal. Upon
surrender for exchange to the Exchange Agent of all Savers Life Certificates
held by any record holder, together with such letter of transmittal duly
executed, such record holder will be entitled to receive in exchange therefore:
(i) an SMC Certificate representing the number of whole shares of SMC Common
Stock into which the shares of Savers Life Common Stock represented by the
surrendered Savers Life Certificates have been converted at the Effective Time,
(ii) $1.50 cash per share of Savers Life Common Stock represented by the
surrendered Savers Life Certificates, provided that, if a holder of Savers Life
Common Stock has elected to receive SMC Common Stock instead of such cash,
additional shares of SMC Common Stock will be delivered in lieu of cash, (iii)
cash in lieu of any fractional share of SMC Common Stock and (iv) certain
dividends and other distributions. The Exchange Agent will deliver any cash and
certificates representing any Performance Premium payable to a Performance
Premium Holder entitled thereto at such Performance Premium Holder's address as
it appears on the stock records of Savers Life at the Effective Time or such
other address as such Performance Premium Holder provides to the Exchange Agent
by written notice. See "THE MERGER AGREEMENT -- Exchange Agent; Procedure for
Exchange of Certificates."

HOLDERS OF SAVERS LIFE COMMON STOCK SHOULD NOT FORWARD THEIR SAVERS LIFE
CERTIFICATES WITH THE ENCLOSED PROXY CARD, NOR SHOULD THEY RETURN THEIR SAVERS
LIFE CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL
LETTER.

Stock Options. Each option to purchase Savers Life Common Stock (a "Savers
Life Stock Option") granted by Savers Life that is outstanding immediately prior
to the Effective Time will be converted into the right to receive cash in an
amount equal to the number of shares of Savers Life Common Stock subject to such
Savers Life Stock Option times the difference between $8.00 and the per share
exercise price for such Savers Life Stock Option.

Termination. The Merger Agreement will automatically terminate if the
Effective Time shall not have occurred at or prior to 11:59 p.m., Eastern Time,
on November 5, 1997, unless the board of directors of both Savers Life and SMC
agree to extend that date. The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of Savers Life of the Merger Agreement or the approval by the
stockholders of SMC of the Common Stock Issuance: (i) by mutual written consent
of SMC and Savers Life; (ii) by either SMC or Savers Life if the other (or SAC
if Savers Life is the terminating party) has failed to comply in any material
respect with any of its covenants or agreements contained in the Merger
Agreement required to be complied with prior to the date of such termination or
materially breaches any representation or warranty that is not qualified as to
materiality or breaches any representation or warranty that is so qualified (in
each case after a five business day cure period following notice of such breach)
or if the requisite stockholder approval is not obtained; (iii) by either SMC or
Savers
9
<PAGE> 22

Life if (A) the Merger has not been effected on or prior to the close of
business on November 5, 1997, subject to certain limitations, or (B) any court
or other governmental entity having jurisdiction has permanently enjoined,
restrained or otherwise prohibited the transactions contemplated by the Merger
Agreement by final and nonappealable order or other action; or (iv) by SMC, if
the Savers Life Board has not recommended, or has resolved not to recommend, or
has modified or withdrawn its recommendation of the Merger or has recommended,
or resolved to recommend, to the stockholders of Savers Life any takeover
proposal or offer of any other person. See "THE MERGER AGREEMENT --
Termination."

Fees and Expenses. The Merger Agreement provides for the payment of certain
fees following a termination of the Merger Agreement under certain
circumstances. Subject to the preceding sentence, the Merger Agreement also
provides that SMC and Savers Life will each pay their own respective costs and
expenses incidental to the preparation of the Merger Agreement, the performance
of and compliance with all agreements and conditions contained in the Merger
Agreement and the consummation of the transactions contemplated thereby. See
"THE MERGER AGREEMENT -- Fees and Expenses."

COMPARATIVE RIGHTS OF STOCKHOLDERS; DESCRIPTION OF SMC COMMON STOCK

The rights of stockholders of Savers Life currently are governed by the
NCBCA and Savers Life's Articles of Incorporation (the "Savers Life Charter")
and Bylaws. Upon consummation of the Merger, stockholders of Savers Life will
become stockholders of SMC, which is an Indiana corporation, and their rights as
stockholders of SMC will be governed by the Indiana Business Corporation Law
(the "IBCL"), and SMC's Charter and Bylaws. See "COMPARATIVE RIGHTS OF
STOCKHOLDERS" for a discussion of the material differences between the rights of
holders of Savers Life Common Stock and the rights of holders of SMC Common
Stock. See "DESCRIPTION OF SMC COMMON STOCK" for a description of SMC Common
Stock.

DISSENTERS' RIGHTS

Holders of Savers Life Common Stock have the right to dissent from the
Merger and to receive payment of the fair value of their shares upon full
compliance with Sections 55-13-01 through 55-13-31 of the NCBCA. A copy of those
Sections of the NCBCA is attached hereto as Annex B. Holders of SMC Common Stock
do not have dissenters' rights with respect to the Merger, the Common Stock
Issuance or any other matter to be presented at the SMC Annual Meeting. If
holders of more than 5% of the shares of Savers Life Common Stock outstanding
immediately prior to the Effective Time properly exercise dissenters' rights,
SMC will have the right to decline to consummate the Merger. A vote in favor of
the Merger proposal precludes the exercise of dissenters' rights; an abstention,
a failure to vote or a vote against the Merger proposal neither waives the right
to dissent nor constitutes notice of intent to exercise dissenters' rights. See
"DISSENTERS' RIGHTS" and "THE MERGER AGREEMENT -- Conditions Precedent to the
Merger."
10
<PAGE> 23

SMC SELECTED HISTORICAL FINANCIAL DATA (A)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The selected historical financial data of SMC set forth below at and for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 were derived from
audited consolidated financial statements of SMC. The unaudited information at
and for the six months ended June 30, 1997 and 1996 was derived from the
accounting records of SMC and reflects, in the opinion of management of SMC, all
adjustments, consisting only of normal recurring items, which are necessary for
a fair presentation of financial position and results of operations on a basis
consistent with that of the audited financial information. The selected
historical financial data should be read in conjunction with "ADDITIONAL
INFORMATION REGARDING SMC -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the SMC Consolidated Financial
Statements and related notes thereto, each included elsewhere herein. See "SMC
CONSOLIDATED FINANCIAL STATEMENTS."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Premium income.............. $ 3,562 $ 7,129(d) $10,468(d) $ 5,504 $ 4,565 $ 5,511 $ 4,140
Investment Activity:
Net investment income..... 14,346 9,391 20,871 18,517 16,057 12,171 9,406
Net realized investment
gains................... 206 456 1,302 688 558 6,980 1,726
Total revenues.............. 23,310 21,521 40,307 30,238 26,518 26,542 15,873
Class action litigation and
settlement costs
(credit).................. -- -- -- (314) 4,018 47 --
Interest expense and
financing costs........... 1,078 277 805 118 47 519 1,628
Total benefits and
expenses.................. 21,410 20,036(d) 36,772(d) 28,682 30,032 22,099 17,228
Income (loss) before income
taxes, extraordinary gain
(charge) and cumulative
effect of change in
accounting principle...... 1,900 1,485 3,535 1,556 (3,514) 4,443(h) (1,354)(i)(j)
Income (loss) before
extraordinary gain
(charge) and cumulative
effect of change in
accounting principle...... 1,325(e) 2,603(e) 4,265(e) 1,313 (3,436) 2,984(h) (1,289)(i)(j)
Net income (loss)........... 1,325(f) 2,870(f) 4,767(f) 1,313 (3,436) 2,132 (1,400)(i)
PER SHARE DATA: (b)
Income (loss) per share
before extraordinary gain
(charge) and cumulative
effect of change in
accounting principle...... $0.25 $0.50 $0.84 $0.25 $(0.62) $0.74(h) $(0.74)(i)(j)
Net income (loss)........... $0.25 $0.55 $0.93 $0.25 $(0.62) $0.53 $(0.80)(i)
Weighted average number of
common and common
equivalent shares
outstanding............... 5,286,706 5,479,208 5,250,094 5,345,937 5,504,039 4,013,893 1,756,894
Book value per common share
outstanding at period
end....................... $8.05 $7.95 $7.73 $4.27 $7.82 $3.22
Book value per common share
outstanding at period end,
excluding unrealized gain
(loss) on securities
available for sale........ $8.22(g) $8.09(g) $7.23(g) $6.81(g) $7.82 $3.22
Common shares outstanding at
period end................ 5,000,143 5,024,270 5,205,425 5,291,455 4,954,676 1,565,801
BALANCE SHEET DATA (AT
PERIOD END):
Invested assets............. $382,162 $370,138 $280,597 $224,926 $199,413 $153,106
Assets held in separate
accounts.................. 134,808 128,546 122,705 94,301 107,173 --
Total assets................ 653,648 628,413 479,598 373,524 354,431 197,860
Long-term debt, notes
payable and capital lease
obligations............... 26,575 20,697 4,191 695 -- 20,750
Class S Cumulative
Convertible Redeemable
Preferred Stock........... 1,825 1,757 -- -- -- --
Shareholders' equity........ 40,248 39,919 40,242 22,610 36,914 4,807
Ratio of debt to total
capitalization(c)......... 41% 36% 9% 3% -- 81%
</TABLE>

11
<PAGE> 24

NOTES TO SMC SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(a) Comparison of consolidated financial information is significantly affected
by the acquisitions of First International at June 30, 1992, Standard
Management International effective December 31, 1993, Dixie National Life on
October 2, 1995 and Shelby Life effective November 1, 1996. Refer to the
notes to the consolidated financial statements included in this Proxy
Statement/Prospectus for a description of business combinations.

(b) All applicable share and per share amounts have been restated to reflect the
May 17, 1996 5% stock dividend.

(c) Total capitalization is the sum of SMC's debt (long term debt, notes
payable, capital lease obligations and redeemable preferred stock) and
shareholders' equity.

(d) Includes recapture of premiums ceded and an increase in benefits due to an
increase in reserves of $4,234 due to the termination and recapture of a
reinsurance agreement with National Mutual Life Insurance Company. See
"ADDITIONAL INFORMATION REGARDING SMC -- Business of SMC -- Reinsurance."

(e) Does not reflect extraordinary gain of $--, $267 ($.05 per share) and $502
($.10 per share) for the six months ended June 30, 1997 and 1996 and the
year ended December 31, 1996, respectively, on early redemption of Class S
Cumulative Convertible Redeemable Preferred Stock ("Class S Preferred
Stock").

(f) Does not reflect preferred stock dividends of $83 ($.01 per share), $112
($.01 per share) and $208 ($.03 per share) for the six months ended June 30,
1997 and 1996 and the year ended December 31, 1996, respectively, on Class S
Preferred Stock.

(g) Excludes the effect of reporting securities available for sale at fair value
and recording the unrealized gain or loss on such securities as a component
of stockholders' equity, net of tax and other adjustments, which SMC began
to do in 1994. Such adjustments are in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities", as described in the notes to the
consolidated financial statements included in SMC's Consolidated Financial
Statements, included elsewhere herein.

(h) Before deduction of extraordinary charge of $1,301 ($.32 per share) on early
extinguishment of long-term debt and cumulative effect of change in
accounting principle of $449 ($.11 per share) from applying the new method
of accounting for income taxes.

(i) Includes a $1,325 allowance for losses ($1,221 after taxes) to reflect the
fair value of property collateralizing a $3,200 mortgage loan which was
subsequently foreclosed.

(j) Before deduction of extraordinary charge of $110 ($.06 per share) to write
off unamortized deferred debt issuance costs in connection with retirement
of previously outstanding debt.
12
<PAGE> 25

SAVERS LIFE SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The selected historical financial data of Savers Life set forth below at
and for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 were
derived from audited financial statements of Savers Life. The unaudited
information at and for the six months ended June 30, 1997 and 1996 was derived
from the accounting records of Savers Life and reflects, in the opinion of the
management of Savers Life, all adjustments, consisting only of normal recurring
items, which are necessary for a fair presentation of financial position and
results of operations on a basis consistent with that of the audited financial
information. The results for the six months ended June 30, 1997 are not
necessarily indicative of results to be expected for the full year. The selected
historical financial data should be read in conjunction with "ADDITIONAL
INFORMATION REGARDING SAVERS LIFE -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Savers Life Financial
Statements and related notes thereto, each included elsewhere herein. See
"SAVERS LIFE FINANCIAL STATEMENTS."

- -------------------------
(a) The net loss was generated from the health product lines. Savers Life has
entered into an agreement for the transfer of the major medical product line
to World Insurance Company. See "ADDITIONAL INFORMATION REGARDING SAVERS
LIFE -- Description of Business -- Products."

(b) The results include a $1,752 write-off of deferred acquisition costs
resulting from the transfer of the major medical product line to World
Insurance Company. See "ADDITIONAL INFORMATION REGARDING SAVERS LIFE --
Description of Business -- Products."
13
<PAGE> 26

SMC SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following selected unaudited pro forma combined statements of
operations financial data for the six months ended June 30, 1997 and the year
ended December 31, 1996, are presented as if (i) the acquisition of Shelby Life
from Delta Life and Annuity ("DLAC") and its merger into Standard Life, (ii) the
transfer of the major medical product line from Savers Life to World Insurance
Company ("World") through a coinsurance agreement under which World will assume,
through coinsurance effective July 1, 1997, 100% of the product line and (iii)
the acquisition of Savers Life by SMC had occurred as of January 1, 1996. The
following selected unaudited pro forma combined balance sheet financial data as
of June 30, 1997, gives effect to the transfer of the major medical product line
from Savers Life to World and the acquisition of Savers Life by SMC as if it had
occurred as of the balance sheet date.

The unaudited pro forma combined financial data does not purport to
represent what SMC's balance sheet or results of operations actually would have
been had the merger of Shelby Life into Standard Life, the transfer of the major
medical product line from Savers Life to World through a coinsurance agreement
whereby World assumes, through coinsurance effective July 1, 1997, 100% of the
product line and the acquisition of Savers Life by SMC in fact occurred on the
dates indicated, or to project SMC's balance sheet or results of operations for
any future date or period. The unaudited pro forma combined financial data
should be read in conjunction with the accompanying notes thereto and the
separate historical consolidated financial statements of SMC and Savers Life as
of and for the six months ended June 30, 1997 and as of and for the year ended
December 31, 1996 which are contained elsewhere in this Proxy
Statement/Prospectus.

The pro forma adjustments and combined amounts are provided for
informational purposes only, and if the acquisition of Savers Life by SMC is
consummated, SMC's consolidated financial statements will reflect the effects of
the acquisition of Savers Life by SMC only from the date such transaction
occurs. The acquisition and merger of Shelby Life into Standard Life occurred on
November 8, 1996, with an effective date of November 1, 1996. Savers Life and
World have agreed to the transfer of the major medical product line of Savers
Life to World through a coinsurance agreement, under which World will assume,
through coinsurance effective July 1, 1997, 100% of the product line. Savers
Life ceased writing any new business in this product line on June 30, 1997. At
the closing, presently scheduled to occur on or about October 1, 1997, all of
the policies in this product line will be transferred to World as direct
insurance policies of World. The pro forma adjustments are applied to the
historical consolidated financial statements of SMC, Shelby Life and Savers Life
to account for the merger of Shelby Life into Standard Life and the acquisition
of Savers Life by SMC under the purchase method of accounting in accordance with
APB No. 16. Under this method of accounting, the total purchase cost will be
allocated to Shelby Life's and Savers Life's assets and liabilities based on
their relative fair values. These allocations are subject to valuations as of
the date of the Merger based on appraisals and other studies, which are not yet
completed. Accordingly, the final allocations will be different from the amounts
reflected herein. Any purchase price adjustments will be made within one year
from the acquisition date and are not expected to be material to the selected
unaudited pro forma combined financial data. The selected unaudited pro forma
combined financial data, however, reflect management's best estimate based on
currently available information.
14
<PAGE> 27

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------
HISTORICAL FINANCIAL
STATEMENTS
----------------------
10 MONTHS
YEAR ENDED ENDED PRO FORMA PRO FORMA
DEC. 31, OCT. 31, ADJUSTMENTS PRO FORMA ADJUSTMENTS
1996 1996 RELATING SMC RELATED TO
---------- --------- TO THE BEFORE THE HISTORICAL TRANSFER OF
STANDARD SHELBY SHELBY LIFE SAVERS LIFE SAVERS MAJOR MEDICAL
MANAGEMENT LIFE ACQUISITION ACQUISITION LIFE PRODUCT LINE(5)
---------- ------ ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Premium income...................... $10,468 $1,288 $ -- $11,756 $47,855 $(18,910)
Investment Activity:
Net investment income.............. 20,871 6,008 (556)(1) 26,323 4,569 (407)
Net realized investment gains...... 1,302 147 -- 1,449 170 (15)
Total revenues...................... 40,307 9,593 (556) 49,344 53,910 (19,332)
Interest expense and financing
costs.............................. 805 -- 1,238(2) 2,043 -- --
Total benefits and expenses......... 36,772 7,281 1,650(3) 45,703 56,768 (21,719)
Income (loss) before income taxes
and extraordinary gain............. 3,535 2,312 (2,206) 3,641 (2,858) 2,387
Income (loss) before extraordinary
gain on early redemption of
redeemable preferred stock and
preferred stock dividends.......... $ 4,265 $1,433 $(1,456) $ 4,242 $(1,692) $ 1,413
PER SHARE DATA:
Income per share before
extraordinary gain on early
redemption of redeemable preferred
stock and preferred stock
dividends.......................... $.84 $.80
========= =========
Weighted average number of common
and common equivalent shares
outstanding........................ 5,250,094 230,000(4) 5,480,094
========= ======= =========

<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------

SAVERS LIFE PRO FORMA
AFTER ADJUSTMENTS
TRANSFER OF RELATING
MAJOR TO THE PRO
MEDICAL SAVERS LIFE FORMA
PRODUCT LINE ACQUISITION COMBINED
------------ ----------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Premium income...................... $28,945 $ -- $40,701
Investment Activity:
Net investment income.............. 4,162 42(8) 30,527
Net realized investment gains...... 155 -- 1,604
Total revenues...................... 34,578 42 83,964
Interest expense and financing
costs.............................. -- 371(9) 2,414
Total benefits and expenses......... 35,049 (147)(10) 80,605
Income (loss) before income taxes
and extraordinary gain............. (471) 189 3,359
Income (loss) before extraordinary
gain on early redemption of
redeemable preferred stock and
preferred stock dividends.......... $ (279) $ 125 $ 4,088
PER SHARE DATA:
Income per share before
extraordinary gain on early
redemption of redeemable preferred
stock and preferred stock
=========
Weighted average number of common
and common equivalent shares
outstanding........................ 1,652,772(11) 7,132,866
========= =========
</TABLE>

15
<PAGE> 28

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS SAVERS LIFE ADJUSTMENTS
FINANCIAL STATEMENTS RELATED TO AFTER RELATING
------------------------ TRANSFER OF TRANSFER OF TO THE
STANDARD MAJOR MEDICAL MAJOR MEDICAL SAVERS LIFE PRO FORMA
MANAGEMENT SAVERS LIFE PRODUCT LINE(5) PRODUCT LINE ACQUISITION COMBINED
---------- ----------- --------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Premium income................... $ 3,562 $22,538 $ (8,039) $14,499 $ -- $ 18,061
Investment Activity:
Net investment income.......... 14,346 2,269 (202) 2,067 17(8) 16,430
Net realized investment
gains........................ 206 35 (3) 32 -- 238
Total revenues................... 23,310 25,693 (8,244) 17,449 17 40,776
Interest expense and financing
costs.......................... 1,078 -- -- -- 186(9) 1,264
Total benefits and expenses...... 21,410 28,739 (12,095) 16,644 284(10) 38,338
Income (loss) before income taxes
and extraordinary gain......... 1,900 (3,046) 3,851 805 (267) 2,438
Income (loss) before
extraordinary gain on early
redemption of redeemable
preferred stock and preferred
stock dividends................ $ 1,325 $(2,419) $ 3,081 $ 662 $ (176) $ 1,811
PER SHARE DATA:
Income per share before
extraordinary gain on early
redemption of redeemable
preferred stock and preferred
stock dividends................ $.25 $.26
========= =========
Weighted average number of common
and common equivalent shares
outstanding.................... 5,286,706 1,652,772(11) 6,939,978
========= ========= =========
Book value per common share
outstanding at period end...... $8.05 $7.79
Book value per common share
outstanding at period end,
excluding unrealized gain
(loss) on securities available
for sale....................... $8.22 $7.91
Common shares outstanding at
period end..................... 5,000,143 1,652,772 6,652,915
========= ========= =========
BALANCE SHEET DATA (AT PERIOD
END):
Invested assets.................. $382,162 $65,951 $ -- $65,951 $(1,559)(12) $ 446,554
Assets held in separate
accounts....................... 134,808 -- -- -- -- 134,808
Total assets..................... 653,648 77,528 (4,574)(6) 72,954 3,207 729,809
Notes payable and capital lease
obligations.................... 26,575 -- -- -- 4,000(13) 30,575
Class S Cumulative Convertible
Redeemable Preferred Stock..... 1,825 -- -- -- -- 1,825
Shareholders' equity............. $ 40,248 $13,468 $ (63)(7) $13,405 $(1,806)(14) $ 51,847
</TABLE>

16
<PAGE> 29

STANDARD MANAGEMENT CORPORATION

NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PRO FORMA ADJUSTMENTS
TRANSACTIONS RELATING TO THE SHELBY LIFE MERGER

The purchase price for Shelby Life was approximately $14,650, including
$13,000 in cash, 250,000 shares of restricted SMC Common Stock (valued at
$1,250) and acquisition costs of $400 associated with the purchase of Shelby
Life. Financing for the Shelby Merger was provided by senior debt of $10,000 and
$4,000 in subordinated convertible debt.

The costs to acquire Shelby Life are allocated as follows:

<TABLE>
<S> <C>
Book value of net assets acquired based on the date of the
purchase (October 31, 1996)............................... $ 16,709
Dividend paid to former parent of Shelby Life on November 8,
1996 (DLAC)............................................... (3,000)
--------
Adjusted book value of net assets acquired................ 13,709
Increase (decrease) in Shelby Life net asset value to
reflect estimated fair value and asset reclassifications
at the date of Shelby Life acquisition:
Fixed maturity securities available for sale.............. 58,609
Fixed maturity securities held to maturity................ (60,026)
Present value of future profits (related to
acquisition)........................................... 9,372
Present value of future profits and deferred policy
acquisition costs (historical)......................... (5,335)
Goodwill (related to acquisition)......................... 9
Deferred federal income taxes............................. (1,688)
--------
Total estimated fair value adjustments................. 941
--------
Total cost to acquire Shelby Life................. $ 14,650
========
</TABLE>

Adjustments to the selected pro forma combined statement of operations
financial data to give effect to the purchase of Shelby Life as of January 1,
1996 are summarized below.

(1) Amortization of present value of future profits recorded by Shelby
Life prior to the purchase has been eliminated and replaced with the
amortization of the present value of the future profits as a result of the
transaction. The portion of present value of future profits recorded by
Shelby Life prior to the purchase that related to the purchase accounting
adjustments for investments was included in net investment income.

(2) Interest expense and financing costs is increased to reflect the
increase in borrowings under the Amended Credit Agreement and the
subordinated convertible debt and amortization of deferred debt issuance
costs associated with the Amended Credit Agreement.

The Amended Credit Agreement provides for SMC to borrow up to $16,000
in the form of a seven year reducing revolving loan arrangement. Interest
on the borrowings under the Amended Credit Agreement is determined, at the
option of SMC, to be: (i) a fluctuating rate of interest based on the
corporate base rate announced by the bank from time to time plus 1% per
annum, or (ii) a rate at LIBOR plus 3.25%. Annual principal repayments of
$2,667 begin in November 1998 and conclude in November 2003. At December
31, 1996, SMC had borrowed $16,000 under the Amended Credit Agreement at a
weighted average interest rate of 8.793% for the acquisition of Shelby
Life.

In connection with the acquisition of Shelby Life, SMC borrowed an
additional $4,000 from an insurance company pursuant to a subordinated
convertible debt agreement which is due in December 2003 and requires
interest payments in cash at 12% per annum, or, if SMC chooses, in non-cash
additional subordinated convertible debt notes at 14% per annum until
December 31, 2000. The subordinated convertible notes are convertible into
SMC Common Stock at the rate of $6.00 per share
17
<PAGE> 30

STANDARD MANAGEMENT CORPORATION

NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (CONTINUED)

through November 1997, and $5.75 per share thereafter. SMC is currently
making interest payments in the form of subordinated convertible debt notes
for which the assumed interest rate is the non-cash interest rate is 14%
per annum.

The interest expense on the borrowings for the Shelby Life acquisition for
the ten months ended October 31, 1996 is calculated as follows:

<TABLE>
<CAPTION>
10 MONTHS ENDED
OCTOBER 31, 1996
----------------
<S> <C>
Borrowings:
Amended Credit Agreement.................................. $10,100
=======
Subordinated convertible debt............................. $ 4,000
=======
Interest expense:
Amended Credit Agreement borrowings (LIBOR + 3.25%,
8.793%)................................................ 737
Subordinated convertible debt borrowings (PIK at 14.0%)... 465
-------
Total interest expense on Borrowings................. 1,202
-------
Deferred debt issuance costs:
Amended Credit Agreement borrowings....................... 24
Subordinated convertible debt borrowings.................. 12
-------
Total deferred debt issuance costs................... 36
-------
Total interest expense and financing costs........... $ 1,238
=======
</TABLE>

(3) Amortization of deferred acquisition costs and present value of
future profits recorded by Shelby Life prior to the purchase has been
eliminated and replaced with the amortization of the present value of the
future profits as a result of the transaction. The amount of present value
of future profits resulting from the transaction is being amortized on a
constant yield basis over the estimated life of insurance in force at the
date of acquisition in proportion to the emergence of profits over a period
of 20 years, with interest equal to the interest rate credited to the
underlying policies. Amortization of goodwill acquired in the transaction
is recognized over a 20-year period on a straight-line basis.

The 15 percent discount rate used to determine the present value of
future profits is the rate of return required by SMC to invest in the
business being acquired. In determining such rate of return, the following
factors were considered:

-- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.

-- Cost of capital available to fund the acquisition.

-- The perceived likelihood of changes in insurance regulations and
tax laws.

-- Complexity of the acquired company.

-- Prices paid (i.e., discount rates used in determining valuations)
on similar blocks of business sold recently.

The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the
18
<PAGE> 31

STANDARD MANAGEMENT CORPORATION

NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (CONTINUED)

liability rate (such rate averages 6 percent) for each of the years in the
five-year period ending December 31, 2001, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING BEGINNING NET ENDING
DECEMBER 31, BALANCE AMORTIZATION BALANCE
------------ --------- ------------ -------
<C> <S> <C> <C> <C>
1997 ....................................... $9,601 $783 $8,818
1998 ....................................... 8,818 629 8,189
1999 ....................................... 8,189 601 7,588
2000 ....................................... 7,588 579 7,009
2001 ....................................... 7,009 596 6,413
</TABLE>

(4) Weighted average common and common equivalent shares outstanding
are increased to reflect the restricted SMC Common Stock shares issued to
DLAC, the repurchase of SMC Common Stock warrants previously issued to an
unaffiliated insurer and the issuance of SMC Common Stock warrants in
connection with the Amended Credit Agreement as part of the debt issuance
costs for the subordinated convertible debt agreement.

TRANSACTIONS RELATING TO THE TRANSFER OF THE MAJOR MEDICAL PRODUCT LINE OF
SAVERS LIFE

Savers Life and World have agreed to the transfer of the major medical
product line of Savers Life to World through a coinsurance agreement, under
which World will assume, through coinsurance effective July 1, 1997, 100% of the
product line. Savers Life ceased writing any new business in this product line
on June 30, 1997. At the closing, presently scheduled to occur on or about
October 1, 1997, all of the policies in this product line will be transferred to
World as direct insurance policies of World. Savers Life has agreed to share in
the claims experience of this product line for the period from July 1, 1997
through the end of 1997 to the extent that the loss ratio for such period does
not equal 75%. The loss ratio is calculated by dividing incurred claims by
earned premiums. If the loss ratio for the period is greater than 75%, Savers
Life will be required to reimburse World in cash for 50% of the amount by which
the actual loss ratio exceeds 75%. If the loss ratio for the period is less than
75%, World will be required to reimburse Savers Life in cash for 50% of the
amount by which the actual loss ratio is less than 75%. There can be no
assurance that the actual losses from the major medical product line will not
exceed 75% during this period. The actual loss ratio for this product line for
1996 was 80%. For the six months ended June 30, 1997, the loss ratio was 95%.
Savers Life will be paid $50 per month by World to administer this block of
business between July 1, 1997 and the closing date. As a result of the agreement
with World, Savers Life wrote off all remaining deferred acquisition costs
associated with the major medical product line, resulting in a $1,752 charge
against income in the second quarter of 1997. At the closing date, Savers Life
will transfer cash of $4,547 and liabilities of $4,511 to World.

(5) The selected pro forma combined statement of operations financial
data is adjusted to eliminate the results of operations for the major
medical product line to give effect to the transfer of the major medical
product line as of January 1, 1996.

Adjustments to the selected pro forma combined balance sheet financial data
to give effect to the transfer of the major medical product line as of June 30,
1997 are summarized below.

(6) Cash is decreased for the transfer of cash to World. Deferred
federal income tax liability is recorded for the transfer of the major
medical product line to World assuming a 34% tax rate.

(7) Retained earnings is reduced for the loss recorded on the transfer
of the major medical product line to World.
19
<PAGE> 32

STANDARD MANAGEMENT CORPORATION

NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (CONTINUED)

TRANSACTIONS RELATING TO THE SAVERS LIFE ACQUISITION

In the acquisition of Savers Life, holders of Savers Life Common Stock will
receive the following consideration for each share of Savers Life Common Stock
held immediately prior to the Effective Time of the Merger: (i) $1.50 in cash,
which the holder of such share of Savers Life Common Stock may elect to receive
in shares of SMC Common Stock, (ii) $6.50 in value of shares of SMC Common
Stock, the number of such shares, to be rounded to the nearest hundredth of a
share, determined by dividing $6.50 by the Average Trading Price of SMC Common
Stock for the ten consecutive trading days ending on the fifth day prior to the
earlier of the SMC Annual Meeting or the Savers Life Special Meeting. Assuming
the Average Trading Price of SMC Common Stock is $7.00, disregarding the
Performance Premium and assuming holders of Savers Life Common Stock elect to
receive $1.50 per share cash consideration in lieu of the shares of SMC Common
Stock, based on the number of shares of Savers Life Common Stock outstanding at
the close of business on August 1, 1997, SMC will pay approximately $2,670 in
cash and issue 1,652,772 shares of SMC Common Stock with a value of
approximately $11,569 to acquire the Savers Life Common Stock.

In addition, SMC is expected to incur costs relating to the acquisition of
Savers Life (including legal, accounting and other fees) of approximately $700.

The cost to acquire Savers Life will be allocated as follows:

<TABLE>
<S> <C>
Book value of net assets acquired based on an assumed
Effective Time of June 30, 1997........................... $ 13,405
Costs to be incurred by Savers Life prior to the closing.... (495)
--------
12,910
Increase (decrease) in Savers Life net asset value to
reflect estimated fair value and asset reclassifications
at the assumed Effective Time:
Fixed maturity securities available for sale.............. 14,880
Fixed maturity securities held to maturity................ (16,439)
Present value of future profits (related to
acquisition)........................................... 5,100
Deferred policy acquisition costs (historical)............ (1,444)
Goodwill (related to acquisition)......................... 632
Deferred federal income taxes............................. (700)
--------
Total estimated fair value adjustments................. 2,029
--------
Total cost to acquire Savers Life................. $ 14,939
========
</TABLE>

Adjustments to the selected pro forma combined statement of operations
financial data to give effect to acquisition of Savers Life as of January 1,
1996 are summarized below.

(8) Net investment income is increased for the investment income
earned on the amount of borrowings under the Amended Credit Agreement that
exceed the cash payment to Savers Life stockholders.

(9) Interest expense and financing costs is increased to reflect the
increase in borrowings under the Amended Credit Agreement and amortization
of deferred debt issuance costs associated with the purchase of Savers
Life.

(10) Amortization of deferred acquisition costs recorded by Savers Life
prior to the purchase has been eliminated and replaced with the
amortization of the present value of the future profits as a result of the
transaction. The amount of present value of future profits resulting from
the transaction is being amortized on a constant yield basis over the
estimated life of insurance in force at the date of acquisition in
proportion to the emergence of profits over a period of 20 years, except
for the Medicare supplement product line which is being amortized over a
period of 10 years, with interest equal to the interest rate
20
<PAGE> 33

STANDARD MANAGEMENT CORPORATION

NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (CONTINUED)

credited to the underlying policies. No future value has been assigned to
the major medical product line. Amortization of goodwill acquired in the
transaction is recognized over a 20-year period on a straight-line basis.

(11) Weighted average common and common equivalent shares outstanding
are increased to reflect the SMC Common Stock shares issued in the
acquisition of Savers Life and the issuance of SMC Common Stock warrants in
connection with the Amended Credit Agreement.

Adjustments to the selected pro forma combined balance sheet financial data
to give effect to the purchase of Savers Life as of June 30, 1997 are summarized
below.

(12) Held to maturity securities have been reclassified as available for
sale securities at the purchase consistent with the intention of new
management. Savers Life's fixed maturity securities held to maturity are
restated to estimated fair value.

(13) Notes payable are increased to reflect the increased borrowings
under the Amended Credit Agreement. The Amended Credit Agreement provides
for SMC to borrow up to $16,000 in the form of a seven-year reducing
revolving loan arrangement. Interest on the borrowings under the Amended
Credit Agreement is determined, at the option of SMC, to be: (i) a
fluctuating rate of interest to the corporate base rate announced by the
bank from time to time plus 1% per annum, or (ii) a rate at LIBOR plus
3.25%. Annual principal repayments of $2,667 begin in November 1998 and
conclude in November 2003. At December 31, 1996, SMC had borrowed $16,000
under the Amended Credit Agreement at a weighted average interest rate of
8.793%. SMC anticipates increasing borrowings by $4,000 for the acquisition
of Savers Life at an interest rate of 9%.

(14) The Savers Life historical shareholders' equity and related average
common shares outstanding is eliminated under purchase accounting.
Shareholders' equity has been increased to reflect the issuance of the SMC
Common Stock in the acquisition of Savers Life and the issuance of SMC
Common Stock warrants to Fleet Bank in connection with the Amended Credit
Agreement.
21
<PAGE> 34

COMPARATIVE PER SHARE DATA OF SMC AND SAVERS LIFE

The following table sets forth certain selected per share data for SMC and
Savers Life on historical and pro forma combined bases. The pro forma financial
data assumes that the Merger had been consummated at the beginning of the
earliest period presented and give effect to the Merger as a "purchase" under
GAAP. Book value data for all pro forma presentations is based upon the number
of outstanding shares of SMC Common Stock adjusted to include the shares of SMC
Common Stock issued in the Shelby acquisition and expected to be issued in the
Merger, assuming that the SMC Average Trading price is $7.00, disregarding the
Performance Premium amount and assuming holders of Savers Life Common Stock
elect to receive $1.50 per share cash consideration in lieu of the shares of SMC
Common Stock. Based on these assumptions and the number of shares of Savers Life
Common Stock outstanding at the close of business on August 1, 1997, holders of
Savers Life Common Stock would receive an aggregate of 1,652,772 newly issued
shares of SMC Common Stock upon consummation of the Merger. Therefore, each
share of Savers Life Common Stock would be exchanged for .9286 shares of SMC
Common Stock. The information set forth below should be read in conjunction with
the historical Consolidated Financial Statements of SMC and the Financial
Statements of Savers Life, including the notes thereto, appearing elsewhere
herein. See "SMC CONSOLIDATED FINANCIAL STATEMENTS" and "SAVERS LIFE FINANCIAL
STATEMENTS."

<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------------- -------------
<S> <C> <C>
SMC Historical:
Income per common share before extraordinary gain and
after preferred stock dividends........................ $ .24 $ .84
Cash dividends declared per common share.................. -- --
Book value per common share............................... $ 8.05 $7.95
Savers Life Historical:
Net income (loss) per common share........................ $(1.35) $(.94)
Cash dividends declared per common share.................. -- --
Book value per common share............................... $ 7.57 $8.75
SMC Unaudited Pro Forma:
Income per common share................................... $ .26(1) $ .59(1)
Cash dividends declared per common share.................. -- --
Book value per common share............................... $ 7.79(1)
Savers Life Equivalent:
Income per common share................................... $ .24(1) $ .55(1)
Cash dividends declared per common share.................. -- --
Book value per common share............................... $ 7.23(1)
</TABLE>

- -------------------------
(1) If each holder of Savers Life Common Stock were to elect to receive $1.50 in
value of shares of SMC Common Stock in lieu of cash, an aggregate of
2,034,181 shares of SMC Common Stock would be issued and the SMC unaudited
pro forma income per common share would be $.25 and $.56 for the six months
ended June 30, 1997 and year ended December 31, 1996, respectively, and book
value per common share would be $7.37 at December 31, 1996 and the Savers
Life equivalent income per common share would be $.23 and $.52 for the six
months ended June 30, 1997 and year ended December 31, 1996, respectively,
and book value per common share would be $6.84 at December 31, 1996.
22
<PAGE> 35

MARKET PRICES AND DIVIDENDS PAID

SMC Common Stock trades on Nasdaq under the symbol "SMAN." There is no
established public trading market for Savers Life Common Stock. The following
table sets forth, for the periods indicated, the range of the high and low sales
prices of SMC Common Stock as reported by Nasdaq. SMC has never paid dividends
on its Common Stock. Savers Life has not paid dividends on its Common Stock
since 1993. At the close of business on August 1, 1997 there were 206 holders of
record of the outstanding shares of SMC Common Stock. At the close of business
on August 1, 1997 there were 584 holders of record of the outstanding shares of
Savers Life Common Stock.

<TABLE>
<CAPTION>
SMC
COMMON STOCK
-------------------
HIGH LOW
---- ---
<S> <C> <C>
1995
Quarter ended March 31, 1995............................. $4.881 $2.857
Quarter ended June 30, 1995.............................. 4.881 3.571
Quarter ended September 30, 1995......................... 6.071 4.286
Quarter ended December 31, 1995.......................... 4.881 4.167
1996
Quarter ended March 31, 1996............................. 4.524 3.571
Quarter ended June 30, 1996.............................. 5.250 3.690
Quarter ended September 30, 1996......................... 5.500 4.000
Quarter ended December 31, 1996.......................... 5.375 4.000
1997
Quarter ended March 31, 1997............................. 6.250 4.875
Quarter ended June 30, 1997.............................. 6.000 4.625
Quarter ending September 30, 1997 (through September 16,
1997)................................................. [ ] [ ]
</TABLE>

Set forth below are: (i) the last reported per share sale price of SMC
Common Stock, as reported by Nasdaq, on December 20, 1996, the last trading day
ending prior to the public announcement of the execution of the Merger Agreement
and (ii) the equivalent pro forma sale price of Savers Life Common Stock:

<TABLE>
<S> <C>
SMC Common Stock............................................ $4.375
Savers Life Equivalent...................................... $8.000
</TABLE>

On September 16, 1997, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sale price of SMC Common Stock, as
reported by Nasdaq, was $[ ] per share. Stockholders are urged to obtain
current market quotations for SMC Common Stock. No assurance can be given as to
the future prices of or markets for SMC Common Stock or Savers Life Common
Stock.
23
<PAGE> 36

RISK FACTORS

In addition to the other information contained in this Proxy
Statement/Prospectus, SMC and Savers Life stockholders should consider the
following factors before voting on matters pertaining to the Merger.

INSURANCE REGULATION

SMC's insurance subsidiaries and Savers Life are subject to substantial
governmental regulation in each of the jurisdictions in which they conduct
business. Such regulation is vested in governmental agencies having broad
administrative power with respect to all aspects of SMC's and Savers Life's
insurance business, including premium rates, policy forms, dividend payments,
capital adequacy and the amount and type of investments SMC and Savers Life may
have. Such regulations are primarily intended to protect policyholders rather
than stockholders. SMC is also regulated in various states as an insurance
holding company system. Generally, under insurance company statutes, a state
insurance authority must approve in advance the direct or indirect acquisition
of 10% or more of the voting securities of an insurance company domiciled in its
state, such as is contemplated by the Merger, along with certain other
transactions. Appropriate filings with the North Carolina Insurance Department
have been made with respect to the Merger. There can be no assurance that the
required approvals of the North Carolina Insurance Department will be obtained.
See "THE MERGER -- Regulatory Approvals."

In recent years, the National Association of Insurance Commissioners (the
"NAIC") and state insurance regulators have reexamined existing laws and
regulations and their application to insurance companies. This reexamination has
focused on insurance company investment and solvency issues, risk-based capital
guidelines, assumption reinsurance, interpretations of existing laws, the
development of new laws, the interpretation of nonstatutory guidelines, the
standardization of statutory accounting rules and the circumstances under which
dividends may be paid. The NAIC has encouraged states to adopt model NAIC laws
on specific topics such as holding company regulations and the definition of
extraordinary dividends. It is not possible to predict the future impact of
changing state regulation on the operations of SMC or Savers Life.

The NAIC, as well as Indiana, Mississippi and North Carolina, has adopted
Risk-Based Capital ("RBC") requirements for life/health insurance companies to
evaluate the adequacy of statutory capital and surplus in relation to investment
and insurance risks such as asset quality, mortality and morbidity, asset and
liability matching, benefit and loss reserve adequacy, and other business
factors. The RBC formula is used by state insurance regulators as an early
warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. The RBC
guidelines are intended to be a regulatory tool only and are not intended as a
means to rank insurers generally. In addition, the formula defines minimum
capital standards that supplement the previously existing system of low fixed
minimum capital and surplus requirements on a state-by-state basis. Regulatory
compliance is determined by a ratio of the enterprise's regulatory total
adjusted capital, as defined by the NAIC, to its authorized control level RBC,
as defined by the NAIC. Enterprises below specific trigger points or ratios are
classified within certain levels, each of which requires specific corrective
action. If a company's RBC ratio is in the Company Action Level range defined as
an RBC ratio of 1.5-2, the company must submit a plan to improve its RBC ratio.
The Regulatory Action Level range defined as an RBC ratio of 1-1.5 provides that
regulators will order corrective actions. At the Authorized Control Level range
defined as an RBC ratio of 0.7-1, regulators are authorized to take control of
the company. Finally, at the Mandatory Control Level defined as ratios below
0.7, regulators must take over the company. The ratios of Total Adjusted Capital
to Authorized Control Level RBC for SMC's insurance subsidiaries were all in
excess of 4 at December 31, 1996 and 1995. However, should the insurance
subsidiaries' RBC position decline in the future, the insurance subsidiaries'
continued ability to pay dividends and the degree of regulatory supervision or
control to which they are subjected could be affected.

REINSURANCE OF MAJOR MEDICAL PRODUCT LINE

In recent periods Savers Life has been incurring substantial losses from
its major medical product line. Savers Life and World have agreed to the
transfer of the major medical product line of Savers Life to World through a
coinsurance agreement, under which World will assume, through coinsurance
effective July 1,

24
<PAGE> 37

1997, 100% of the product line. Savers Life ceased writing any new business in
this product line on June 30, 1997. At the closing, presently scheduled to occur
on or about October 1, 1997, all of the policies in this product line will be
transferred to World as direct insurance policies of World. There is no
assurance the closing will occur as scheduled. Savers Life has agreed to share
in the claims experience of this product line for the period from July 1, 1997
through the end of 1997 to the extent that the loss ratio for such period does
not equal 75%. The loss ratio is calculated by dividing incurred claims by
earned premiums. If the loss ratio for the period is greater than 75%, Savers
Life will be required to reimburse World in cash for 50% of the amount by which
the actual loss ratio exceeds 75%. If the loss ratio for the period is less than
75%, World will be required to reimburse Savers Life in cash for 50% of the
amount by which the actual loss ratio is less than 75%. There can be no
assurance that the actual losses from the major medical product line will not
exceed 75% during this period. The actual loss ratio for this product line for
1996 was 80%. For the six months ended June 30, 1997, the loss ratio was 95%.
Savers Life will be paid $50,000 per month by World to administer this block of
business between July 1, 1997 and the closing date. As a result of the agreement
with World, Savers Life wrote off all remaining deferred acquisition costs
associated with the major medical product line, resulting in a $1,752,000 charge
against income in the second quarter of 1997. At the closing date, Savers Life
will transfer cash of $4,547,000 and liabilities of $4,511,000 to World.

HOLDING COMPANY STRUCTURE; RESTRICTIONS ON PAYMENTS TO PARENT COMPANIES

As a holding company, Standard Management's ability to pay operating
expenses and meet debt service obligations if any, depends on the receipt of
sufficient funds, primarily through management fees, rental income, dividends
from its subsidiaries and interest payments on its Surplus Debentures. Subject
to the restrictions described below, Standard Management may receive dividends
from its direct subsidiaries, Standard Life, Standard Management International
and Standard Marketing. Dixie National Life is a subsidiary of Standard Life.
Accordingly, any dividends paid by Dixie National Life to Standard Life may be
paid to Standard Management only if Standard Life is entitled to pay dividends
to Standard Management.

Under Indiana insurance law, Standard Life may not enter into certain
transactions, including management agreements and service contracts, with
members of its insurance holding company system, including Standard Management,
unless Standard Life has notified the Indiana Department of Insurance of its
intention to enter into such transactions and the Indiana Department of
Insurance has not disapproved of them within the period specified by Indiana
law. Among other things, such transactions are subject to the requirement that
their terms be fair and reasonable and that the charges or fees for services
performed be reasonable.

Pursuant to the management services agreement with Standard Management,
Standard Life paid Standard Management a monthly fee of $150,000 during 1996 and
1995 for certain management services related to the production of business,
investment of assets and evaluation of acquisitions. The management service
agreement between Standard Management and Standard Life for 1997 has been
renegotiated to increase the monthly fee to $166,667 (annual fee of $2,000,000).
This amended management service agreement has been approved by the Commissioner
of the Indiana Department of Insurance. Pursuant to the management service
agreement with Standard Life, Dixie National Life paid fees of $1,524,000 for
the year ended December 31, 1996. The Mississippi Department of Insurance has
approved a decrease of the monthly payment to $83,333 (annual fee of $1,000,000)
from Dixie National Life to Standard Life in 1997.

Dividends by Standard Life to Standard Management are limited by laws
applicable to insurance companies. As an Indiana domiciled insurance company,
Standard Life may pay a dividend or distribution from its surplus profits,
without the prior approval of the Indiana Commissioner of Insurance, if the
dividend or distribution, together with all other dividends and distributions
paid within the preceding twelve months, does not exceed the greater of (i) net
gain from operations or (ii) 10% of surplus, in each case as shown in its
preceding annual statutory financial statements. Also, regulatory approval is
required when dividends to be paid exceed unassigned surplus. For the year ended
December 31, 1995, Standard Life reported statutory net gain from operations of
$124,000 and statutory surplus of $10,186,000. For the year ended December 31,
1996, Standard Life reported statutory net gain from operations of $1,427,000
and statutory surplus of $20,279,000. At December 31, 1996, unassigned surplus
was $1,140,000. Standard Life paid a dividend of $1,000,000 on

25
<PAGE> 38

May 1, 1997. Standard Life anticipates paying additional dividends of
approximately $600,000 during the remainder of 1997 and approval of the
Commissioner of the Indiana Department of Insurance will be required.

From the funds borrowed by Standard Management pursuant to the Amended
Credit Agreement and the subordinated convertible debt agreement, $13,000,000
was loaned to Standard Life pursuant to an Unsecured Surplus Debenture Agreement
("Surplus Debenture") which requires Standard Life to make quarterly interest
payments to Standard Management at a variable corporate base rate plus 2% per
annum, and annual principal payments of $1,000,000 per year beginning in 2007
and concluding in 2019. The interest and principal payments are subject to
quarterly approval by the Indiana Department of Insurance, depending upon
satisfaction of certain financial tests relating to levels of Standard Life's
capital and surplus and general approval of the Commissioner of the Indiana
Department of Insurance. Standard Management currently anticipates these
quarterly approvals will be granted. Assuming the approvals are granted and the
June 30, 1997 interest rate of 10.50% continues for the remainder of 1997,
Standard Management will receive interest income of $1,357,000 from the Surplus
Debenture for 1997.

The Indiana insurance laws and regulations require that the statutory
surplus of Standard Life following any dividend or distribution be reasonable in
relation to its outstanding liabilities and adequate to its financial needs. The
Indiana Department of Insurance may bring an action to enjoin or rescind the
payment of a dividend or distribution by Standard Life that would cause its
statutory surplus to be unreasonable or inadequate under this standard.

NO ASSURANCE BUSINESSES CAN BE COMBINED SUCCESSFULLY

SMC's immediate plan for the operation of Savers Life after the Merger is
to reduce Savers Life's marketing and operational expenses by consolidating
services and administration. Such consolidation is expected to result in nominal
cost savings. Notwithstanding the present intention of SMC to integrate certain
aspects of the Savers Life business with SMC operations, SMC intends to continue
to market the existing life insurance and annuity product lines of SMC and
Savers Life through their respective distribution channels. The process of
consolidating services and administration could cause the interruption of, or a
loss of momentum in, the activities of either or both of the companies'
businesses, which could have a materially adverse effect on their combined
operations, at least in the near term. The transition necessary to effect such
consolidation will require significant attention from management. The diversion
of management attention and any difficulties encountered in the transition
process could have a materially adverse impact on the revenues and operating
results of the combined company. If the Merger is not consummated, SMC's net
income in 1997 is expected to be impacted due to costs associated with the
Merger, including an estimated $550,000 to $700,000 in legal and accounting
fees, printing and mailing costs and filing fees, which costs will be incurred
even if the Merger is not consummated.

NUMBER OF SHARES OF SMC COMMON STOCK TO BE ISSUED IS UNCERTAIN

The actual number of shares of SMC Common Stock issued in the Merger to
holders of Savers Life Common Stock in connection with the Merger will vary
depending upon the Average Trading Price of SMC Common Stock, the extent to
which stockholders of Savers Life elect to receive SMC Common Stock in lieu of
cash for the $1.50 portion of the merger consideration and the amount of any
Performance Premium. There is no limitation on the number of shares of SMC
Common Stock issuable in the Merger. Based upon a $7.00 closing price of SMC
Common Stock, 1,652,772 shares of SMC Common Stock would be issuable in the
Merger assuming Savers Life stockholders elect to take the entire $1.50 in cash
and disregarding the Performance Premium. In the event that Savers Life
stockholders elect to take the entire $1.50 in shares of SMC Common Stock, the
number of shares of SMC Common Stock issuable in the Merger would be 2,034,181.
See "SUMMARY -- The Merger Agreement" for the effect of changes in the Average
Trading Price of SMC Common Stock and cash election on the number of shares of
SMC Common Stock issuable in the Merger and the percentage of SMC Common Stock
that would be held by stockholders of Savers Life. There can be no assurance
that any Performance Premium will be earned; however, for a table illustrating a
range of number of shares which may be issued if a Performance Premium is
earned, see "THE MERGER AGREEMENT -- Performance Premium."

26
<PAGE> 39

DILUTION OF SMC BOOK VALUE

The issuance of SMC Common Stock in the Merger would decrease the book
value of SMC Common Stock from $8.05 per share at June 30, 1997 to $7.79 per
share assuming that 1,779,908 shares of Savers Life Common Stock are outstanding
at the Effective Time, assuming that the Average Trading Price of SMC Common
Stock is $7.00 per share, disregarding the Performance Premium and assuming
holders of Savers Life Common Stock elect to receive $1.50 per share cash
consideration in lieu of shares of SMC Common Stock. Any SMC Common Stock issued
in connection with the Performance Premium could result in further dilution.

POSSIBILITY OF FUTURE DILUTION OF OWNERSHIP AND VOTING POWER

The SMC Board has the authority, without stockholder approval except where
otherwise required for a particular transaction, to issue up to 1,000,000
additional shares of preferred stock, without par value ("SMC Preferred Stock"),
of SMC and 15,129,760 additional shares of SMC Common Stock, less any shares
issued in connection with the Merger, including the issuance of SMC Common Stock
in payment of any Performance Premium, which if issued would dilute the
ownership percentage and the voting power of the currently outstanding shares of
SMC Common Stock. SMC regularly investigates acquisition opportunities in the
life insurance industry and could issue additional shares of SMC Common Stock or
SMC Preferred Stock in connection with such an acquisition. At the present time,
SMC has no arrangements or understandings with respect to any such acquisition
other than the Merger. The existence of authorized but unissued capital stock
may also have the effect of making more difficult or discouraging an acquisition
of SMC deemed undesirable by the SMC Board, as additional shares of capital
stock could be issued to dilute the stock ownership and voting power, or
increase the cost to, a party seeking to acquire SMC.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of Indiana law and the Articles of Incorporation and
Bylaws of SMC may delay, deter or prevent a change in control of SMC. Under
Indiana law, directors may, in considering the best interests of a corporation,
consider the effects of any action on stockholders, employees, suppliers and
customers of the corporation and communities in which offices or other
facilities of the corporation are located, and any other factors the directors
consider pertinent. In addition, Indiana law prohibits business combinations
involving SMC and any holder of 10% or more of its voting stock unless such a
combination is (i) approved by the SMC Board or (ii) (a) five years have passed
since the acquisition of the shares, (b) all requirements of the Articles of
Incorporation relating to business combinations are satisfied and (c) either (1)
holders of a majority of shares of SMC Common Stock approve the business
combination or (2) all stockholders are paid fair value for their stock.
Finally, Indiana law provides that when a business such as SMC that is
incorporated in Indiana and has its principal office in Indiana has 20%
ownership by Indiana residents any acquisition which gives the acquiror at least
20% of the corporation's voting stock triggers a stockholder approval mechanism.
Without stockholder approval, the acquiror of such shares will not have voting
rights.

In addition to the anti-takeover provisions of Indiana law there are other
factors that may delay, deter or prevent a change in control of SMC. The
insurance laws and regulations of the jurisdictions within which SMC's insurance
subsidiaries do business may impede or delay a business combination involving
SMC as such a transaction may have to be approved by the appropriate regulatory
agency of one or more such states. Also, the SMC Board has the power to amend
the Bylaws of SMC and to determine the number of directors. These powers, in
addition to the existence of authorized but unissued capital stock as described
above under "Possibility of Future Dilution of Ownership and Voting Power" and a
classified Board of Directors, may have the effect, either alone or in
combination with each other, of making more difficult or discouraging an
acquisition of SMC deemed undesirable by the SMC Board.

FUTURE SALES AND PRICE OF SMC COMMON STOCK

No prediction can be made as to the effect, if any, that future sales of
SMC Common Stock, or the availability of shares for future sale, will have on
the market price of the SMC Common Stock prevailing from

27
<PAGE> 40

time to time. Sales of substantial amounts of SMC Common Stock (including shares
issued upon the exercise of stock options or warrants), or the perception that
such sales may occur, could adversely affect prevailing market prices for the
SMC Common Stock. Since the initial public offering of SMC Common Stock in
February, 1993, there has been significant volatility in the market for SMC
Common Stock. Such volatility may continue or increase from time to time
following the Merger.

AVERAGE TRADING PRICE MAY VARY

The number of shares of SMC Common Stock issuable to holders of Savers Life
Common Stock will depend on the Average Trading Price of SMC Common Stock for
the ten consecutive trading days ending on the fifth day prior to the earlier of
the SMC Annual Meeting or the Savers Life Special Meeting. The price of SMC
Common Stock at the Effective Time can be expected to vary from such Average
Trading Price as well as from the price as of the date of this Proxy
Statement/Prospectus and the dates of the SMC Annual Meeting and the Savers Life
Special Meeting due to changes in the business, operations or prospects of SMC,
market assessments of the likelihood that the Merger will be consummated and the
time thereof, general market and economic considerations and other factors.

SMC ANNUAL MEETING

DATE, PLACE AND TIME

The SMC Annual Meeting will be held on Wednesday, October 22, 1997 at 9:30
a.m., local time, at the Woodland Country Club, 100 Woodland Lane, Carmel,
Indiana.

PURPOSE

At the SMC Annual Meeting, holders of SMC Common Stock will be asked to
consider and act upon proposals to: (i) approve the Common Stock Issuance, (ii)
elect directors, (iii) approve the Stock Option Plan Amendment and (iv) ratify
the appointment of SMC's principal independent auditors and to transact such
other business as may properly come before the SMC Annual Meeting. CONSUMMATION
OF THE MERGER IS NOT CONTINGENT UPON THE APPROVAL OF ANY PROPOSAL TO BE
CONSIDERED AT THE SMC ANNUAL MEETING OTHER THAN THE PROPOSAL TO APPROVE THE
COMMON STOCK ISSUANCE.

The SMC Board has unanimously determined that the Merger and the Common
Stock Issuance are advisable and fair to and in the best interests of SMC and
its stockholders and has unanimously approved the Merger Agreement and the
transactions contemplated thereby. THE SMC BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF SMC VOTE IN FAVOR OF APPROVAL OF THE COMMON STOCK ISSUANCE AT
THE SMC ANNUAL MEETING. See "THE MERGER -- SMC's Reasons for the Merger;
Recommendation of its Board of Directors."

THE SMC BOARD HAS ALSO UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE FOR: EACH
PERSON NOMINATED BY THE SMC BOARD TO SERVE AS A MEMBER OF THE SMC BOARD, THE
STOCK OPTION PLAN AMENDMENT AND RATIFICATION OF THE APPOINTMENT OF SMC'S
PRINCIPAL INDEPENDENT AUDITORS.

RECORD DATE; VOTING RIGHTS

Only holders of record of SMC Common Stock at the close of business on the
SMC Record Date, August 22, 1997, are entitled to receive notice of and to vote
at the SMC Annual Meeting. At the close of business on August 1, 1997, there
were 4,870,240 shares of SMC Common Stock outstanding, each of which entitles
the registered holder thereof to one vote on each matter voted upon at the SMC
Annual Meeting. SMC Stockholders do not have the right to cumulate votes in the
election of directors.

QUORUM

The holders of a majority of shares of SMC Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the SMC
Annual Meeting in order for a quorum to be present.

28
<PAGE> 41

Shares of SMC Common Stock represented by proxies which are marked
"abstain" as to one or more particular matters will be counted as shares present
for purposes of determining the presence of a quorum on all matters, as will
shares that are represented by proxies that are executed by any broker,
fiduciary or other nominee on behalf of the beneficial owner(s) thereof
regardless of whether authority to vote is withheld by such broker, fiduciary or
nominee on one or more matters.

In the event that a quorum is not present at the SMC Annual Meeting, it is
expected that such meeting will be adjourned or postponed to allow for the
solicitation of additional proxies.

PROXIES

All shares of SMC Common Stock which are represented by properly executed
proxies received by SMC prior to or at the SMC Annual Meeting and not revoked
will be voted at the SMC Annual Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such shares will be
voted FOR: the Common Stock Issuance, each person nominated by the SMC Board to
serve as a member of the SMC Board, the Stock Option Plan Amendment and
ratification of the appointment of SMC's principal independent auditors. The SMC
Board does not know of any other matters which are to be brought before the SMC
Annual Meeting. If any other matters are properly presented at the SMC Annual
Meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.

An SMC stockholder who has given a proxy may revoke it at any time prior to
its exercise by filing a written notice of such revocation with the Secretary of
SMC at or prior to the SMC Annual Meeting, by delivering to SMC a duly executed
later dated proxy, or by attending the SMC Annual Meeting and voting in person
(although attendance at the SMC Annual Meeting will not in and of itself
constitute a revocation of a proxy). All written notices of revocation and other
communications with respect to revocation of proxies in connection with the SMC
Annual Meeting should be addressed to Standard Management Corporation, 9100
Keystone Crossing, Indianapolis, Indiana 46240, Attention: Stephen M. Coons,
Secretary.

A registered holder of SMC Common Stock may submit a proxy or revoke a
proxy by facsimile transmission sent to (201) 296-4142. In order to be
effective, each proxy or revocation submitted by facsimile transmission must
clearly indicate the date of the proxy or revocation, voting instructions, the
number of shares covered by such proxy or revocation and the printed or typed
name of the registered holder of the shares of SMC Common Stock to which such
proxy or revocation relates. Such proxy or revocation must also be duly executed
by the registered holder of the shares of SMC Common Stock to which such proxy
or revocation relates. Any proxy or revocation submitted by facsimile
transmission not containing such information may be invalidated if it does not
match the stock records of SMC. If an SMC stockholder's shares are registered in
the name of a broker, bank, nominee or other institution, only such broker,
bank, nominee or other institution is entitled to vote such shares. Such SMC
stockholders should contact their account representative and ask him or her to
vote such shares.

SOLICITATION OF PROXIES

Proxies are being solicited hereby on behalf of the SMC Board. All expenses
incurred in connection with the solicitation of proxies by and on behalf of the
SMC Board will be borne by SMC. In addition to the use of the mails, proxies may
be solicited personally or by telephone by directors, officers and employees of
SMC who will not be additionally compensated therefor, but may be reimbursed for
their out-of-pocket expenses incurred in connection with such solicitation.
Further, SMC may contract with outside solicitors. SMC will also arrange with
brokerage houses and other custodians, nominees and fiduciaries for forwarding
solicitation materials to the beneficial owners of shares held of record by such
persons. SMC will reimburse such persons for their reasonable out-of-pocket
expenses incurred in connection therewith.

REQUIRED VOTE

Approval of each of the Common Stock Issuance, the Stock Option Plan
Amendment and ratification of the appointment of SMC's principal independent
auditors requires the affirmative vote of a majority of the

29
<PAGE> 42

votes cast thereon at the SMC Annual Meeting. Directors are elected by a
plurality of votes cast. CONSUMMATION OF THE MERGER IS NOT CONTINGENT UPON THE
APPROVAL OF ANY PROPOSAL TO BE CONSIDERED AT THE SMC ANNUAL MEETING OTHER THAN
THE PROPOSAL TO APPROVE THE COMMON STOCK ISSUANCE.

Abstentions and votes which are not cast because the nominee-broker either
lacks or fails to exercise discretionary authority with respect to the Common
Stock Issuance, the Stock Option Plan Amendment or the proposal to ratify the
appointment of SMC's principal independent auditors will be excluded when
determining the number of votes cast thereon.

At the close of business on August 1, 1997, Directors and executive
officers of SMC and their affiliates were the beneficial owners of an aggregate
of 1,167,208 (approximately 24.0%) of the shares of SMC Common Stock then
outstanding. SMC expects that all such shares will be voted in favor of the
Common Stock Issuance, the Stock Option Plan Amendment, ratification of the
appointment of SMC's principal independent auditors and for each person
nominated by the SMC Board to serve as a member of the SMC Board.

DISSENTERS' RIGHTS

Holders of SMC Common Stock do not have dissenters' rights with respect to
the Merger, the Common Stock Issuance or any other matter to be presented at the
SMC Annual Meeting.

SAVERS LIFE SPECIAL MEETING

DATE, PLACE AND TIME

The Savers Life Special Meeting will be held on Wednesday, October 22, 1997
at 11:00 a.m., local time, at the Graylyn International Conference Center, 1900
Reynolda Road, Winston-Salem, North Carolina.

PURPOSE

At the Savers Life Special Meeting, holders of Savers Life Common Stock
will consider and vote upon a proposal to approve the Merger Agreement and to
transact such other business as may properly come before the Savers Life Special
Meeting.

The Savers Life Board has unanimously determined that the Merger is fair,
equitable and in the best interests of Savers Life and its stockholders and has
unanimously approved the Merger Agreement. THE SAVERS LIFE BOARD UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF SAVERS LIFE VOTE IN FAVOR OF APPROVAL OF THE
MERGER AGREEMENT AT THE SAVERS LIFE SPECIAL MEETING. See "THE MERGER -- Savers
Life's Reasons for the Merger; Recommendation of its Board of Directors."

RECORD DATE; VOTING RIGHTS

Only holders of record of Savers Life Common Stock at the close of business
on the Savers Life Record Date, August 22, 1997, are entitled to receive notice
of and to vote at the Savers Life Special Meeting. At the close of business on
August 1, 1997, there were 1,779,908 shares of Savers Life Common Stock
outstanding, each of which entitles the registered holder thereof to one vote on
each matter voted upon at the Savers Life Special Meeting.

QUORUM

The holders of a majority of shares of Savers Life Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
Savers Life Special Meeting in order for a quorum to be present.

Shares of Savers Life Common Stock represented by proxies which are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other nominee on behalf of
the beneficial

30
<PAGE> 43

owner(s) thereof regardless of whether authority to vote is withheld by such
broker, fiduciary or nominee on one or more matters.

In the event that a quorum is not present at the Savers Life Special
Meeting, it is expected that such meeting will be adjourned or postponed to
allow for the solicitation of additional proxies.

PROXIES

All shares of Savers Life Common Stock which are represented by properly
executed proxies received by Savers Life prior to or at the Savers Life Special
Meeting and not revoked will be voted at the Savers Life Special Meeting in
accordance with the instructions indicated in such proxies. If no instructions
are indicated such shares will be voted FOR approval of the Merger Agreement.
The Savers Life Board does not know of any other matters to be brought before
the Savers Life Special Meeting. If any other matters are properly presented at
the Savers Life Special Meeting for action, the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment.

A Savers Life stockholder who has given a proxy may revoke it at any time
prior to its exercise by filing a written notice of such revocation with the
Secretary of Savers Life at or prior to the Savers Life Special Meeting, by
delivering to Savers Life a duly executed later dated proxy or by attending the
Savers Life Special Meeting and voting in person (although attendance at the
Savers Life Special Meeting will not in and of itself constitute a revocation of
a proxy). All written notices of revocation and other communications with
respect to revocation of proxies in connection with the Savers Life Special
Meeting should be addressed to Savers Life Insurance Company, 8064 North Point
Boulevard, Winston-Salem, North Carolina 27106, Attention: Patricia G. Landy,
Secretary.

A registered holder of Savers Life Common Stock may submit a proxy or
revoke a proxy by facsimile transmission sent to (910) 759-3999. In order to be
effective, each proxy or revocation submitted by facsimile transmission must
clearly indicate the date of the proxy or revocation, voting instructions, the
number of shares covered by such proxy or revocation and the printed or typed
name of the registered holder of the shares of Savers Life Common Stock to which
such proxy or revocation relates. Such proxy or revocation must also be duly
executed by the registered holder of the shares of Savers Life Common Stock to
which such proxy or revocation relates. Any proxy or revocation submitted by
facsimile transmission not containing such information may be invalidated if it
does not match the stock records of Savers Life. If a Savers Life stockholder's
shares are registered in the name of a broker, bank, nominee or other
institution, only such broker, bank, nominee or other institution is entitled to
vote such shares. Such Savers Life stockholders should contact their account
representative and ask him or her to vote such shares.

Stockholders desiring to know the exchange ratio to be used for determining
the number of shares of SMC Common Stock to be received for each share of Savers
Life Common Stock as a result of the Merger may call 1-800-642-0483, extension
112, after October 17, 1997.

SOLICITATION OF PROXIES

Proxies are being solicited hereby on behalf of the Savers Life Board. All
expenses incurred in connection with the solicitation of proxies by and on
behalf of the Savers Life Board will be borne by Savers Life. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of Savers Life who will not be additionally
compensated therefor, but may be reimbursed for their out-of-pocket expenses
incurred in connection with such solicitation. Further, Savers Life may contract
with outside solicitors. Savers Life will also arrange with brokerage houses and
other custodians, nominees and fiduciaries for forwarding solicitation materials
to the beneficial owners of shares held of record by such persons. Savers Life
will reimburse such persons for their reasonable out-of-pocket expenses incurred
in connection therewith.

REQUIRED VOTE

Approval of the Merger Agreement will require the affirmative vote of the
holders of a majority of the shares of Savers Life Common Stock outstanding on
the Savers Life Record Date.

31
<PAGE> 44

Abstentions and votes which are not cast because the nominee-broker either
lacks or fails to exercise discretionary authority with respect to the proposal
to approve the Merger Agreement will have the effect of votes against such
proposal.

Persons who have the power to vote 541,045 shares of Savers Life Common
Stock outstanding at the close of business on August 1, 1997 (approximately
30.4% of the shares of Savers Life Common Stock then outstanding) have signed
agreements obligating them to vote in favor of the Merger Agreement and against
certain other action. See "VOTING AGREEMENTS."

At the close of business on August 1, 1997, Directors and executive
officers of Savers Life and their affiliates were the beneficial owners of an
aggregate of 550,865 (approximately 31.0%) of the shares of Savers Life Common
Stock then outstanding. Such shares include the shares subject to the voting
agreements described above. Savers Life expects that all such shares will be
voted in favor of approval of the Merger Agreement.

DISSENTERS' RIGHTS

Holders of Savers Life Common Stock have the right to dissent from the
Merger and to receive payment of the fair value of their shares upon full
compliance with Sections 55-13-01 through 55-13-31 of the NCBCA. A copy of those
Sections of the NCBCA is attached hereto as Annex B. If holders of more than 5%
of the shares of Savers Life Common Stock outstanding immediately prior to the
Effective Time properly exercise dissenters' rights, SMC will have the right to
decline to consummate the Merger. A vote in favor of the Merger proposal
precludes the exercise of dissenters' rights; an abstention, a failure to vote
or a vote against the Merger proposal neither waives the right to dissent nor
constitutes notice of intent to exercise dissenters' rights. See "DISSENTERS'
RIGHTS" and "THE MERGER AGREEMENT -- Conditions Precedent to the Merger."

PARTIES TO THE MERGER AGREEMENT

SMC

SMC is an insurance holding company, which directly and through its
subsidiaries acquires and manages in force life insurance and annuity business
and distributes life insurance and annuity products issued by its subsidiaries
and a select group of unaffiliated insurers. SMC is an Indiana corporation, its
principal executive offices are located at 9100 Keystone Crossing, Indianapolis,
Indiana 46240, and its telephone number is (317) 574-6200. SMC's active
subsidiaries include: (i) Standard Life and its subsidiary, Dixie National Life,
(ii) Standard Management International and its subsidiaries, Premier Life
(Luxembourg) and Premier Life (Bermuda), and (iii) Standard Marketing. For
further information concerning SMC, see "ADDITIONAL INFORMATION REGARDING SMC,"
"SMC CONSOLIDATED FINANCIAL STATEMENTS," "AVAILABLE INFORMATION" and
"INCORPORATION OF DOCUMENTS BY REFERENCE."

SAVERS LIFE

Savers Life is a North Carolina domestic stock insurance company licensed
to write life and accident and health insurance. Savers Life's principal
products are annuities, Medicare supplement insurance and major medical
insurance. Savers Life also sells term life insurance, whole life insurance,
annuities issued by another company and sells and administers group health plan
products for an HMO. Savers Life's principal executive offices are located at
8064 North Point Boulevard, Winston-Salem, North Carolina 27106, and its
telephone number is (910) 759-3888. For further information concerning Savers
Life, see "ADDITIONAL INFORMATION REGARDING SAVERS LIFE" and "SAVERS LIFE
FINANCIAL STATEMENTS."

SAC

SAC was incorporated in North Carolina on December 12, 1996 solely for the
purpose of consummating the Merger and the other transactions contemplated by
the Merger Agreement. SAC has minimal assets and no business and has carried on
no activities which are not directly related to its formation and its execution
of the Merger Agreement. Its principal executive offices are located at 9100
Keystone Crossing, Indianapolis, Indiana 46240, and its telephone number is
(317) 574-6200.

32
<PAGE> 45

THE MERGER

The description of the Merger and the Merger Agreement contained in this
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a conformed copy of which is
attached hereto as Annex A and incorporated herein by reference.

GENERAL

At the Effective Time of the Merger, SAC will be merged with and into
Savers Life, with Savers Life continuing as the Surviving Corporation and a
wholly-owned subsidiary of SMC. As a result of the Merger, the separate
corporate existence of SAC will cease, and Savers Life will succeed to all the
rights and be responsible for all the obligations of SAC in accordance with the
NCBCA.

Subject to the terms and conditions of the Merger Agreement, holders of
Savers Life Common Stock will receive the following consideration for each share
of Savers Life Common Stock held immediately prior to the Effective Time of the
Merger: (i) $1.50 in cash, which the holder of such share of Savers Life Common
Stock may elect to receive in shares of SMC Common Stock, (ii) $6.50 in value of
shares of SMC Common Stock, the number of such shares, to be rounded to the
nearest hundredth of a share, determined by dividing $6.50 by the Average
Trading Price of SMC Common Stock for the ten consecutive trading days ending on
the fifth day prior to the earlier of the SMC Annual Meeting or the Savers Life
Special Meeting, plus (iii) the right to receive the Performance Premium, if
any. Cash will be paid in lieu of any fractional share of SMC Common Stock.

Notwithstanding the foregoing, holders of Savers Life Common Stock have the
right to dissent from the Merger and to receive payment of the fair value of
their stock upon full compliance with Sections 55-13-01 through 55-13-31 of the
NCBCA. If holders of more than 5% of the shares of Savers Life Common Stock
outstanding immediately prior to the Effective Time properly exercise
dissenters' rights, SMC will have the right to decline to consummate the Merger.
A vote in favor of the Merger proposal precludes the exercise of dissenters'
rights; an abstention, a failure to vote or a vote against the Merger proposal
neither waives the right to dissent nor constitutes notice of intent to exercise
dissenters' rights. See "THE MERGER AGREEMENT -- Conversion of Shares in the
Merger," "-- Performance Premium," "-- No Fractional Shares," "-- Adjustment of
Conversion Number," "-- Conditions Precedent to the Merger" and "DISSENTERS'
RIGHTS."

The Merger will become effective on the date of filing of Articles of
Merger, or such later date, not to be more than 90 days after the date the
Articles of Merger are filed, as may be specified in the Articles of Merger,
with the Secretary of State of the State of North Carolina, which is anticipated
to occur promptly after the approval of the Merger Agreement by the stockholders
of SMC and of Savers Life and following the satisfaction or waiver of the
conditions to the obligations of each of the parties to the Merger Agreement.
See "THE MERGER AGREEMENT -- Conditions Precedent to the Merger."

BACKGROUND OF THE MERGER

In 1994, Savers Life began to realize the need for additional capital to
support the additional business it was writing. Capital requirements applied to
Savers Life by the insurance regulators in Florida began to restrict the amount
of new Medicare supplement business that Savers Life could write in that state.
Statutes in Florida require premium writings to capital and surplus ratios to be
no greater than four to one (4:1). In 1994,

33
<PAGE> 46

Savers Life's ratio was 6.12:1 and at December 31, 1996 it was 7.78:1. Savers
Life was in compliance with capital and surplus requirements in the other states
in which it does business at December 31, 1996.

The Savers Life Board considered the alternatives of merging Savers Life
with another corporation, selling one or more lines of Savers Life's business,
raising additional capital through the sale of preferred stock or debt or
selling additional shares of Savers Life Common Stock to institutional
investors. In November of 1994, Savers Life entered into an agreement with Daiwa
Securities America, Inc. ("Daiwa"), to seek $10,000,000 additional capital for
Savers Life or to find a merger partner. The contract with Daiwa provided for a
fee to Daiwa if Savers Life should enter into a merger agreement with a third
party not identified by Daiwa during the term of the Daiwa Agreement. The fee
was to be based upon the value of the transaction. The proposed Merger would
have required a fee of $750,000. Savers Life and Daiwa have negotiated a
reduction in that fee. Accordingly, although Daiwa did not play a role in the
identification of SMC as a potential merger candidate or the negotiation of the
Merger Agreement, it will receive a fee of $256,500 upon consummation of the
Merger. Savers Life sought out several opportunities for a merger of Savers Life
with other parties, but none proceeded to a definitive agreement.

At the August 16, 1996, meeting of the Savers Life Board, management
reported that there were some preliminary expressions of interest in acquiring
the stock of Savers Life. The board also discussed the possibility of selling
the major medical block of business to raise capital and to alleviate the
pressure on the risk-to-capital ratio requirements of the states in which Savers
Life does business. The board authorized management to pursue the possibilities.

The initial contact between Savers Life and SMC occurred through a
telephone call from Robert Neal, former President of Dixie National Life, to
Jerry D. Stoltz, Sr., President of Savers Life, in July of 1996. Mr. Neal then
visited with Mr. Stoltz and Jerry Francis, Senior Vice-President of Savers Life,
in Winston-Salem, North Carolina, on August 14, 1996. Mr. Stoltz and Mr. Francis
gave Mr. Neal a brief history of Savers Life. Mr. Neal did the same regarding
Dixie National Life and its parent, SMC. A brief discussion followed regarding
Savers Life's product lines and the geographic distribution of the marketing
force. Mr. Neal was advised that there were other interested parties and that
there would be interest in discussing the possibilities between the two
companies. Mr. Neal said that he would speak with Mr. Hunter and discuss future
interest.

After several telephone conversations with Ronald D. Hunter, CEO of SMC,
Mr. Stoltz traveled to Indianapolis on September 5, 1996, and met with Mr.
Hunter and Mr. Edward T. Stahl that night and Mr. Hunter, Mr. Stahl, Raymond J.
Ohlson, John J. Quinn and Gerald R. Hochgesang the following day. There ensued a
number of telephone conversations between Mr. Stoltz and Mr. Hunter regarding
SMC's possible interest in Savers Life, and the two exchanged general
information regarding the business and financial performance of the respective
companies. Discussions also included potential marketing synergies between SMC
and Savers Life. SMC indicated an interest in acquiring Savers Life and
presented its preliminary thoughts on a proposal in time for a meeting of the
Savers Life Board on September 18, 1996. Although there was no formal proposal,
the concept that SMC put forth was $2.00 cash per share of Savers Life Common
Stock and 2,000,000 shares of SMC Common Stock (the equivalent of $7.00 per
share based upon there being 1,800,000 shares of Savers Life Common Stock
outstanding and an assumed price of SMC Common Stock of $5.00 per share).

At a special meeting of the Savers Life Board held on September 18, 1996,
management presented outlines of preliminary proposals from three interested
parties, including SMC, none of whom were identified to Savers Life by Daiwa.
The preliminary proposals were not in definitive form, and the board sought more
information before proceeding further. At the meeting, the board appointed a
special committee (the "Special Committee"), comprised of three nonemployee
directors, Theo H. Pitt, Jr., William G. White, Jr., and H. Joe King, Jr., to
review any proposals that might be presented and to advise the Savers Life Board
on its recommendations.

The Special Committee met following adjournment of the September 18, 1996
Savers Life Board meeting, and determined that all parties that had expressed
interest in Savers Life be notified of the appointment of the Special Committee
and be further notified that, if they desired to present a proposal, they

34
<PAGE> 47

should do so promptly. Savers Life notified the parties that had shown interest
and requested written proposals to be submitted by the close of business on
October 4, 1996. At the October 4, 1996, date, Savers Life was discussing
possible proposals with several parties, including SMC, but not all of them had
submitted proposals that the Special Committee could consider and evaluate. The
information received from parties expressing interest ranged from telephone
calls promising a proposal to a written proposal, subject to due diligence and
adjustments.

SMC submitted a written proposal, dated October 1, 1996, offering
$3,600,000 in cash and 2,000,000 shares of SMC Common Stock for the Savers Life
Common Stock, based upon there being 1,800,000 shares of Savers Life Common
Stock issued and outstanding. The offer included a performance premium based
upon earnings for 1997 and 1998. The offer provided that existing stock options
would be converted into options to purchase not more than 100,000 shares of SMC
Common Stock, except for the options held by an individual, which options would
be purchased for cash. In addition to other terms, the proposal included a
topping fee of $500,000 payable by Savers Life should it accept a higher bid
from another party and a walk-away fee of the same amount payable by Savers Life
should the transaction not close for any reason other than lack of regulatory
approval. This proposal provided that it would expire on October 14, 1996, if
not accepted by that date. Mr. Stoltz continued telephone discussions with Mr.
Hunter between the time of receipt of the October 1 proposal and October 15,
1996, with such discussions focusing primarily on price issues.

The Special Committee met again on October 15, 1996, to review the
information and the three proposals that had been received. The Special
Committee determined that the proposal made by Pioneer Financial Services, Inc.
to acquire Savers Life for cash, $9,000,000 at closing on December 31, 1996, and
$9,000,000 at December 31, 1997, subject to adjustment downward, was not
adequate, because Pioneer Financial Services, Inc. would have the right to
determine reserve levels. The Special Committee determined that the proposal
made by American Holding Corporation to acquire all outstanding stock and stock
options issued by Savers Life for cash of between $17,500,000 and $19,000,000
(transaction costs to be deducted from the purchase price) was too indefinite,
and the Special Committee instructed management to request additional
information regarding the proposing company and its principals, including
evidence of its ability to produce the cash informally proposed. Despite
repeated requests for it, the additional information was never provided. The SMC
proposal of October 1 for a combination of $2.00 in cash and shares of SMC
Common Stock to be exchanged for each share of Savers Life Common Stock remained
informally open for discussion. The Special Committee instructed management to
continue negotiations.

Following the October 15, 1996, meeting of the Special Committee, Savers
Life invited the parties expressing interest in acquiring Savers Life, including
SMC, to visit the offices of Savers Life to conduct such due diligence as they
might wish in order to permit them to make a proposal to the Savers Life Board
for consideration. Several interested parties, including SMC, sought additional
information. Following the exchange of pertinent financial and marketing
information, representatives of SMC visited the Savers Life offices in
Winston-Salem on October 22, 1996, and Stephen M. Coons, SMC's General Counsel,
visited the Savers Life offices on October 24, 1996.

Between October 16, 1996 and November 11, 1996, management of Savers Life
continued discussions and negotiations with SMC management. These discussions
included the minimum statutory capital and surplus to be required of Savers Life
at the Effective Time of the Merger, the method to determine the Average Trading
Price of SMC Common Stock, the form of lock-up agreements to be executed by
certain holders of Savers Common Stock and its directors, and the maximum
percentage of holders of Savers Life Common Stock demanding dissenters' rights.
Further discussions were held between the management of Savers Life and SMC on
almost a daily basis to complete the due diligence review of Savers Life.
Several draft proposals were circulated between the management of Savers Life
and SMC resulting in a formal proposal dated November 11, 1996, by SMC to
acquire Savers Life.

SMC regularly investigates acquisition opportunities that complement or are
otherwise strategically consistent with its existing business. After conducting
due diligence with respect to Savers Life and talking with representatives of
Savers Life, SMC determined that the acquisition of Savers Life was consistent
with the marketing goals of SMC in that it would give SMC the opportunity to
expand financial institutional

35
<PAGE> 48

marketing of annuities through the existing distribution system of Savers Life.
SMC also concluded that Savers Life's product in the Medicare supplement market
would afford SMC the opportunity to expand its marketing of products to the
growing retirement market. SMC's management believed that the acquisition of
Savers Life would assist SMC's expansion of its marketing in North Carolina, one
of the faster growing retiree markets in the United States, as well as in South
Carolina and Virginia. The management of SMC determined that these factors made
it desirable to make a formal proposal to acquire Savers Life.

In considering whether to make a formal proposal, SMC had to take into
account the terms of its currently outstanding debt. In accordance with its
Amended Credit Agreement with Fleet Bank and a subordinated convertible debt
agreement with Great American Reserve Insurance Company, SMC may not acquire
another company by merger or purchase of substantially all of such company's
assets without the prior written consent of Fleet Bank and Great American
Reserve Insurance Company. SMC received the written consent of Great American
Reserve Insurance Company on May 12, 1997. SMC received a commitment letter from
Fleet Bank on April 7, 1997, for an increase in its line of credit from
$16,000,000 to $20,000,000 for the purchase of Savers Life and indicated Fleet
Bank's consent to the Merger.

The Savers Life Board met on November 13, 1996. The only active proposal
received by that date was the November 11, 1996, SMC proposal. The SMC proposal
was for the price of $14,240,000, consisting of a combination of $3,551,806 in
cash (based upon $2.00 per issued and outstanding share of Savers Life Common
Stock) and $10,688,194 in value of shares of SMC Common Stock (the equivalent of
$6.00 per issued and outstanding share of Savers Life Common Stock), plus a
performance premium that would depend upon profitability of Savers Life after
the transaction in 1997 and 1998. The Special Committee determined that the
proposal from SMC had merit, subject to further negotiations regarding the value
of the transaction, the ability of a Savers Life stockholder to elect to take
all SMC Common Stock and the manner in which outstanding stock options would be
treated, and subject to the condition that the transaction be tax-free with
respect to the shares of SMC Common Stock to be received by the Savers Life
stockholders. The Savers Life Board authorized management to continue
discussions with SMC management, seeking to reach an agreement in principle.

Following adjournment of the November 13, 1996, meeting of the Savers Life
Board, Savers Life and SMC continued discussions regarding an agreement in
principle. On November 15, 1996, the parties executed and delivered an agreement
in principle providing for and resulting in the transactions contemplated by the
Merger Agreement. Pursuant to the agreement in principle, Savers Life and SMC
negotiated the terms and conditions of the definitive Merger Agreement.

As a result of negotiations between November 15 and December 20 regarding
the terms of the Merger Agreement, the Merger Agreement differs from the
November 11 proposal and the agreement in principle in some respects.
Specifically, the price is expressed on a per share basis as opposed to an
aggregate basis. Cash will be paid for all stock options that are not exercised
by the Effective Time of the Merger. The topping fee provision remains
unchanged, but the walk-away fee, reduced in amount to be no more than $150,000,
would be payable by either Savers Life or SMC if the other party fails to
proceed in good faith to close the transaction for reasons other than failure to
obtain either stockholder or regulatory approval.

On December 18, 1996, the SMC Board approved the proposed Merger Agreement.
On December 20, 1996, the Savers Life Board reviewed the proposed Merger
Agreement. Upon considering the terms and conditions of the proposal, the Savers
Life Board concluded that the proposal was fair, equitable and in the best
interests of Savers Life and all of its stockholders. Accordingly, the Savers
Life Board unanimously approved the Merger Agreement, subject to such final
changes and revisions as counsel to Savers Life might approve, and recommended
approval of the Merger Agreement to the stockholders of Savers Life. Savers Life
and SMC both signed the Merger Agreement on December 20, 1996.

The Merger Agreement was amended on February 17, 1997, in order to meet
requirements of the Code for a tax-free reorganization and to limit the maximum
aggregate Performance Premium payments. The cash amount to be paid for each
share of Savers Life Common Stock was reduced from $2.00 per share to $1.50 per
share and the value to be paid in SMC Common Stock was increased from $6.00 per
share to $6.50 per share. The form of the Performance Premium, which had
previously been solely in the discretion of SMC, was

36
<PAGE> 49

revised to be shares of SMC Common Stock and cash (as interest due on the amount
of the Performance Premium and the value of any fractional share). The amendment
also provides that the maximum aggregate Performance Premium payable will be
$6,000,000. SMC is obligated to exert its best efforts to assure that any
performance premium that it pays in the form of shares of SMC Common Stock will
be tax-free.

The Merger Agreement was further amended on May 7, 1997 to: (i) revise the
method by which it will be determined if the Performance Premium payments will
be made, (ii) extend the date by which either SMC or Savers Life may terminate
the Merger Agreement from May 30, 1997 to June 30, 1997, subject to certain
limitations contained in the Merger Agreement, and (iii) make certain other
technical revisions. A third amendment, dated June 27, 1997, extended the date
by which either SMC or Savers Life may terminate the Merger Agreement from June
30, 1997, to September 10, 1997. A fourth amendment, dated July 31, 1997,
further extended that date to November 5, 1997, and added a further provision
terminating the Merger Agreement automatically if the Effective Time shall not
have occurred at or before 11:59 PM, Eastern Time, on November 5, 1997. Only the
concurrence of the boards of directors of both SMC and Savers Life can extend
the Merger Agreement beyond November 5, 1997.

SMC'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS

On December 18, 1996, the SMC Board convened to consider the Merger in
detail. After deliberating with respect to the Merger, considering, among other
things, the matters discussed below, the SMC Board unanimously determined that
the Merger, for the combined consideration of $8.00 per share, and the Common
Stock Issuance are advisable and fair to and in the best interests of SMC and
its stockholders and unanimously approved the Merger Agreement and the
transactions contemplated thereby. The SMC Board also determined that the
Performance Premium is fair in light of the Savers Life financial performance
required.

In making its determination, the SMC Board concluded that the Merger would
further SMC's strategy of growth through the acquisition of blocks of in force
life insurance and annuities and companies that have blocks of such business. In
reaching this conclusion, the SMC Board considered a number of factors,
including (i) the opportunities to expand financial institutional marketing
through Savers Life, (ii) the opportunity of cross selling SMC products to
Savers Life's policy holders, (iii) the availability of Savers Life's
distribution system to complement Standard Marketing, (iv) the potential
increase in investment yields through restructuring of the Savers Life
investment portfolio and (v) the possibility for expense savings through the
integration of selected portions of Savers Life's insurance operations with
those of SMC.

In making its determination, the SMC Board also considered, among other
things, the following factors: (i) its knowledge of the business, operations,
assets, financial condition, results of operations and prospects of SMC and
Savers Life, (ii) the terms of the Merger Agreement, (iii) the structure and
accounting treatment of the transaction and (iv) the availability of Messrs.
Stoltz and Francis, to continue in the employ of the merged company.

In view of the variety of factors considered in connection with its
evaluation of the Merger, the SMC Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.

After determining that the acquisition of Savers Life met the strategic
goals of SMC, the SMC Board considered whether the Merger was in the best
interests of its stockholders in light of the terms of the Merger Agreement. The
value of $8.00 per share of Savers Life Common Stock was considered by the SMC
Board to be a fair price to pay for Savers Life as it currently existed. This
belief was based in part upon SMC's knowledge of other recent transactions in
the insurance industry, its evaluation of the future prospects of Savers Life in
certain of its product lines and in specific geographic areas and the
recommendations of SMC's management, who spent considerable amounts of time
investigating the business of Savers Life. The SMC Board also determined that,
in the event that Savers Life's performance improved, additional compensation in
the form of the Performance Premium would be fair. The SMC Board further
determined that the Performance Premium, if payable, would be fair. This
determination was based upon consideration of Savers Life's existing earnings
levels, the earnings levels that would trigger the payment of the Performance
Premium

37
<PAGE> 50

and the formula for calculating the Performance Premium, as well as the factors
considered in determining the fairness of the initial $8.00 per share amount.
The SMC Board also considered negative factors related to the acquisition of
Savers Life, including the lack of an A.M. Best rating for Savers Life and the
recent historical financial losses sustained by Savers Life, but concluded that
the positive factors discussed above outweighed these negative factors. The SMC
Board did not consider seeking, and did not seek, the opinion of an outside
advisor with regard to the fairness of the consideration to be paid by SMC in
the Merger.

THE SMC BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF SMC VOTE IN
FAVOR OF APPROVAL OF THE COMMON STOCK ISSUANCE AT THE SMC ANNUAL MEETING.

SAVERS LIFE'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS

The Savers Life Board believes that the businesses of Savers Life and SMC
will complement each other. The addition of SMC's insurance products to be
marketed through Savers Life's brokers as a result of the Merger will provide
opportunities for both Savers Life and SMC.

As a part of an insurance holding company system, Savers Life may be able
to gain entry into other states, thus broadening its marketing territory,
enhancing the opportunity for increased revenues and profitability. The Savers
Life Board believes that there is an ample market for its products.

Savers Life has had a need for additional capital in order to support any
significant additional business that it might add to its books. Capital
requirements applied to Savers Life by certain insurance regulators have in the
past restricted the amount of Savers Life new business. The Savers Life Board
considered the possibility that SMC could be a source of additional capital,
although there is no assurance that SMC would have access to additional capital
or, if additional capital were available, would decide to make it available to
Savers Life.

The Savers Life Board further believes that the opportunity to merge with
SMC in a tax-free transaction may provide the Savers Life stockholders the
opportunity to recognize the financial success of their investment in Savers
Life and receive a readily marketable security in exchange for their Savers Life
Common Stock without the adverse tax consequences that a taxable transaction
would present to them. Many Savers Life stockholders have owned their shares
since 1980, when Savers Life raised its initial capital. The absence of an
active trading market in the Savers Life Common Stock has made that investment
illiquid. As a result of the Merger, Savers Life stockholders will have an
opportunity to receive both cash and stock in a public company in exchange for
the illiquid Savers Life investment. The Savers Life Board believes that the
merger consideration of $8.00 in value per share of Savers Life Common Stock is
an appropriate value. The ability to receive the SMC Common Stock in a
tax-deferred transaction permits the Savers Life stockholders to have control
over when the accumulated gain in their investment is recognized for tax
purposes. For that reason, the SMC proposal was preferable to one that would
have paid only cash for the Savers Life Common Stock, all of which cash would
have been taxable to the Savers Life stockholders.

The Performance Premium offers an opportunity for the stockholders of
Savers Life to share in the future success of Savers Life after the Merger.
While there can be no assurance that any Performance Premium will be paid, the
possibility that it may be earned and paid gives the Savers Life stockholders a
stake in the future of Savers Life. The Savers Life Board believes that the
Performance Premium is attractive for that reason.

The Savers Life Board considered the foregoing factors in the context of
their desire to provide for future growth of the business of Savers Life while
at the same time providing continuity of employment for Savers Life employees
and providing an attractive investment option for holders of Savers Life Common
Stock. The Savers Life Board did not assign any particular weighting to the
factors described. The value of $8.00 per share of Savers Life Common Stock was
perceived as being fair in light of the prices at which the Savers Life Common
Stock was known to have been traded, most recently at the time only $6.50 per
share. The Savers Life Board viewed the opportunity to receive the merger
consideration in a tax-free exchange as being

38
<PAGE> 51

particularly favorable, because many holders of Savers Life Common Stock have
held their shares since the founding of Savers Life, and they might not receive
a taxable transaction favorably.

The Savers Life Board did not seek advice from outside parties regarding
the value of the transaction, because the value offered by the proposed
transaction with SMC accomplished the objectives outlined above in a manner and
at a price that appeared to them to be within the range of other transactions in
the insurance industry of which they had knowledge or information, and,
accordingly, the value appeared to be acceptable.

Having sought opportunities for increasing Savers Life's capital base for
two years without success, upon being presented with the SMC proposal, and after
considering the terms and conditions of the proposal, the Savers Life Board
concluded that the proposal was fair, equitable and in the best interests of
Savers Life and all of its stockholders. Accordingly, the Savers Life Board
unanimously approved the Merger Agreement and unanimously recommends approval of
the Merger Agreement to the stockholders of Savers Life.

THE SAVERS LIFE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
SAVERS LIFE VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT AT THE SAVERS LIFE
SPECIAL MEETING.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Savers Life Board with respect to
approval of the Merger Agreement, Savers Life stockholders should be aware that,
except for the right to receive cash for unexercised stock options, the only
member of the Savers Life Board and executive officer of Savers Life who has an
interest in the Merger in addition to an interest as a stockholder of Savers
Life, is Jerry D. Stoltz, Sr., President of Savers Life. The other executive
officers, Jerry E. Francis, David A. Roberson, Patricia G. Landy and Debra P.
Berg have agreements regarding their employment with Savers Life, which
agreements will not change as a result of the Merger.

Pursuant to the Merger Agreement, SMC has agreed to appoint Mr. Stoltz to
the SMC Board effective immediately following the Effective Time. Upon the
appointment of Mr. Stoltz, the SMC Board will consist of nine directors, eight
of whom were directors of SMC as of the date of the Merger Agreement.

In connection with the consummation of the Merger, it is contemplated that
Mr. Stoltz will enter into an employment agreement with SMC effective as of the
Effective Time. The term of the Stoltz Employment Agreement will be two years
unless terminated earlier by SMC with or without cause, with automatic renewals
for successive one year periods after the initial term thereof unless either SMC
or Mr. Stoltz gives the other written notice at least 90 days before such
renewal period begins of the intention not to renew. It is contemplated that the
Stoltz Employment Agreement will provide that Mr. Stoltz will serve as Vice
Chairman of Savers Life at its offices in Winston-Salem, North Carolina. Mr.
Stoltz's initial base salary will be $114,450 per year and will be increased
each year by the percent change of the Consumer Price Index. In addition, Mr.
Stoltz's salary may be increased based upon his performance, and he may receive
incentive compensation awards, each at the discretion of the SMC Board.
Following a termination of his employment with SMC without cause, SMC would
continue to pay Mr. Stoltz his then current salary until the date of his
termination and would pay Mr. Stoltz a lump sum severance payment equal to the
sum of his salary for the remainder of the year in which he is terminated plus
one years' additional salary. The Stoltz Employment Agreement will provide that,
if his employment is terminated, Mr. Stoltz will not communicate with any
customer of SMC or Savers Life regarding any business matter or activity that
would involve competing with any business or activity engaged in by SMC or
Savers Life for a period of one year after the termination of his employment
with SMC or two years after the termination of his employment with SMC, if
severance pay is due him.

The executive officers of Savers Life, two of whom are also directors of
Savers Life, hold options to purchase shares of Savers Life Common Stock. As a
result of the Merger, each option to purchase Savers Life Common Stock
outstanding immediately prior to the Effective Time of the Merger will be
converted into the right to receive cash from Savers Life in an amount equal to
the difference between $8.00 per option share and the exercise price of such
outstanding option. See "THE MERGER AGREEMENT -- Stock Options." All outstanding
options are currently exercisable, and some or all of them may be exercised
prior to the Effective

39
<PAGE> 52

Time. Assuming that none of the outstanding options are exercised prior to the
Effective Time, the following executive officers will receive cash for their
option shares as follows:

<TABLE>
<CAPTION>
NAME OF OFFICER SHARES SUBJECT TO OPTION CASH TO BE RECEIVED
--------------- ------------------------ -------------------
<S> <C> <C>
Jerry D. Stoltz, Sr...................... 8,500 $24,200.75
Jerry E. Francis......................... 15,000 40,700.08
David A. Roberson........................ 5,200 12,250.00
Patricia G. Landy........................ 7,550 18,800.01
Debra P. Berg............................ 2,000 3,000.00
</TABLE>

Certain of the Savers Life Stock Options would have expired on August 18,
1997, unless sooner exercised. The Executive Committee of the Savers Life Board
amended those options, extending their expiration dates to November 10, 1997.
The options so extended include options listed in the table above held by Jerry
D. Stoltz, Sr. (2,250 shares), Jerry E. Francis (2,250 shares) and Patricia G.
Landy (300 shares).

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following summary describes certain federal income tax consequences of
the Merger assuming that at least eighty percent (80%) of the merger
consideration (exclusive of the Performance Premium) is paid in SMC Common Stock
to holders of Savers Life Common Stock who are citizens or residents of the
United States.

Under present federal income tax law:

(i) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code.

(ii) No gain or loss will be recognized by SMC, Savers Life or SAC due
to consummation of the Merger by the exchange of SMC Common Stock and cash
for Savers Life Common Stock upon the merger of SAC into Savers Life.

(iii) No gain or loss will be recognized by the stockholders of Savers
Life upon the receipt of SMC Common Stock solely in exchange for their
shares of Savers Life Common Stock.

(iv) The aggregate adjusted basis of the SMC Common Stock to be
received by the stockholders of Savers Life who elect to receive no cash
(other than cash in lieu of fractional shares) will be the same as the
aggregate adjusted basis of the Savers Life Common Stock surrendered in
exchange therefor.

(v) A stockholder of Savers Life may recognize interest income (or
original issue discount) to the extent the Performance Premium is
determined to be interest (or the economic equivalent of interest) under
Internal Revenue Code sec.sec.483 and 1275, and related sections and
regulations. Such interest (or the economic equivalent of interest such as
original issue discount) may be required to be recognized by a Savers Life
stockholder in a taxable year prior to the taxable year of actual receipt.

(vi) The gain, if any, realized by Savers Life stockholders who
received SMC Common Stock and cash (other than cash in lieu of a fractional
share) in exchange for their Savers Life Common Stock, will be recognized
by each such stockholder, but in an amount not in excess of the amount of
cash received that is not treated as interest. See Section 356(a)(1) of the
Code. The income will be recognized in the taxable year of receipt of the
cash. The gain will be capital gain if the Savers Life Common Stock was
held by the stockholder as a capital asset and if the exchange does not
have the effect of the distribution of a dividend (determined with the
application of section 318(a)). If the cash distribution is treated as a
dividend, then the amount of the gain recognized that is not in excess of
each such stockholder's taxable share of the undistributed earnings and
profits shall be treated as a dividend. See Section 356(a)(2) of the Code.
The determination of whether the exchange has the effect of a distribution
of a dividend will be made on stockholder-by-stockholder basis in
accordance with the principles set forth in Comm'r v. Clark, 109 S. Ct.
1455 (1989). No loss shall be recognized by a Savers Life stockholder on
the exchange, pursuant to section 356(c) of the Code.

40
<PAGE> 53

(vii) The basis of the SMC Common Stock (including fractional share
interests and SMC Common Stock issued as Performance Premium) received by
Savers Life stockholders who receive both cash and shares of SMC Common
Stock in exchange for their shares of Savers Life Common Stock will be the
same as the basis of the Savers Life Common Stock surrendered in exchange
therefor, decreased by the amount of cash received that is not treated as
interest and increased by the amount, if any, that was treated as a
dividend and the amount of gain recognized to each Savers Life stockholder
(not including any portion of such gain that was treated as a dividend).
See Section 358(a)(1) of the Code. Until the final distribution of
Performance Premium has been made, the interim basis of the SMC Common
Stock received in exchange for shares of Savers Life Common Stock will be
determined based upon what the stockholder has received at that time.

(viii) The holding period of the SMC Common Stock (including any
fractional share interest to which they may be entitled) to be received by
the stockholders of Savers Life in the Merger and that is not treated as
interest will include the holding period of the Savers Life Common Stock
surrendered in exchange therefor, provided the Savers Life Common Stock was
held as a capital asset by the stockholders of Savers Life on the date of
the exchange.

(ix) The payment of cash to Savers Life stockholders in lieu of
fractional share interests of SMC Common Stock will be treated for federal
income tax purposes as if the fractional shares were distributed as part of
the exchange and then were redeemed by SMC. These cash payments will be
treated as distributions in full payment in exchange for the stock redeemed
as provided in section 302(a) of the Code.

Receipt of cash by a Savers Life stockholder who perfects his dissenters'
rights will be a taxable transaction. Such holders should consult their own tax
advisors.

Savers Life has received the opinion of Womble Carlyle Sandridge & Rice,
PLLC, counsel to Savers Life, to the effect set forth in paragraphs (i)-(iii),
above. Paragraphs (iv)-(ix), above, either (a) result from the Merger
constituting a "reorganization" within the meaning of Section 368(a) of the Code
or (b) represent tax consequences that may apply to some holders and not to
other holders. Accordingly, no opinion is being rendered as to the matters
discussed in paragraphs (iv)-(ix), above.

THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. IN
ADDITION, THE DISCUSSION DOES NOT ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY
BE RELEVANT TO PARTICULAR TAXPAYERS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES OR
TO TAXPAYERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE (FOR EXAMPLE, INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, DEALERS IN SECURITIES, TAX-EXEMPT
ORGANIZATIONS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR OTHER FOREIGN
ENTITIES AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES).

NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
THE FOREGOING DISCUSSION IS BASED UPON THE PROVISIONS OF THE CODE, APPLICABLE
TREASURY REGULATIONS THEREUNDER, INTERNAL REVENUE SERVICE RULINGS AND JUDICIAL
DECISIONS, AS IN EFFECT AS OF THE DATE HEREOF. THERE CAN BE NO ASSURANCE THAT
FUTURE LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS WILL
NOT AFFECT THE ACCURACY OF THE STATEMENTS OR CONCLUSIONS SET FORTH HEREIN. ANY
SUCH CHANGE COULD APPLY RETROACTIVELY AND COULD AFFECT THE ACCURACY OF SUCH
DISCUSSION. NO RULINGS HAVE BEEN OR WILL BE SOUGHT FROM THE INTERNAL REVENUE
SERVICE CONCERNING THE TAX CONSEQUENCES OF THE MERGER.

EACH SAVERS LIFE STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS. EACH
HOLDER OF AN OPTION TO PURCHASE SHARES OF SAVERS LIFE COMMON STOCK IS ALSO URGED
TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
REGARDING THE CONVERSION OF ANY SUCH OPTION INTO THE RIGHT TO RECEIVE CASH FROM
SAVERS LIFE.

41
<PAGE> 54

ANTICIPATED ACCOUNTING TREATMENT

The Merger will be accounted for as a "purchase" for accounting and
financial reporting purposes in accordance with APB No. 16. For purposes of
preparing SMC's consolidated financial statements, SMC will establish a new
accounting basis for Savers Life's assets and liabilities based upon the fair
values thereof and SMC's purchase price, including the direct costs of the
acquisition. A final determination of required purchase accounting adjustments
and of the fair value of the assets and liabilities of Savers Life has not yet
been made. Accordingly, the purchase accounting adjustments made in connection
with the development of the pro forma financial information appearing elsewhere
in this Proxy Statement/Prospectus are preliminary and are subject to
adjustment. After the Merger, SMC will undertake a study to determine the fair
value of Savers Life's assets and liabilities and will make appropriate purchase
accounting adjustments upon completion of such study. For financial reporting
purposes, SMC will consolidate the results of Savers Life's operations with
those of SMC's operations, beginning with the consummation of the Merger, but
SMC's financial statements for prior periods will not be restated as a result of
the Merger.

REGULATORY APPROVALS

The consummation of the Merger is conditioned upon the expiration or
termination of the applicable waiting period under the HSR Act. Under the HSR
Act and the regulations promulgated thereunder by the FTC, the Merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division and the applicable waiting
period has expired or been terminated. Report forms relating to the Merger have
been filed on behalf of SMC and Savers Life under the HSR Act with the FTC and
the Antitrust Division. The consummation of the Merger is also conditioned upon
the approval of the North Carolina Commissioner. An application is pending to
obtain the approval of the Merger from the North Carolina Commissioner. See
"RISK FACTORS -- Insurance Regulation" and "THE MERGER -- Conditions Precedent
to the Merger."

PERCENTAGE OWNERSHIP INTEREST OF SAVERS LIFE STOCKHOLDERS AFTER THE MERGER

If the Average Trading Price of SMC Common Stock for the ten consecutive
trading days ending on the fifth day prior to the earlier of the SMC Annual
Meeting or the Savers Life Special Meeting is equal to $7.00 and disregarding
the Performance Premium, based on the number of shares of Savers Life Common
Stock outstanding at the close of business on August 1, 1997, holders of Savers
Life Common Stock will receive an aggregate of between approximately 1,652,772
and 2,034,181 newly issued shares of SMC Common Stock upon consummation of the
Merger depending upon the extent to which such holders elect to receive shares
of SMC Common Stock in lieu of the $1.50 per share cash consideration they would
otherwise be entitled to receive. Such newly issued shares of SMC Common Stock
would constitute between 25.3% and 29.5% of the shares of SMC Common Stock
outstanding immediately after the Effective Time (between 15.8% and 18.7% on a
fully diluted basis), based on the number of shares of SMC Common Stock
outstanding at the close of business on August 1, 1997. There can be no
assurance that any Performance Premium will be earned; however, for a table
illustrating a range of number of shares which may be issued if a Performance
Premium is earned, see "THE MERGER AGREEMENT -- Performance Premium."

OPERATION OF SAVERS LIFE AFTER THE EFFECTIVE TIME

SMC's immediate plan for the operation of Savers Life after the Merger is
to reduce Savers Life's marketing and operational expenses by consolidating
services and administration. The primary savings are expected to be realized
through the elimination of redundant staff positions, utilization of a single
operating system and expansion of the distribution of products through SMC's
affiliate marketing corporation, Standard Marketing. Such savings are expected
to be nominal. In addition, Savers Life and World have agreed to the transfer of
the major medical product line of Savers Life to World through a coinsurance
agreement, under which World will assume, through coinsurance effective July 1,
1997, 100% of the product line subject to certain risk sharing arrangements. See
"Risk Factors -- Reinsurance of Major Medical Product Line" and "Additional
Information Regarding Savers Life -- Description of Business -- Products."
During the first six months of 1997, the Savers Life major medical product line
experienced a pre-tax loss of $3,851,000. See

42
<PAGE> 55

"SMC Selected Unaudited Pro Forma Combined Financial Data." This transaction is
expected to close on or about October 1, 1997 and is subject to normal closing
conditions. Except as described above, SMC has no other plan to liquidate, sell
assets of or merge Savers Life.

After the Effective Time, the Savers Life Board will be reconstituted, and
SMC will elect several new directors to the Savers Life Board. SMC has agreed to
appoint Mr. Stoltz Vice Chairman of Savers Life. Employment agreements of other
members of Savers Life management will remain in effect.

RESALES OF SMC COMMON STOCK

The shares of SMC Common Stock issued in the Merger will be freely
transferrable, except that shares received by any person who may be deemed to be
an "affiliate" (as used in paragraphs (c) and (d) of Rule 145, under the
Securities Act, including, without limitation, directors and certain executive
officers) of Savers Life for purposes of such Rule 145, may not be resold except
in transactions permitted by such Rule 145 or as otherwise permitted under the
Securities Act.

THE MERGER AGREEMENT

CONVERSION OF SHARES IN THE MERGER

At the Effective Time, by virtue of the Merger and without any further
action on the part of any stockholder of Savers Life or SAC:

(i) each share of Savers Life Common Stock held in the treasury of
Savers Life and each share of Savers Life Common Stock owned by SMC, SAC or
any other wholly-owned subsidiary of SMC will be canceled and no capital
stock of SMC or other consideration will be delivered in exchange therefor;

(ii) each issued and outstanding share of capital stock of SAC will be
converted into one share of Common Stock, no par value, of the Surviving
Corporation;

(iii) each share of Savers Life Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled
as described in subparagraph (i) above) will be converted into (a) $1.50 in
cash, which the holder of such share of Savers Life Common Stock may elect
to receive in shares of SMC Common Stock, (b) $6.50 in value of shares of
SMC Common Stock, the number of such shares, to be rounded to the nearest
hundredth of a share, determined by dividing $6.50 by the Average Trading
Price of SMC Common Stock for the ten consecutive trading days ending on
the fifth day prior to the earlier of the SMC Annual Meeting or the Savers
Life Special Meeting, plus (c) the right to receive the Performance
Premium, if any. Cash will be paid in lieu of any fractional shares of SMC
Common Stock. See "-- No Fractional Shares." The number of shares of SMC
Common Stock to be received by Savers Life stockholders making the election
described in (a) and the ratio described in (b) of the preceding sentence
are subject to adjustment under certain circumstances. See "-- Adjustment
of Exchange Ratio."

Shares of Savers Life Common Stock converted as provided in subparagraph
(iii) of the preceding paragraph will no longer be outstanding and will
automatically be canceled and retired; and each holder of a Savers Life
Certificate representing immediately prior to the Effective Time any such shares
of Savers Life Common Stock will cease to have any rights with respect thereto,
except the right to receive, as hereinafter described: (i) certificates
representing the number of whole shares of SMC Common Stock into which such
shares of Savers Life Common Stock have been converted, (ii) the $1.50 cash
payment per share of Savers Life Common Stock represented by such Savers Life
Certificate, (iii) the Performance Premium, if any, (iv) certain dividends and
other distributions and (v) cash, without interest, in lieu of any fractional
share of SMC Common Stock. See "-- Exchange Agent; Procedures for Exchange of
Certificates."

43
<PAGE> 56

COMMON STOCK WHO DO NOT WISH TO RECEIVE SHARES OF SMC COMMON STOCK IN LIEU OF
THE $1.50 CASH PORTION OF THE MERGER CONSIDERATION NEED NOT RETURN SUCH FORM OF
ELECTION.

Notwithstanding the foregoing, shares of Savers Life Common Stock that are
outstanding immediately prior to the Effective Time and which are held by Savers
Life stockholders who do not vote in favor of the proposal to approve the Merger
Agreement and who demand properly in writing the fair value for such shares in
accordance with Sections 55-13-01 through 55-13-31 of the NCBCA (collectively,
the "Dissenting Shares") will not be converted into or represent the right to
receive the consideration described above. Such Savers Life stockholders will be
entitled to receive payment of the fair value of such shares of Savers Life
Common Stock held by them in accordance with the provisions of the NCBCA, except
that all Dissenting Shares held by Savers Life stockholders who fail to perfect
or who effectively withdraw or lose their rights to the fair value of such
shares of Savers Life Common Stock under the NCBCA will be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the SMC Common Stock and cash as described above, without
any interest thereon, upon surrender of the certificate or certificates that
formerly evidenced such shares of Savers Life Common Stock in the manner
described above. See "DISSENTERS' RIGHTS."

NO FRACTIONAL SHARES

No certificates or scrip representing a fractional share of SMC Common
Stock will be issued upon the surrender of Savers Life Certificates for
exchange; no SMC dividend or other distribution or stock split will relate to
any such fractional share; and no such fractional share will entitle the record
or beneficial owner thereof to any voting or other rights of a stockholder of
SMC. In lieu of any such fractional share, each holder of shares of Savers Life
Common Stock who would otherwise have been entitled thereto upon the surrender
of Savers Life Certificates for exchange will be paid, in addition to other cash
payments to which such holder is otherwise entitled, an amount in cash (without
interest), equal to such holder's proportionate interest in the net proceeds
from the sale or sales in the open market by the Exchange Agent, on behalf of
all such holders, of the aggregate fractional shares of SMC Common Stock issued
at the Effective Time pursuant to the Merger Agreement.

ADJUSTMENT OF EXCHANGE RATIO

Appropriate and proportionate adjustments, if any, will be made to the
exchange ratio used to determine the number of shares of SMC Common Stock to
which each holder of Savers Life Common Stock will be entitled upon conversion
of his or her shares of Savers Life Common Stock in the event of any
reclassification, stock split or stock dividend with respect to SMC Common Stock
(or if a record date with respect to any of the foregoing should occur) prior to
the Effective Time and after such exchange ratio has been determined.

PERFORMANCE PREMIUM

Subject to the terms and conditions of the Merger Agreement, each
Performance Premium Holder will be entitled to receive a Performance Premium in
the form of additional shares of SMC Common Stock and cash representing interest
on the Performance Premium amount, after December 31, 1997 and December 31,
1998, if certain targets for adjusted after-tax net income of the Surviving
Corporation for the years then ended are met. There can be no assurance that any
Performance Premium will be earned.

If the Surviving Corporation has 1997 Adjusted Statutory Net Income (as
hereinafter defined) in excess of 15% of the total consideration issued or
payable to Savers Life stockholders at the Effective Time of the Merger as
described above under "-- Conversion of Shares in the Merger" (the "1997
Required Return"), the Performance Premium Holders will be entitled to receive a
Performance Premium (the "1997 Performance Premium") equal to $1,000,000 plus
the excess of 1997 Adjusted Statutory Net Income over 1997 Required Return. As
used in the Merger Agreement, "1997 Adjusted Statutory Net Income" means the sum

44
<PAGE> 57

of (i) the Surviving Corporation's after-tax net income on a statutory basis for
the full calendar year ending December 31, 1997, plus (ii) the $256,500 fee
payable to Daiwa, less the portion of such amount equal to the Surviving
Corporation's 1997 marginal federal income tax rate multiplied by such amount,
plus (iii) the total amount paid by Savers Life to holders of options to
purchase Savers Life Common Stock pursuant to Section 2.5(d) of the Merger
Agreement, less the portion of such amount equal to the Surviving Corporation's
1997 marginal federal income tax rate multiplied by such amount, plus (iv) the
total of all management fees paid after the Effective Time by the Surviving
Corporation to SMC and any of its other subsidiaries, less the portion of such
amount equal to the Surviving Corporation's 1997 marginal federal income tax
rate multiplied by such amount.

If the Surviving Corporation has 1998 Adjusted Statutory Net Income (as
hereinafter defined) in excess of the sum of the 1997 Required Return and 15% of
the 1997 Performance Premium (the "1998 Required Return"), the Performance
Premium Holders will be entitled to receive a Performance Premium (the "1998
Performance Premium") equal to $1,000,000 plus the excess of 1998 Adjusted
Statutory Net Income over the 1998 Required Return. As used in the Merger
Agreement, "1998 Adjusted Statutory Net Income" means the sum of (i) the
Surviving Corporation's after-tax net income on a statutory basis for the full
calendar year ending December 31, 1998, plus (ii) the total of all management
fees paid during 1998 by the Surviving Corporation to SMC and any of its other
subsidiaries, less the portion of such amount equal to the Surviving
Corporation's 1998 marginal federal income tax rate multiplied by such amount.

The Performance Premium payments, if any, will be allocated on a pro rata
basis among Performance Premium Holders on the basis of the number of shares of
Savers Life Common Stock owned of record by Performance Premium Holders
immediately prior to the Effective Time.

The maximum aggregate value of the 1997 Performance Premium and the 1998
Performance Premium payable to Performance Premium Holders will be $6,000,000.

The 1997 Performance Premium and the 1998 Performance Premium will be
payable in SMC Common Stock and in cash (as interest due on the amount of the
Performance Premium and the value of any fractional share). The portion of the
1997 Performance Premium and the portion of the 1998 Performance Premium that
will be payable in cash shall be the portion that represents interest computed
using the applicable federal rate (short-term) established in Section 1274(d) of
the Code for the month during which the Effective Time occurs. The portions of
the 1997 Performance Premium and the 1998 Performance Premiums that represent
interest determined in accordance with the immediately preceding sentence will
be the only portions of the Performance Premium that will be payable in cash
(with the exception of cash paid in lieu of fractional shares). The amount of
the Performance Premium that is payable in shares of SMC Common Stock will
consist of the number of shares of SMC Common Stock determined by dividing (i)
the amount to which each Performance Premium Holder would be entitled in payment
of such Performance Premium reduced by the allocable portion of the interest by
(ii) the Average Trading Price of SMC Common Stock for the ten (10) consecutive
trading days ending on the fifth day prior to the payment date of such
Performance Premium, rounded to the nearest hundredth of a share.

The 1997 Performance Premium and the 1998 Performance Premium will be
calculated as of December 31, 1997 and December 31, 1998, respectively, based
upon the Surviving Corporation's Annual Statements for the years then ended, as
filed with the North Carolina Department of Insurance. The calculations will be
made no later than April 30, 1998 and April 30, 1999, respectively, with
payment, if any, to be made by May 31 of each year.

SMC will have the right to offset against any Performance Premium the
amount of Losses (as defined below) incurred by SMC or any of its affiliates in
connection with or arising from any breach or alleged breach of any
representation, warranty, covenant or other undertaking of Savers Life contained
in the Merger Agreement. For purposes of this paragraph, "Losses" means any and
all losses, costs, obligations, liabilities, settlement payments, awards,
judgments, fines, penalties, damages and expenses arising after the Effective
Time.

The Merger Agreement requires that SMC furnish notice of any claim for Loss
to a committee (the "Contingent Payment Committee") consisting initially of
William G. White, Jr., a member of the Savers Life Board, William Granberry, a
stockholder of Savers Life, and J. Leon Rumley, an audit partner at D. E.

45
<PAGE> 58

Gatewood and Company, Savers Life's independent auditor. The Contingent Payment
Committee will have a period of thirty days to respond thereto. If the
Contingent Payment Committee fails to respond within such thirty-day period, the
Contingent Payment Committee will be deemed to have accepted the claim for
offset against the Performance Premium and will have no further right to contest
the validity of such claim. If the Contingent Payment Committee rejects such
claim, in whole or in part, within such thirty-day period, the dispute will be
resolved: (i) by written agreement between SMC and the Contingent Payment
Committee, (ii) by binding arbitration in accordance with the Merger Agreement
or (iii) by any other means to which SMC and the Contingent Payment Committee
agree.

The following examples are for illustrative purposes only. No assurance can
be given that any Performance Premium will be paid. The amount of any
Performance Premium will depend upon the actual 1997 Adjusted Statutory Net
Income and 1998 Adjusted Statutory Net Income. The actual number of shares of
SMC Common Stock issued in connection with any Performance Premium will vary
depending upon the applicable Average Trading Price of SMC Common Stock, the
portion of the Performance Premium paid in cash and the amount of the
Performance Premium, if any.

Based on the number of shares of Savers Life Common Stock outstanding at
the close of business on August 1, 1997, the total consideration to be issued or
payable to Savers Life stockholders in the Merger will be $14,239,264 and the
1997 Required Return will be $2,135,890. The 1997 Performance Premium payment
will be made only if the 1997 Required Return is earned. Based upon Savers
Life's statutory after-tax net losses in 1995 and 1996 of $113,262 and
$1,150,957, respectively, no Performance Premium would have been payable. Savers
Life's after-tax net income (loss) in 1995 and 1996 would have been $2,785,580
and ($424,023), respectively, assuming that the major medical product line were
to have been sold at the beginning of such years. Savers Life's after-tax net
loss for the six months ended June 30, 1997 was $415,469. If the major medical
product line had been sold on January 1, 1997, Savers Life's after-tax net
income for the six months ended June 30, 1997 would have been $563,381. See the
tables below for an illustration of the Performance Premium that would be
payable if these or certain other amounts were to be earned in 1997 or 1998.

The table below sets forth the number of shares of SMC Common Stock
constituting the 1997 Performance Premium at various levels of 1997 Adjusted
Statutory Net Income and various price levels for SMC Common Stock, assuming (i)
no offset for Losses and (ii) payment solely in shares of SMC Common Stock.
(Actual Performance Premium payments, if any, may be payable in SMC Common Stock
and cash as described above.) If the 1997 Required Return is not earned, then
the 1997 Performance Premium will not be payable, and the 1998 Required Return
would also equal $2,135,890, in which case the table below would also apply to
the 1998 Performance Premium.

<TABLE>
<CAPTION>
ADJUSTED STATUTORY PERFORMANCE NUMBER OF SHARES OF SMC COMMON STOCK PAYABLE
NET INCOME PREMIUM ASSUMING AN APPLICABLE AVERAGE TRADING PRICE OF SMC COMMON STOCK OF
- ------------------------ ----------- ------------------------------------------------------------------------
$4.00 $5.00 $6.00 $7.00 $8.00 $9.00
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.............. $ -- -- -- -- -- -- --
$2,500,000.............. $1,364,110 341,028 272,822 227,352 194,873 170,514 151,568
$3,500,000.............. $2,364,110 591,028 472,822 394,018 337,730 295,514 262,679
$4,500,000.............. $3,364,110 841,028 672,822 560,685 480,587 420,514 373,790
</TABLE>

Assuming a 1997 Performance Premium of $1,500,000, the 1998 Required Return
would be $2,360,890. The 1998 Performance Premium payment will be made only if
the 1998 Required Return is earned. The table below sets forth the number of
shares of SMC Common Stock constituting the 1998 Performance Premium at various
levels of 1998 Adjusted Statutory Net Income and various price levels for SMC
Common Stock,

46
<PAGE> 59

assuming (i) no offset for Losses, (ii) that the 1998 Required Return is
$2,360,890 and (iii) payment solely in shares of SMC Common Stock.

<TABLE>
<CAPTION>
ADJUSTED STATUTORY PERFORMANCE NUMBER OF SHARES OF SMC COMMON STOCK PAYABLE
NET INCOME PREMIUM ASSUMING AN APPLICABLE AVERAGE TRADING PRICE OF SMC COMMON STOCK OF
- ------------------------ ----------- ------------------------------------------------------------------------
$4.00 $5.00 $6.00 $7.00 $8.00 $9.00
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.............. $ -- -- -- -- -- -- --
$2,500,000.............. $1,139,110 284,778 227,822 189,852 162,730 142,389 126,568
$3,500,000.............. $2,139,110 534,778 427,822 356,518 305,587 267,389 237,679
$4,500,000.............. $3,139,110 784,778 627,822 523,185 448,444 392,389 348,790
</TABLE>

In the event that 1997 Adjusted Statutory Net Income or 1998 Adjusted
Statutory Net Income, as the case may be, exceeds the amounts shown in the above
tables, the Performance Premium would be correspondingly increased up to an
aggregate amount not to exceed $6,000,000. In the event that the Applicable
Average Trading Price of SMC Common Stock is less than $4.00 or more than $9.00
per share, the number of shares of SMC Common Stock payable would be
correspondingly increased or decreased as the case may be.

EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES AND DELIVERY OF CASH

ChaseMellon Shareholder Services has been selected to act as Exchange Agent
under the Merger Agreement. As soon as practicable after the Effective Time, (i)
SMC will deposit with the Exchange Agent, in trust for the holders of Savers
Life Certificates which immediately prior to the Effective Time represented
shares of Savers Life Common Stock converted in the Merger, SMC Certificates
representing the shares of SMC Common Stock issuable pursuant to the Merger in
accordance with the Merger Agreement, and (ii) SMC will make available to the
Surviving Corporation, which in turn will deposit with the Exchange Agent in
trust for the holders of Savers Life Certificates, the cash into which the
outstanding shares of Savers Life Common Stock have been converted. The Exchange
Agent will deliver the SMC Certificates and cash upon the surrender for exchange
of the Savers Life Certificates and a duly executed letter of transmittal.

As soon as practicable after the Effective Time, the Exchange Agent will
mail to each record holder of a Savers Life Certificate a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Savers Life Certificates will pass, only upon actual delivery thereof to
the Exchange Agent, and will contain instructions for effecting the surrender of
Savers Life Certificates in exchange for the property described in the next
sentence). Upon surrender for cancellation to the Exchange Agent of all Savers
Life Certificate(s) held by any record holder, together with such letter of
transmittal duly executed, such holder will be entitled to receive in exchange
therefor: (i) an SMC Certificate representing the number of whole shares of SMC
Common Stock into which the shares of Savers Life Common Stock represented by
the surrendered Savers Life Certificate(s) have been converted at the Effective
Time, (ii) any cash which such holder has the right to receive under the
provisions of the Merger Agreement described above under "-- Conversion of
Shares" and (iii) the dividends and other distributions described in the second
succeeding paragraph. All Savers Life Certificates so surrendered will be
canceled. All SMC Certificates and cash delivered upon the surrender for
exchange of any Savers Life Certificate in accordance with the terms of the
Merger Agreement (including the cash paid in respect of any such fractional
share or of any such dividends or distributions) will be deemed to have been
delivered (and paid) in full satisfaction of all rights pertaining to the shares
of Savers Life Common Stock represented by such surrendered Savers Life
Certificate.

Promptly after the calculation by SMC of the Performance Premium, if any,
for the years ended December 31, 1997 and 1998, as the case may be, SMC will
deliver to the Exchange Agent in trust for the Performance Premium Holders, the
cash and certificates representing SMC Common Stock payable with respect to such
Performance Premium. The Exchange Agent will deliver any cash or certificates
representing such Performance Premium payable to such Performance Premium
Holders at the addresses of such Performance Premium Holders as they appear on
the stock records of Savers Life at the Effective Time or such other addresses
as the Performance Premium Holders provide to the Exchange Agent by written
notice.

No dividends or other distributions that are declared on or after the
Effective Time on SMC Common Stock, or are payable to the holders of record
thereof on or after the Effective Time, and no cash payment will be paid to any
person entitled by reason of the Merger to receive SMC Certificates and cash
until the Savers Life Certificate(s) of such person have been surrendered as
described above. Subject to applicable law, there

47
<PAGE> 60

will be paid to each person receiving an SMC Certificate: (i) at the time of
such surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions with respect to the shares of SMC Common Stock
represented by such SMC Certificate having a record date on or after the
Effective Time and a payment date prior to such surrender and (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
any dividends or other distributions payable with respect to such shares of SMC
Common Stock having a record date on or after the Effective Time but prior to
such surrender and a payment date on or after such surrender. In no event will
the person entitled to receive such dividends or other distributions be entitled
to receive interest thereon. If any SMC Certificate is to be registered in a
name other than that of the registered holder of a surrendered Savers Life
Certificate, or if any cash is to be paid to a person who is not such registered
holder, it will be a condition of the exchange that the Savers Life
Certificate(s) so surrendered be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of such SMC
Certificate or such cash payment or establish to the satisfaction of the
Exchange Agent that such taxes have been paid or are not applicable.

STOCK OPTIONS

Each Savers Life Stock Option outstanding immediately prior to the
Effective Time will be converted into the right to receive cash in an amount
equal to the number of shares of Savers Life Common Stock subject to such Savers
Life Stock Option times the difference between $8.00 and the per share exercise
price for such Savers Life Stock Option.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains various representations and warranties of
Savers Life, SMC and SAC relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the due organization, power and standing of, and
similar corporate matters with respect to each of Savers Life, SMC and SAC; (ii)
the authorization, execution, delivery, performance and enforceability of the
Merger Agreement by Savers Life, SMC and SAC and of the transactions
contemplated thereby; (iii) the absence of any conflict with each of Savers
Life's, SMC's or SAC's articles of incorporation, bylaws and certain other
agreements and documents and compliance with applicable laws; (iv) the absence
of any governmental or regulatory authorization, consent or approval required to
consummate the Merger; (v) each of Savers Life's, SMC's and SAC's
capitalization; (vi) the possession by Savers Life of all licenses,
registrations, approvals and authorizations relating to the conduct of its
business; (vii) the accuracy and completeness of Savers Life's financial
statements; (viii) the absence of any litigation that would have a material
adverse effect on the financial condition, business or results of operations of
Savers Life or SMC; (ix) the timely filing of all regulatory reports and other
documents filed with the regulatory authorities by Savers Life; (x) the absence
of certain changes or events relating to the financial condition, business or
results of operations of Savers Life; (xi) the absence of any untrue statements
of material fact or omission to state a material fact in the Merger Agreement,
any disclosure schedule, or any certificate or document furnished pursuant to
the terms of the Merger Agreement; and (xii) the existence of material contracts
and commitments of Savers Life and the existence of no breach or default under
any such contracts.

CONDUCT OF BUSINESS PENDING THE MERGER

Savers Life has agreed that, during the period from the date of the Merger
Agreement through the Effective Time, except to the extent that SMC may
otherwise consent in writing or to the extent otherwise required or permitted by
the Merger Agreement, it will conduct its business only in the ordinary course
and consistent with past practices. Savers Life has agreed to notify SMC
promptly in writing of, and to use all commercially reasonable efforts to cure
before the Effective Time, any event, transaction or circumstance occurring
after the date of the Merger Agreement that causes or will cause any covenant or
Agreement of Savers Life under the Merger Agreement to be breached or that
renders or will render untrue any representation or warranty of Savers Life
contained in the Merger Agreement as if the same were made on or as of the date
of such event, transaction or circumstance. Savers Life has also agreed to use
all commercially reasonable efforts to cure, before the Effective Time, any
violation or breach of any representation, warranty, covenant or Agreement made
by it in the Merger Agreement. In addition to the preceding, Savers Life has
agreed to invest its future cash flow, any cash from matured and maturing
investments, any cash proceeds

48
<PAGE> 61

from the sale of its assets and properties and any cash held by Savers Life as
of the date of the Merger Agreement exclusively in certain permissible
investments.

Without limiting the generality of the foregoing, Savers Life has agreed
that it will not: (i) permit a material change in any underwriting, investment,
actuarial, financial reporting, or accounting practices or policies or in any
assumption underlying such practices or policies, or in any method of
calculating any bad debt, contingency or other reserve for financial reporting
purposes or for other accounting purposes; (ii) except as may be required by law
or as disclosed in the Merger Agreement, or except for such representations,
promises, changes, alterations or amendments that do not and will not result in
any liability to Savers Life or SMC, (A) make any representation or promise,
oral or written, to any officer, director, employee, agent, consultant or other
similar representative of Savers Life concerning any employee benefit plan, (B)
subject to certain exceptions, make any change to, or amend in any way, the
contracts, salaries, wages or other compensation of any officer, director,
employee, agent, consultant or other similar representative of Savers Life whose
annual compensation exceeds $25,000, (C) adopt, enter into, amend, alter or
terminate, partially or completely, any employee benefit plan, (D) adopt, enter
into, amend, alter or terminate, partially or completely, any employment,
agency, consultation or representation contract, (E) approve any general or
company-wide pay increase for officers, directors, employees, agents,
consultants or other similar representatives of Saver Life or (F) enter into an
contract with any officer, director, employee, agent, consultant or other
similar representative of Savers Life that is not terminable by Savers Life,
without penalty or other liability, upon not more than sixty calendar days'
notice; (iii) amend its Articles of Incorporation or Bylaws or take any action
with respect to any such amendment; (iv) except upon the exercise of stock
option outstanding at the date of the Merger Agreement, authorize or issue any
shares of capital stock or other equity securities or enter into any contract or
grant any option, warrant or right calling for the authorization or issuance of
any such shares or other equity securities, or creating or issuing any
securities directly or indirectly convertible into or exchangeable for any such
shares or other equity securities, or issuance of any options, warrants or
rights to purchase any such convertible securities; (v) declare, set aside, or
pay any dividend or other distribution in respect of capital stock of Savers
Life or directly or indirectly redeem, purchase or otherwise acquire any capital
stock or any interest in or right to acquire any capital stock of Savers Life;
(vi) (A) dispose of any of its assets and properties or permit any of its assets
or properties to be subjected to any liens, (B) sell any part of its insurance
products, operations or business to any third party, (C) enter into any
contracts obligating Savers Life to administer the insurance operation of any
person other than any affiliate, (D) enter into any contracts permitting any
person other than any affiliate to administer Savers Life's insurance operations
or (E) enter into or assume any contract, if doing so could involve a loss,
cost, expense or commitment in excess of $10,000; (vii) violate or breach, or
fail to take any action that would constitute a violation, breach or default in
any way under any term or provision of any contract to which it is a party or by
which any of its assets and properties is or may be bound; (viii) create, incur,
assume, guarantee, or otherwise become liable for, and will not cancel, pay,
agree to cancel or pay, or otherwise provide for a complete or partial discharge
in advance of a scheduled payment date with respect to, any liability, and will
not waive any right to receive any direct or indirect payment or other benefit
under any liability owing to it; (ix) (A) merge, consolidate or otherwise
combine or agree to merge, consolidate or otherwise combine with any other
person, (B) acquire or agree to acquire blocks of business of, or all or
substantially all the assets and properties or capital stock or other equity
securities of, any other person or (C) otherwise acquire or agree to acquire
control or ownership of any other person; or (x) (A) make, file or enter into
certain elections, consents or agreements with respect to the Internal Revenue
Code of 1986, as amended (the "Code") or (B) amend or cancel any reinsurance or
coinsurance contract.

CONDITIONS PRECEDENT TO THE MERGER

The respective obligations of SMC, SAC and Savers Life to effect the Merger
are subject, among other things, to the fulfillment to their reasonable
satisfaction, prior to the Effective Time, of the following conditions (which
conditions are subject, in certain cases, to specific exceptions): (i) the
approval of the Merger Agreement by the requisite vote of the holders of Savers
Life Common Stock and the approval of the Common Stock Issuance by the requisite
vote of the holders of SMC Common Stock; (ii) the authorization for listing on
Nasdaq, upon official notice of issuance, of the SMC Common Stock issuable in
the Merger; (iii) the expiration or earlier termination of the applicable
waiting period under the HSR Act; and (iv) the effectiveness of the Registration
Statement in accordance with the provisions of the Securities Act, no

49
<PAGE> 62

issuance of a stop order suspending the effectiveness of the Registration
Statement by the SEC, which stop order remains in effect, and the receipt of all
necessary state securities law authorizations.

SMC's and SAC's obligations to consummate the Merger are subject to the
fulfillment to SMC's and SAC's reasonable satisfaction, prior to the Effective
Time, of the following conditions: (i) all representations and warranties of or
concerning Savers Life contained in the Merger Agreement shall have been and
continue to be true and correct in all material respects; (ii) Savers Life shall
have performed and complied with all agreements, covenants and conditions
required by the Merger Agreement to be performed and complied with by it prior
to the Effective Time; (iii) Savers Life shall have delivered to SMC a
certificate, dated as of the Effective Time, executed by the chief executive
officer and the chief financial officer of Savers Life, to the effect that the
conditions set forth in (i) and (ii) above have been satisfied and a certificate
executed by the secretary or any assistant secretary of Savers Life with respect
to the authorization, execution and delivery of the Merger Agreement; (iv)
Savers Life shall have delivered to SMC such other documents and information
concerning Savers Life as SMC shall have reasonably requested; (v) there shall
not be in effect any writ, judgment, injunction, decree or similar order of any
court or similar person restraining, enjoining or otherwise preventing
consummation of any of the transactions contemplated by the Merger Agreement;
(vi) there shall not be pending or threatened any litigation which, if adversely
determined to Savers Life, could have a material adverse effect on Savers Life
or which seeks to prevent the Merger; (vii) all orders, consents, permits,
authorizations, approvals and waivers necessary to permit SMC to perform its
obligations under the Merger Agreement and to consummate the transactions
contemplated thereby shall have been obtained and shall be in full force and
effect; (viii) there shall not have occurred between December 31, 1995, and the
Effective Time any circumstance or event which has or could have a material
adverse effect on Savers Life or its subsidiaries; (ix) SMC shall have received
an opinion, dated as of the Effective Time, from Womble Carlyle Sandridge &
Rice, PLLC, counsel to Savers Life, regarding the Merger; (x) Fleet National
Bank of Connecticut and Conseco, Inc. shall have consented to the consummation
of the transactions contemplated under the Merger Agreement and one or both of
them shall have agreed to loan SMC the sum of $4,000,000 upon terms and
conditions satisfactory to SMC; (xi) the Stoltz Employment Agreement shall have
been executed and delivered; (xii) each of the officers of Savers Life and
holders of more than 5% of the Savers Life Common Stock shall have executed and
delivered contracts with SMC pursuant to which each such person shall have
agreed, among other things, not to dispose of any shares of SMC Common Stock for
a period of one year following the Effective Time without the prior written
consent of SMC, such restriction being subject to certain exceptions; (xiii)
holders of not more than five percent of Savers Life's Common Stock shall have
given notice of intent to exercise dissenters' rights; (xiv) the stockholders of
SMC shall have approved the Merger Agreement; (xv) the adjusted capital and
surplus of the Surviving Corporation shall not be less than $7,390,000
immediately after the Effective Time; and (xvi) the stockholders of Savers Life
shall have approved the Merger Agreement.

The obligations of Savers Life under the terms of the Merger Agreement are
subject to the fulfillment to Savers Life's reasonable satisfaction, prior to
the Effective Time, of the following conditions: (i) all representations and
warranties of or concerning SMC or its subsidiaries in the Merger Agreement
shall have been and continue to be true and correct in all material respects;
(ii) SMC shall have performed and complied with all agreements, covenants and
conditions required by the Merger Agreement to be performed or complied with by
it prior to the Effective Time; (iii) SMC shall have delivered to Savers Life a
certificate, dated as of the Effective Time, executed by the chief executive
officer and the chief financial officer of SMC to the effect that the conditions
set forth in (i) and (ii) above have been satisfied and a certificate executed
by the secretary or any assistant secretary of SMC with respect to the
authorization, execution and delivery of the Merger Agreement; (iv) SMC shall
have delivered to Savers Life such other documents and information as Savers
Life shall have reasonably requested; (v) there shall not be in effect any writ,
judgment, injunction, decree or similar order of any court or similar person
restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by the Merger Agreement; (vi) there shall not be
pending or threatened any litigation which, if adversely determined to SMC or
its subsidiaries, could have a material adverse effect on SMC or its
subsidiaries, or which seeks to prevent the Merger; (vii) all orders, consents,
permits, authorizations, approvals and waivers necessary to permit Savers Life
to perform its obligations under the Merger Agreement and to consummate the
transactions contemplated thereby shall

50
<PAGE> 63

have been obtained and shall be in full force and effect; and (viii) Savers Life
shall have received an opinion, dated as of the closing, from Stephen M. Coons,
counsel to SMC, regarding the Merger.

In the event that a condition precedent to the Merger is waived, SMC and
Savers Life will evaluate whether such waiver has a material effect on the terms
of the Merger or any other matters described herein and will amend or supplement
the Proxy Statement/Prospectus and/or resolicit votes if such amendment or
resolicitation is appropriate.

TERMINATION

The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval by the stockholders of Savers Life of
the Merger Agreement or the approval by the stockholders of SMC of the Common
Stock Issuance, as authorized by the respective boards of directors of SMC, SAC
and Savers Life, as applicable:

(i) by mutual written consent of SMC and Savers Life;

(ii) by either SMC or Savers Life if (A) the other (or SAC if Savers
Life is the terminating party) has failed to comply in any material respect
with any of its covenants or agreements contained in the Merger Agreement
required to be complied with prior to the date of such termination or
materially breaches any representation or warranty that is not qualified as
to materiality or breaches any representation or warranty that is so
qualified (in each case after a five business day cure period following
notice of such breach) or (B) the stockholders of SMC have failed to
approve the issuance of the SMC Common Stock at the SMC Annual Meeting or
the stockholders of Savers Life have failed to approve the Merger at the
Savers Life Special Meeting; provided that at the time of such termination
the terminating party has not breached any of its covenants set forth in
the Merger Agreement;

(iii) by either SMC or Savers Life if (A) the Merger has not been
effected on or prior to the close of business on November 5, 1997;
provided, however, that the right to terminate the Merger Agreement
pursuant to this clause is not available to any party whose failure to
fulfill any obligations of the Merger Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to the
aforesaid date, or (B) any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body has
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions
contemplated by the Merger Agreement and such order, decree, ruling or
other action has become final and nonappealable; or

(iv) by SMC, if the Savers Life Board (A) has not recommended, or has
resolved not to recommend, or has modified or withdrawn its recommendation
of the Merger or declaration that the Merger is advisable or (B) has
recommended, or resolved to recommend, to the stockholders of Savers Life
any takeover proposal or offer of any other person.

If the Effective Time shall not have occurred at or before 11:59 PM,
Eastern Time, on November 5, 1997, the Merger Agreement will automatically
terminate. Only the action of both the SMC Board and the Savers Life Board can
extend the Merger Agreement beyond November 5, 1997. The failure of either board
to approve such an extension will not constitute a failure to proceed in good
faith with respect to the termination fee provision described below.

If the Merger Agreement is terminated pursuant to its terms, such
termination will be without liability of any party, or any stockholder,
director, officer, employee, agent, consultant or representative of such party,
to any other party to the Merger Agreement; provided, that if such termination
results from the breach by a party of the representations, warranties or
covenants of such party contained in the Merger Agreement, such party will be
fully liable for any and all damages, costs and expenses (including reasonable
counsel fees) sustained or incurred by the other party to the Merger Agreement.

51
<PAGE> 64

FEES AND EXPENSES

The Merger Agreement provides that SMC and Savers Life will each pay their
own respective costs and expenses incidental to the preparation of the Merger
Agreement, the performance of and compliance with all agreements and conditions
contained in the Merger Agreement and the consummation of the transactions
contemplated thereby. The Merger Agreement also provides for the payment of the
following amounts:

(i) If the Merger Agreement is terminated by either SMC or Savers Life
for any of the reasons set forth in clause (ii)(A) under "-- Termination"
above on the grounds that the other party has failed to proceed in good
faith, the party terminating the Merger Agreement will be entitled to
reimbursement from the other party upon demand for all out-of-pocket fees
and expenses incurred or paid by or on behalf of the terminating party or
any of its affiliates in connection with the Merger Agreement or the
consummation of the Merger; provided, however, that the party obligated to
make payments upon such a termination will not be obligated to make any
such payments in excess of $150,000 in the aggregate.

(ii) If (A) the Savers Life Board fails to make a favorable
recommendation or withdraws, amends or modifies its favorable
recommendation to its stockholders of the Merger Agreement and the Merger
and (B) on or prior to twelve months after the event described in clause
(A) above, a Third Party Acquisition Event (as defined below) occurs,
Savers Life will promptly, but in no event later than the second Business
Day following the later to occur of the events referred to in clauses (A)
and (B), pay to SMC a fee of $500,000 in cash (inclusive of expenses).

A "Third Party Acquisition Event" means any of the following events: (i)
any person or group of persons, other than SMC or its affiliates, acquires or
becomes the beneficial owner of 25% or more of the outstanding shares of Savers
Common Stock; (ii) any new group is formed which beneficially owns 25% or more
of the outstanding shares of Savers Life Common Stock (other than a group which
includes or may reasonably be deemed to include SMC or any of its affiliates);
(iii) any person or group of persons, other than SMC or its affiliates, has
commenced a tender or exchange offer for 25% or more of the then outstanding
shares of Savers Life Common Stock or publicly proposed any bona fide merger,
consolidation or acquisition of all or substantially all the assets of Savers
Life, or other similar business combination involving Savers Life; (iv) Savers
Life enters into, or announces that it proposes to enter into, an agreement,
including, without limitation, an agreement in principle, providing for a merger
or other business combination involving Savers Life or the acquisition of a
substantial interest in, or a substantial portion of the assets, business or
operations of Savers Life (other than the transactions contemplated by the
Merger Agreement); (v) any person or group of persons, other than SMC or its
affiliates, is granted any option or right, conditional or otherwise, to acquire
or otherwise become the beneficial owner of shares of Savers Life Common Stock,
which together with all shares of Savers Life Common Stock beneficially owned by
such person or group of persons, results or would result in such person or group
of persons being the beneficial owner of 25% or more of the outstanding shares
of Savers Life Common Stock; or (vi) there is a public announcement with respect
to a plan or intention by Savers Life or any person or group of persons, other
than SMC or its affiliates, to effect any of the foregoing transactions.

AMENDMENT AND WAIVER; GOVERNING LAW

The Merger Agreement may be changed, discharged or, except as stated above,
terminated only by an instrument in writing signed by the party or parties
against which enforcement of such change, discharge or termination is sought.
The conditions precedent to the Merger summarized in the second and third
paragraphs under "THE MERGER AGREEMENT -- Conditions Precedent to the Merger"
may be waived by SMC and SAC and Savers Life, respectively.

The Merger Agreement shall be construed in accordance with and governed by
the laws of the State of North Carolina.

52
<PAGE> 65

VOTING AGREEMENTS

Persons who have the power to vote 541,045 shares of Savers Life Common
Stock outstanding at the close of business on August 1, 1997 (approximately
30.4%) of the shares of Savers Life Common Stock then outstanding have signed
agreements obligating them to vote in favor of approval of the Merger Agreement
and against (i) any action or agreement that would result in a breach of any
covenant, representation or warranty, or any other obligation or agreement, of
Savers Life under the Merger Agreement and (ii) any action that is intended, or
that could be reasonably expected, to impede, interfere with, delay, postpone or
discourage, or adversely affect the contemplated economic benefits to SMC of the
Merger and the actions or transactions contemplated by the Merger Agreement.

DESCRIPTION OF SMC COMMON STOCK

The current authorized capital stock of SMC consists of 20,000,000 shares
of SMC Common Stock, and 1,000,000 shares of SMC Preferred Stock. At the close
of business on August 1, 1997, 4,870,240 shares of SMC Common Stock were issued
and outstanding, 2,217,503 shares of SMC Common Stock were reserved for issuance
upon exercise of warrants and stock options and 882,259 shares were held as
treasury stock.

The holders of SMC Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative voting
rights. The holders of a majority of the outstanding shares of SMC Common Stock
represented at a meeting at which a quorum is present may elect all directors to
be elected at the meeting. Under Indiana law, holders of SMC Common Stock may
take action without a meeting of stockholders if a consent in writing setting
forth such action is signed by the holders of all outstanding shares of SMC
Common Stock.

The holders of the SMC Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of legally available funds. In the event of the liquidation,
dissolution or winding up of SMC, the holders of SMC Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities. There are
no preemptive rights, redemption or sinking fund provisions applicable to the
SMC Common Stock. All outstanding shares of SMC Common Stock are fully paid and
nonassessable, and the shares of SMC Common Stock issuable in the Merger will be
fully paid and nonassessable. The dividends and liquidation rights of holders of
SMC Common Stock are subject to the rights and preferences of the holders of
shares of any series of SMC Preferred Stock which SMC may issue in the future.

Effective August 1, 1997, SMC redeemed all of its previously outstanding
Class S Preferred Stock.

The transfer agent and registrar for the SMC Common Stock is ChaseMellon
Shareholder Services, Leonis, New Jersey.

Upon consummation of the Merger and assuming the issuance of 1,652,772
shares in connection therewith, disregarding the Performance Premium and
assuming the approval at the SMC Annual Meeting of the Stock Option Plan
Amendment, there will be 13,476,988 shares of SMC Common Stock available for
future issuances, of which 1,740,038 shares of SMC Common Stock will be reserved
for issuance upon conversion of subordinated convertible debt, 699,358 shares
will be reserved for issuance upon the exercise of outstanding warrants,
1,518,145 shares will be reserved for issuance upon the exercise of outstanding
options, and 981,855 shares will be available for future option grants under the
Stock Option Plan. Unissued shares of SMC Common Stock may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. SMC does not
currently have any plans to issue additional shares of SMC Common Stock or SMC
Preferred Stock (other than shares of SMC Common Stock which may be issued in
the Merger or upon the exercise of warrants or pursuant to options granted under
the Stock Option Plan).

The SMC Board is authorized, without any further action by the
stockholders, to designate series of SMC Preferred Stock and determine the
rights, preferences, privileges and restrictions of each series. The SMC Board
may issue SMC Preferred Stock with voting and conversion rights which could
adversely affect

53
<PAGE> 66

the voting power of the holders of SMC Common Stock and which could, among other
things, have the effect of delaying, deterring or preventing a change in control
of SMC.

One of the effects of the existence of unissued and unreserved SMC Common
Stock may be to enable SMC to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of SMC by means of a merger, tender offer, proxy contest or otherwise
and thereby protect the continuity of SMC's management and possibly deprive the
stockholders of opportunities to sell their shares of SMC Common Stock at prices
higher than prevailing market prices. Such additional shares could also be used
to dilute the stock ownership of persons seeking to obtain control of SMC.

COMPARATIVE RIGHTS OF STOCKHOLDERS

As a result of the Merger, stockholders of Savers Life, whose rights are
now governed primarily by the NCBCA and, to a lesser extent, certain insurance
company laws and regulations applicable to Savers Life, will become stockholders
of SMC, an Indiana corporation, and as such their rights will be governed by the
IBCL and, to a lesser extent, certain insurance holding company laws and
regulations applicable to SMC. Certain differences arise from the change in
governing law as well as from distinctions between the Savers Life Charter and
Bylaws and SMC's Articles of Incorporation (the "SMC Charter") and Bylaws. Some
of the significant differences in the rights of stockholders of Savers Life and
SMC are discussed below. The following comparison of certain provisions of the
IBCL and Indiana insurance law and the SMC Charter and Bylaws, on the one hand,
the NCBCA and North Carolina insurance law and the Savers Life Charter and
Bylaws, on the other, does not purport to be a complete statement of the
differences which may affect the rights of stockholders.

COMMON STOCK

All voting rights in SMC and Savers Life are presently vested in the
holders of SMC Common Stock and Savers Life Common Stock, respectively. The
voting rights vested in holders of SMC Common Stock are subject to the authority
granted in the SMC Charter to the SMC Board to issue preferred stock with voting
rights. The issuance of preferred stock with voting rights could affect the
voting rights of the holders of SMC Common Stock. The Savers Life Charter does
not authorize the issuance of any preferred stock. See "-- Preferred Stock."

PREFERRED STOCK

Under the SMC Charter, the SMC Board is authorized to issue preferred stock
in series and to fix the powers, designations, preferences or other rights of
the shares and the qualifications, limitations and restrictions of such shares.
Preferred stock issued by SMC would normally rank prior to SMC Common Stock as
to dividend rights, liquidation preferences, or both, may have full or limited
voting rights (including multiple voting rights and voting rights as a class)
and may be convertible into shares of SMC Common Stock. SMC has no present plans
or understandings for the issuance of any additional preferred stock. However,
any such issuance in the future could adversely affect the rights of holders of
SMC Common Stock particularly if the preferred stock is given preferential
dividend, liquidation or voting rights.

The Savers Life Charter does not authorize the Savers Life Board to issue
preferred stock.

VOTING

Each share of SMC Common Stock and each share of Savers Life Common Stock
is entitled to one vote on all matters presented to the stockholders. The
holders of Savers Life Common Stock have cumulative voting rights in the
election of directors. Thus, each holder of Savers Life Common Stock is entitled
to the number of votes equaling the number of shares of Savers Life Common Stock
he or she holds multiplied by the number of directors to be elected, and he or
she may cast all of such votes for a single director or may distribute them
among the number of directors to be voted for, or for any two or more of them.
The holders of SMC Common Stock do not have cumulative voting rights in the
election of directors.

54
<PAGE> 67

Under Indiana law, with certain exceptions, any merger, share exchange or
sale of substantially all of a corporation's assets other than in the ordinary
course of business must be approved by the board of directors (which may
condition its approval of the transaction on any basis) and the holders of a
majority of shares entitled to be cast by each voting group entitled to vote
separately on the transaction, unless the IBCL, the articles of incorporation or
the board of directors require a greater vote. Separate voting by voting groups
is required (i) on a plan of merger if such plan contains a provision that, if
contained in a proposed amendment to articles of incorporation, would require
action by one or more voting groups affecting the rights of shares, and (ii) on
a plan of share exchange by each class or series of shares included in the
exchange, with each class or series constituting a separate voting group.
Neither the SMC Charter nor Bylaws contain additional requirements with respect
to extraordinary corporate transactions.

Under North Carolina law, the voting provisions regarding extraordinary
corporate transactions under the NCBCA are similar to those applicable to
Indiana corporations. Neither the Savers Life Charter nor its Bylaws contain
additional provisions regarding such transactions. Further, since Savers Life
has only one class of stock authorized, each outstanding share has an equal vote
in all matters considered by stockholders, and provisions regarding voting by
voting groups have no effect.

DIRECTORS

Number. The SMC Charter provides that the number of directors constituting
the SMC Board will be fixed by the Bylaws. The SMC Bylaws provide that the
number of directors may not be less than five nor more than nine. The SMC Board
currently consists of nine members. The SMC Board will amend the SMC Bylaws to
increase the maximum number of directors to ten in order to be able to appoint
Mr. Stoltz as a director.

The Savers Life Bylaws provide that the number of directors will not be
less than seven nor more than fifteen.

Classification of Board of Directors. The SMC Bylaws provide for the SMC
Board to be divided into three classes, each serving a term of three years, with
the term of one class expiring each year. Because the division of the SMC Board
into three classes could delay a holder or holders of shares representing a
majority of the voting power from obtaining control of the SMC Board, such
holder or holders may not be able to replace a majority of the directors prior
to at least the second annual meeting of stockholders after it or they acquired
a majority position.

The Savers Life Board is not divided into classes, and all directors of
Savers Life are elected annually.

Removal of Directors. The SMC Bylaws provide that directors may be removed
from office with or without cause only by the affirmative vote of not less than
a majority of the outstanding shares entitled to vote at a duly constituted
meeting of stockholders called expressly for such purpose.

The Savers Life Bylaws provide that directors may be removed from office
without cause by a vote of stockholders holding a majority of the shares
entitled to vote at an election of directors; provided, however, that a director
may not be removed if the number of votes sufficient to elect directors under
cumulative voting is voted against removal.

DISSENTERS' RIGHTS

Under Indiana law, a stockholder of a corporation participating in certain
mergers, reorganizations or other transactions may be entitled to receive cash
in an amount equal to the fair value of his or her shares (as determined by a
court) in lieu of the consideration such holder would otherwise receive in the
transaction. Such appraisal rights are not available, however, to stockholders
of a corporation whose shares are listed on Nasdaq or a similar market. Since
the SMC Common Stock is listed on Nasdaq, SMC stockholders do not have
dissenters' rights.

Dissenters' rights under North Carolina law are described herein under
"DISSENTERS' RIGHTS."

55
<PAGE> 68

STOCKHOLDER SUITS

Under Indiana law, upon compliance with certain procedures, a stockholder
may institute a lawsuit on behalf of a corporation if he or she was a
stockholder of the corporation when the transaction complained of occurred or
unless he or she became a stockholder by operation of law from one who was a
stockholder at that time. An individual stockholder also may commence a class
action suit on behalf of himself or other similarly situated stockholders where
the requirements for maintaining a class action under Indiana law have been met.

Under the NCBCA, a stockholder of a North Carolina corporation may
institute a lawsuit in the name of the corporation upon meeting certain
requirements, including the requirement of making a written demand upon the
corporation to take appropriate action and refraining from filing a lawsuit with
respect to such demand until 90 days expires following such demand, unless the
corporation notifies the stockholder that it rejected the demand or irreparable
injury would result to the corporation by waiting for the 90 days to expire.

AMENDMENT OF CHARTER AND BYLAWS

Under Indiana law, unless its articles of incorporation provide otherwise,
a corporation's board of directors may adopt certain administrative amendments
to the corporation's articles of incorporation without stockholder action. In
all other circumstances, unless the IBCL, the articles of incorporation or the
board of directors require a greater vote or a vote by voting groups, an
amendment must be approved by (i) a majority of the votes entitled to be cast on
such amendment by any voting group with respect to which the amendment would
create dissenters' rights; and (ii) a majority of the votes cast thereon by each
voting group entitled to vote on the amendment. Pursuant to the IBCL, unless its
articles of incorporation provide otherwise, only a corporation's board of
directors may amend or repeal the corporation's bylaws. A corporation's articles
of incorporation may provide that the stockholders may adopt or amend a bylaw
that fixes a greater quorum or voting requirement for stockholders than is
required by the IBCL. The SMC Charter does not contain such a provision.

The provisions of the NCBCA relating to amending the articles of
incorporation are similar to the provisions of the IBCL. Under the NCBCA,
stockholders can amend or repeal a corporation's bylaws, even though the bylaws
can be amended by the board of directors. In the absence of a provision in the
articles of incorporation or the bylaws requiring stockholder action to amend
the bylaws, the board of directors is authorized to amend them without
stockholder approval, except that the board of directors may not adopt, repeal
or amend a bylaw adopted, repealed or amended by the stockholders, unless the
articles of incorporation or a bylaw adopted by the stockholders authorizes the
board of directors to adopt, amend or repeal that particular bylaw or the bylaws
generally.

NOMINATIONS OF DIRECTORS AND BUSINESS PRESENTED AT ANNUAL MEETINGS

The SMC Bylaws provide that advance notice of nominations for the SMC
Board, other than nominations by the SMC Board or a committee thereof, shall be
given to SMC in the manner provided in the Bylaws. The Bylaws require, in
general, that such nominations must be received by SMC, together with certain
other information, not less than 60 nor more than 90 days prior to the meeting
at which such directors are to be elected. In the event that less than 75 days'
notice or public disclosure of the date of the meeting is given, notice by the
stockholders must be received by SMC not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs.

The SMC Bylaws also provide that advance notice of any business proposed to
be brought before an annual meeting of stockholders other than by or at the
direction of the SMC Board or a committee thereof, shall be given to SMC in the
manner provided in the Bylaws. The Bylaws require, in general, that such
proposals must be received by SMC, together with certain other information, not
less than 60 nor more than 90 days prior to the meeting at which such proposal
is to be introduced. In the event less than 75 days' notice or prior public
disclosure of the date of the meeting is given, notice by the stockholder must
be received by SMC not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs.

56
<PAGE> 69

Neither the Savers Life Charter nor its Bylaws contains provisions similar
to those described in the two preceding paragraphs.

INDEMNIFICATION AND LIMITATION OF LIABILITY

Under Indiana law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any action, by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement. Such indemnification is available to such persons
only if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. No indemnification (unless awarded by a court) can be made
until a majority of a quorum of disinterested directors, a committee thereof,
independent legal counsel or the stockholders determine that the person seeking
indemnification has met the applicable standard of conduct. Additionally,
Indiana law provides that where such persons have been successful on the merits
or otherwise in defense of such an action, the corporation shall be required to
indemnify them against expenses incurred in connection therewith.

The IBCL was amended in 1986 to provide that an Indiana corporation may
amend its articles of incorporation to relieve directors of monetary liability
for breach of their fiduciary duties including acts constituting gross
negligence, except under certain circumstances, including breach of the
director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct and a knowing violation of law or any transaction from
which the director derived an improper personal benefit. The SMC Charter
provides that directors are not liable to SMC or its stockholders for monetary
damages for breach of their fiduciary duties, subject to the exceptions
specified by Indiana law.

The Savers Life Charter and Bylaws provide protection to its officers and
directors against monetary liability for actions taken by them in the
performance of their duties as such officers and directors and exonerate
directors from monetary liability for such actions. The exoneration from
monetary liability does not apply to actions taken by a director who knew at the
time of the act or omission that the action was clearly in conflict with the
best interests of Savers Life, to liability for unlawful distributions approved
by a director or to any transaction from which the director received an improper
benefit. The bylaws, as well as the statutory law of North Carolina, afford
broad protection from liability and indemnification from expense. Essentially,
an officer or director who is wholly successful in defending a claim is entitled
to full indemnification for expenses incurred in the defense. One who is
partially successful may be entitled to indemnification for the amount of any
judgment as well as payment of expenses, provided that the individual did not
violate his or her statutory duty to Savers Life. In any event, the court
hearing a matter has authority to determine whether the person accused is
entitled to indemnification. Savers Life has purchased a directors and officers
liability insurance policy that provides coverage to Savers Life and to its
officers and directors for actions taken by them in the ordinary course of their
duties.

PROVISIONS APPLICABLE TO BUSINESS COMBINATIONS AND CHANGES IN CONTROL

Certain provisions of Indiana law and the SMC Charter and Bylaws may delay,
deter or prevent a change in control of SMC.

Under Indiana law, a director may, in considering the best interests of a
corporation, consider the effects of any action on stockholders, employees,
suppliers and customers of the corporation, and communities in which offices or
other facilities of the corporation are located, and any other factors the
director considers pertinent.

Under Indiana law, no business combination (defined to include mergers,
sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalization or liquidations or dissolutions) involving SMC and an
interested stockholder (defined to include any holder of 10% or more of its
voting stock) may be entered into unless (a) within five years of the share
acquisition date the business combination or the purchase of shares is approved
by the SMC Board before the stockholder became an interested stockholder; (b)
all requirements of the SMC Charter relating to business combinations are
satisfied and either (i) the business combination is

57
<PAGE> 70

approved by the SMC Board; (ii) the business combination is approved by a
majority of the stockholders of SMC (excluding the interested stockholder and
five years have expired since the acquisition of shares by the interested
stockholder) or (iii) all stockholders are paid fair value (as defined in the
IBCL) for their stock.

When a corporation (such as SMC), incorporated in Indiana and having its
principal place of business, principal office, or substantial assets in Indiana,
has a 20% ownership by Indiana residents, which is now and will be the case
after the Merger, any acquisition which, along with previous holdings, gives the
acquiror at least 20% of the corporation's voting stock triggers a stockholder
approval mechanism. If the acquiror files a statutorily required disclosure
statement, requests a special meeting of stockholders at which all disinterested
stockholders (those not affiliated with the acquiror or any officer or inside
director of the corporation) consider and vote upon whether the acquiror shall
have voting rights with respect to the shares of such corporation held by it,
and agrees to pay all costs incurred in connection with such meeting, then the
corporation's management must call such a meeting within 10 days and hold such
meeting within 50 days of such request. Without stockholder approval, the shares
acquired by the acquiror have no voting rights. If the acquiror fails to file
the statutorily required disclosure statement, the corporation can redeem the
acquiror's shares at a price to be determined according to procedures devised by
the corporation.

Similar provisions of the NCBCA do not apply to Savers Life because it is
not a "public corporation" within the meaning of the NCBCA and because Savers
Life Common Stock is not registered under the Exchange Act.

DISSENTERS' RIGHTS

The following is a summary of Article 13 of the NCBCA and the procedures
for Savers Life stockholders dissenting from the Merger Agreement and exercising
dissenters' rights. This summary is qualified in its entirety by reference to
Article 13 of the NCBCA, a copy of which is attached hereto as Annex B. Annex B
should be reviewed carefully by any stockholder who wishes to exercise statutory
dissenters' rights or who wishes to preserve the right to do so. FAILURE
STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 13 OF THE NCBCA WILL
RESULT IN THE LOSS OF DISSENTERS' RIGHTS.

Section 55-13-01, et seq., of the NCBCA gives any stockholder of Savers
Life who objects to the Merger Agreement and who complies with the provisions of
Section 55-13-01, et seq., the right to receive a cash payment from Savers Life
for the "fair value" of his Savers Life Common Stock as of the date on which the
Merger becomes effective, subject only to the surrender by him of his
certificates representing his shares. Any such payment may be higher or lower
than the $8.00 per share consideration paid in the Merger.

To exercise the right to object to the Merger, a stockholder must give to
Savers Life, prior to or at the Savers Life Special Meeting, a written objection
to the Merger Agreement. A stockholder who wishes to object to the Merger
Agreement must not vote any shares in favor of the Merger Agreement. If the
Merger Agreement is approved at the Special Meeting, Savers Life must notify all
objecting stockholders who did not vote in favor of the Merger Agreement of the
time within which they must make a demand for payment of the fair value of their
shares. Within 30 days of such notice, each stockholder receiving the notice
must make demand upon Savers Life for payment of the fair value of his shares.
If Savers Life and the stockholder do not agree upon a value to be paid, the
stockholder may commence an appraisal proceeding by filing an action in the
Superior Court of Forsyth County, North Carolina, where Savers Life has its
principal place of business. Upon the filing of such an action, Savers Life must
offer to pay to the stockholder the amount it estimates to be the fair value of
his shares, plus interest accrued to the date of payment, in full satisfaction
of his demand. After the Effective Time of the Merger, no stockholder shall have
any rights as a stockholder of Savers Life including, without limitation, any
right to vote or to receive dividends or liquidating distributions. NEITHER A
VOTE AGAINST THE MERGER AGREEMENT NOR THE FAILURE TO VOTE WILL CONSTITUTE A
PROPER WRITTEN OBJECTION. If proper and timely written objection to the Merger
Agreement is given by a stockholder, a failure to vote against the Merger
Agreement will not constitute a waiver of his right to dissent and demand the
fair value of his shares. A vote by a stockholder to approve the Merger
Agreement terminates his right to object under the statute.

58
<PAGE> 71

Any objections to the Merger Agreement or demands for payment should be
mailed to Patricia G. Landy, Secretary, Savers Life Insurance Company, 8064
North Point Boulevard, Winston-Salem, North Carolina 27106. All proper
objections or demands must be received by Savers Life on or prior to the date on
which they are required to be delivered.

Except as may be required by law or ordered by the Court, Savers Life will
not pay fees of counsel or other expenses incurred by objecting stockholders.

THE ABOVE IS MERELY A SUMMARY OF SECTIONS 55-13-01 THROUGH 55-13-31 OF THE
NCBCA. THIS SUMMARY IS QUALIFIED BY REFERENCE TO THOSE SECTIONS, WHICH ARE SET
FORTH IN THEIR ENTIRETY AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. SAVERS
LIFE STOCKHOLDERS DESIRING TO EXERCISE DISSENTERS' RIGHTS SHOULD REFER TO THE
FULL TEXT OF ANNEX B AND SHOULD CONSULT COUNSEL SINCE FAILURE TO COMPLY STRICTLY
WITH THE PROVISIONS OF THE STATUTE WILL RESULT IN THE LOSS OF DISSENTERS'
RIGHTS.

If holders of more than 5% of the shares of Savers Life Common Stock
outstanding immediately prior to the Effective Time properly exercise
dissenters' rights, SMC will have the right to decline to consummate the Merger.
See "THE MERGER AGREEMENT -- Conditions Precedent to the Merger."

ELECTION OF DIRECTORS OF SMC

Under SMC's Bylaws, as in effect on the date hereof, the SMC Board consists
of nine persons and is divided into three classes, each of whose members serves
for a three-year term. At the SMC Annual Meeting, SMC stockholders will elect
three Class II directors. The terms of the current Class II directors expire at
the SMC Annual Meeting. The nominees for Class II directors, if elected, will
serve three years until the 2000 Annual Meeting of stockholders of SMC and until
their successors have been elected and qualified. The current Class I and Class
III directors will continue in office until the 1999 and 1998 Annual Meetings of
stockholders of SMC, respectively.

Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the three nominees recommended by the SMC Board and named
below. SMC stockholders do not have the right to cumulate votes in the election
of directors. Directors will be elected by a plurality of the votes cast at the
SMC Annual Meeting. Thus, assuming a quorum is present, the two persons
receiving the greatest number of votes will be elected to serve as members of
the SMC Board. In the event that any nominee for the SMC Board is unable or
declines to serve as a director at the time of the SMC Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the SMC Board
to fill the vacancy, or the number of directors constituting the full SMC Board
may be reduced. It is not expected that any nominee will be unable or will
decline to serve as a director.

A stockholder of SMC may nominate a person for election to the SMC Board.
To do so, such stockholder must give written notice thereof, containing the
information required by SMC's Bylaws, to the Secretary of SMC. Any such notice
must be received at the principal executive office of SMC not later than the
close of business on September 29, 1997.

THE SMC BOARD RECOMMENDS A VOTE FOR ELECTION OF THE FOLLOWING NOMINEES AS
DIRECTORS OF SMC:

NOMINEES FOR DIRECTORS

Class II - Nominees to Serve Three Years Until 2000 Annual Meeting:

STEPHEN M. COONS, age 56, has been a director of SMC since August, 1989.
Mr. Coons has been General Counsel and Executive Vice President of SMC since
March 1993 and has been Secretary of SMC since March 1994. He was of counsel to
the law firm of Coons, Maddox & Koeller from March 1993 to December 31, 1995.
Prior to March 1993, Mr. Coons was a partner with the law firm of Coons & Saint.
He has been practicing law for 25 years. Mr. Coons served as Indiana Securities
Commissioner from 1978 to 1983.

59
<PAGE> 72

MARTIAL R. KNIESER, age 55, has been a director of SMC since May 1990. He
was Medical Director of Community Hospital Indianapolis from 1978 to 1989 and
has been Medical Director of Stat Laboratory Services from 1989 to present. Dr.
Knieser also has been Medical Director of Standard Life since December 1987.

PAUL ("PETE") B. PHEFFER, age 46, has been Executive Vice President, Chief
Financial Officer and Treasurer of SMC since May 1, 1997 and director of SMC
since June 27, 1997. Prior to joining SMC, Mr. Pheffer was Senior Vice President
- -- Chief Financial Officer and Treasurer of Jackson National Life Insurance
Company from 1994 to 1996 and prior to that was Senior Vice President -- Chief
Financial Officer at Kemper Life Insurance Companies from 1992 to 1994. Mr.
Pheffer, a CPA, received his MBA from the University of Chicago in 1988.

MEMBERS OF SMC BOARD CONTINUING IN OFFICE

Class III - Serving Until 1998 Annual Meeting

RONALD D. HUNTER, age 45, has been the Chairman of the Board, Chief
Executive Officer and President of SMC since its formation in June 1989 and the
Chairman of the Board and Chief Executive Officer of Standard Life since
December 1987. Previously, Mr. Hunter held several management and sales
positions in the life insurance industry with a number of companies including
Conseco, Inc. (1981-1986), Aetna Life & Casualty Company (1978-1981), United
Home Life Insurance Company (1975-1977) and Prudential Life Insurance Company
(1972-1975).

EDWARD T. STAHL, age 50, has been an Executive Vice President of SMC since
its formation, has been a director of SMC from July 1989 (except for the period
from January 12, 1990 to May 21, 1990) and has served as Director of Corporate
Development since June 1993. Mr. Stahl was Secretary of SMC from June 1989 to
March 1994. Mr. Stahl was President and Chief Operations Officer of Standard
Life from May 1988 to June 1993. He has been a director of Standard Life since
December 1987, and Executive Vice President and Secretary since June 1993. Mr.
Stahl has served in various capacities in the insurance industry since 1966. He
earned his FLMI designation in 1981, and is a member of several insurance
associations.

JAMES C. LANSHE, age 51, has been a director of SMC since August 1993. From
1989 to 1997, Mr. Lanshe served as Chairman of Norex Corporation and its
predecessors, a financial services holding company. From 1991 to 1997, Mr.
Lanshe served as Chief Executive Officer of Norcross & Company, an investment
banking firm. From 1988 to 1991 he was a partner with the law firm of
Greenbauer, Boone, Treitz, Maggiolo and Brown of Louisville, Kentucky.

Class I -- Serving Until 1999 Annual Meeting:

ROBERT A. BORNS, age 61, has served as Chairman of Borns Management
Corporation (real estate management), Indianapolis, Indiana since 1962 and as
Chairman of Correctional Management Company, L.L.C. (privatized correctional
facilities), Indianapolis, Indiana since 1996. Mr. Borns serves on numerous
boards, including IPALCO Enterprises, Inc., Indianapolis Power and Light
Company, Indianapolis Water Company, IWC Resources Corporation, and of Heritage
Partners Management, Inc. He is also a member of the Board of Trustees of
Indianapolis Museum of Art, Indianapolis Symphony Orchestra, Indiana University
Foundation and St. Vincent Hospital Advisory Board.

RAYMOND J. OHLSON, age 47, has served as Executive Vice President and
director of SMC since December 1993. He has served as President and director of
Standard Marketing since August 1991. Since June 1993, Mr. Ohlson has served as
President of Standard Life. Mr. Ohlson entered the life insurance business in
1971. While still in college, Mr. Ohlson qualified for the Million Dollar Round
Table and is now a life member. He earned his CLU designation in 1980. Mr.
Ohlson owned and operated Ohlson & Associates, an independent insurance
marketing organization, from 1984 to April 1, 1994, when the assets of Ohlson &
Associates were acquired by Standard Marketing.

RAMESH H. BHAT, age 47, has been a director of SMC since July 1989, except
for the period from January 1990 to August 1990. Dr. Bhat has been practicing
obstetrics and gynecology in Fort Wayne, Indiana, since

60
<PAGE> 73

1978 and is a member of the medical staff of Parkview Memorial Hospital and
partner of Northeast OB-GYN, P.C., in Fort Wayne, Indiana.

Additional information regarding members of the SMC Board, including
compensation, options granted during fiscal year 1996 and related party
transactions is discussed under "ADDITIONAL INFORMATION REGARDING SMC --
Executive Compensation."

Pursuant to the Merger Agreement, SMC has agreed to appoint Mr. Stoltz to
the SMC Board immediately after the Effective Time. Upon the appointment of Mr.
Stoltz, the SMC Board will consist of ten directors, eight of whom were
directors of SMC as of the dates of the Merger Agreement and the SMC Annual
Meeting. Mr. Stoltz will stand for election at the 1998 annual meeting of the
stockholders of SMC. Mr. Stoltz is 56 and has been the President and Treasurer,
as well as a director sitting on the Finance and Executive Committees, of Savers
Life since its founding in 1980. In connection with the consummation of the
Merger, it is contemplated that Mr. Stoltz will enter into the Stoltz Employment
Agreement effective as of the Effective Time. It is contemplated that the Stoltz
Employment Agreement will provide that Mr. Stoltz will be appointed as the Vice
Chairman of Savers Life. See "THE MERGER -- Interests of Certain Persons in the
Merger."

PROPOSAL TO APPROVE STOCK OPTION PLAN AMENDMENT

OVERVIEW

The SMC Board proposes that the stockholders of SMC approve an amendment to
the Stock Option Plan to increase the number of shares reserved for issuance
thereunder from 1,500,000 to 2,500,000 and to allow the SMC Board to vary, from
year to year, the number of shares subject to options granted to members of the
SMC Board who are not full-time salaried officers or employees of SMC or its
subsidiaries ("Outside Directors").

Pursuant to the Stock Option Plan, nonqualified options may be granted to
the officers and other key employees of SMC or any subsidiary in which SMC owns
more than 50% of the total combined voting power of all classes of stock. At the
close of business on August 1, 1997, options to purchase 1,518,145 shares of
SMC's Common Stock were outstanding under the Stock Option Plan, none of which
had been exercised. Mr. Pheffer has been granted options to purchase 75,000
shares of SMC Common Stock (options to purchase 25,000 shares are currently
exercisable) subject to shareholder approval of the Stock Option Plan Amendment.

As noted below, each SMC Outside Director will receive an option to
purchase at least 500 shares of SMC Common Stock on the date of the SMC Annual
Meeting. Assuming the nominees set forth herein under "ELECTION OF DIRECTORS OF
SMC" are elected and this proposal is approved at the SMC Annual Meeting, SMC
Outside Directors will receive options under the Stock Option Plan during 1997
with respect to a total of at least 2,000 shares of SMC Common Stock. Except for
grants to Outside Directors grants under the Stock Option Plan are
discretionary. Accordingly, it is not possible to predict the amounts of such
discretionary grants. Grants under the Stock Option Plan in 1996 to certain of
SMC's executive officers are indicated in the "Option/SAR Grants in Last Fiscal
Year" and "Summary Compensation" tables under "ADDITIONAL INFORMATION REGARDING
SMC -- Executive Compensation." Grants under the Stock Option Plan in 1996 to
all executive officers as a group and all employees, including all officers
other than executive officers, as a group, cover 700,980 (220,500 without the
replacement options hereinafter described) and 767,122 (286,642 without the
replacement options) shares of SMC Common Stock, respectively.

The SMC Board believes that it is in SMC's and its stockholders' best
interests to approve the Stock Option Plan Amendment to allow SMC to continue to
grant options under the Stock Option Plan to secure for SMC the benefits of the
additional incentive inherent in the ownership of SMC Common Stock by directors,
officers and other key employees of SMC and its subsidiaries and to help SMC and
its subsidiaries secure and retain the services of key employees.

THE SMC BOARD RECOMMENDS A VOTE FOR THE STOCK OPTION PLAN AMENDMENT.

61
<PAGE> 74

DESCRIPTION OF THE STOCK OPTION PLAN

The description of the Stock Option Plan contained in this Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the Stock Option Plan, as it is proposed to be amended,
a copy of which is attached hereto as Annex C and incorporated herein by
reference.

The Stock Option Plan is designed to align the interests of the SMC
stockholders and the recipients of awards thereunder, to attract and retain
officers and other key employees and persons who would serve as non-employee
directors of SMC, and to provide incentives for the long-term success of SMC.
Approximately 85 individuals are eligible to receive grants under the Stock
Option Plan.

Administration. The Stock Option Plan is administered by a committee (the
"Committee") consisting of the SMC Board. The Committee selects officers and
other key employees for participation in the Stock Option Plan and determines
the number of shares of SMC Common Stock allocable to an award, the exercise
price for such shares, the time and conditions of exercise and all other terms
and conditions of an award. The Committee may, subject to the terms of the Stock
Option Plan, interpret and establish rules and regulations for the
administration of the Stock Option Plan. Except with respect to awards to
directors or executive officers of SMC, the Committee may delegate some or all
of its power and authority to administer the Stock Option Plan to the Chief
Executive Officer or other executive officers of SMC.

Available Shares. Under the Stock Option Plan, as proposed to be amended,
2,500,000 shares of SMC Common Stock may be issued upon the exercise of options,
subject to adjustment to reflect any stock split, stock dividend,
recapitalization, merger or other similar change in capitalization. If any
outstanding option expires or terminates unexercised or is canceled or
forfeited, the shares reserved under such option will again be available for
awards under the Stock Option Plan. As noted above, at the close of business on
August 1, 1997, options to purchase 1,518,145 shares of SMC Common Stock had
been granted under the Stock Option Plan.

Grant and Exercise of Options. Each option will be exercisable in whole or
from time to time in part as determined by the Committee. The purchase price per
share of SMC Common Stock may not be less than 100% of the fair market value of
SMC Common Stock on the date of grant of an option, subject to adjustment for
changes in capitalization. Payment of the purchase price may be made in cash or
shares of SMC Common Stock as determined by the Committee at the time of grant
of an option. No options may be granted under the Stock Option Plan after August
31, 2002.

Federal Income Tax Treatment. Under current U.S. federal tax law, the
following are the income tax consequences generally arising with respect to
awards under the Stock Option Plan. All options granted under the Stock Option
Plan are non-qualified stock options. A participant will not recognize taxable
income as a result of the receipt of an option under the Stock Option Plan. A
participant who exercises an option will recognize taxable income upon exercise
in an amount measured by the excess, if any, of the fair market value on the
date of exercise of the shares so acquired over their option price, and SMC will
be entitled to a corresponding tax deduction in the same amount. The tax basis
of such shares will be equal to their fair market value on the date of exercise,
and the holding period of such shares, for the purpose of determining whether a
subsequent sale thereof would result in the recognition of short-term or
long-term capital gain or loss will generally commence on such date.

Termination of Employment. If a participant's employment terminates by
reason of disability, retirement on or after age 62 after a minimum of three
years of employment, or death, any option held by such participant will become
fully exercisable and may thereafter be exercised for a period not to exceed
three years after the date of such termination of employment, but in no event
after the expiration of such option. If a participant's employment terminates
for any reason other than disability, retirement or death, any option held by
such participant will be exercisable only to the extent that such option was
exercisable on the date of such termination of employment and may thereafter be
exercised for a period not to exceed one year after such date, but in no event
after the expiration of such option; provided, that if such participant's
employment is terminated for cause, any option held by such participant will
terminate automatically. If a participant dies during the above-described
three-year or one-year period following termination of employment, any option

62
<PAGE> 75

held by such participant will be exercisable for a period not to exceed one year
after the date of death, but in no event after the expiration of such option.

Change in Control. In the event of a change in control of SMC, each
outstanding option will be surrendered to SMC and cancelled, and the holder of
such option will receive a payment from SMC in an amount equal to the number of
shares of SMC Common Stock subject to such option, multiplied by the difference
between the exercise price per share and the highest price per share offered to
SMC's stockholders in any transaction whereby the change in control takes place
or the fair market value of a share of SMC Common Stock on the date of
occurrence of the change in control, if the change in control occurs other than
pursuant to an acquisition of shares of SMC Common Stock. Change in control is
defined as an acquisition by a person or group of 20% or more of SMC's Common
Stock (other than an acquisition from or by SMC or by a SMC benefit plan, or
certain reorganizations, mergers or consolidations), a change in a majority of
the incumbent SMC Board or the approval by the stockholders of SMC of a
reorganization, merger or consolidation, or a liquidation, dissolution or sale
of all or substantially all of SMC's assets (unless SMC's stockholders receive
or own more than 60% of the stock of the surviving or purchasing company).

Outside Directors. Under the Stock Option Plan, each SMC Outside Director
will be granted options to purchase shares of SMC Common Stock at a purchase
price equal to the fair market value of the underlying SMC Common Stock on the
date of grant. On the date on which a person is first elected or begins to serve
as an Outside Director, such Outside Director will be granted an option to
purchase 500 shares of SMC Common Stock. The Stock Option Plan currently
provides that thereafter, each such Outside Director will be granted an option
to purchase 500 shares of SMC Common Stock on the date of each annual meeting of
stockholders of SMC. If the Stock Option Plan Amendment is approved, the SMC
Board, in its capacity as administrator of the Stock Option Plan, could vary,
from year to year, the number of shares subject to options granted to each
Outside Director at each annual meeting of stockholders of SMC, provided that
such number may not be less than 500. Such options will be fully exercisable on
the date of grant for a period of ten years. If an Outside Director's
directorship terminates by reason of disability, retirement on or after age 62
after a minimum of three years of service as a director, or death, any such
option may thereafter be exercised for three years after the date of such
termination, but in no event after the expiration of such option. If an Outside
Director's directorship terminates for any reason other than disability,
retirement or death, any such option may thereafter be exercised for one year
after the date of such termination, but in no event after the expiration of such
option; provided, that if such director is removed for cause, any such option
will terminate automatically. If an Outside Director dies during the
above-described three-year or one-year period following termination of such
director's directorship, any such option may thereafter be exercised for one
year after the date of death, but in no event after the expiration of such
option.

Amendment and Termination. The SMC Board may amend the Stock Option Plan as
it deems advisable, except that no amendment may be made without the approval of
SMC's stockholders if such amendment would (i) increase the maximum number of
shares of SMC Common Stock available under the Stock Option Plan, subject to
adjustment for changes in capitalization of SMC, (ii) reduce the minimum
purchase price of a share of SMC Common Stock, (iii) extend the term of the
Stock Option Plan, or (iv) require the approval of stockholders under applicable
law. The Stock Option Plan will terminate on August 31, 2002 unless terminated
earlier by the SMC Board.

RATIFICATION OF APPOINTMENT OF SMC'S PRINCIPAL INDEPENDENT AUDITORS

The SMC Board, on the recommendation of the SMC Audit Committee, has
appointed the firm of Ernst & Young LLP as principal independent auditors of SMC
for the year ending December 31, 1997. If the holders of SMC Common Stock
entitled to vote at the SMC Annual Meeting, represented in person or by proxy,
fail to ratify such appointment, the Board of Directors will reconsider whether
or not to retain such firm. Ernst & Young LLP has audited SMC's financial
statements since SMC's formation in 1989. Representatives of Ernst & Young LLP
are expected to be present at the SMC Annual Meeting and will be available to
respond to appropriate questions that may be asked by stockholders. The
representatives of Ernst & Young LLP will also have the opportunity to make a
statement at the meeting if they desire to do so.

THE SMC BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS SMC'S PRINCIPAL INDEPENDENT AUDITORS FOR 1997.

63
<PAGE> 76

ADDITIONAL INFORMATION REGARDING SMC

BUSINESS OF SMC

INTRODUCTION

SMC is an insurance holding company which directly and through
subsidiaries, acquires and manages in force life insurance and annuity business
and distributes life insurance and annuity products issued by SMC's insurance
subsidiaries and a select group of unaffiliated insurers. SMC's active
subsidiaries include: (i) Standard Life and its subsidiary, Dixie National Life,
(ii) Standard Management International and its subsidiaries, Premier Life
(Luxembourg) and Premier Life (Bermuda), and (iii) Standard Marketing.

Standard Life, SMC's principal insurance subsidiary, was organized in 1934
as an Indiana-domiciled life insurer. It is licensed to write new business or
service existing business in the District of Columbia and all states except New
York and New Jersey. Standard Life offers flexible premium deferred annuities
("FPDAs") and whole and universal life insurance. Standard Life also generates
cash flow and income from closed blocks of in force life insurance and
annuities. At June 30, 1997, Standard Life's statutory assets were $360,012,000
and the aggregate of its statutory capital and surplus, asset valuation reserve
("AVR") and interest maintenance reserve ("IMR") (its "adjusted statutory
capital") was $37,386,000. The ratio of Standard Life's adjusted statutory
capital to its total statutory assets was 10.4% at June 30, 1997. Standard Life
has a rating of "B+" ("Very Good, Secure") by A.M. Best Company, Inc. ("A.M.
Best"), a rating agency.

Standard Management International is a holding company organized under
Luxembourg law with its registered office in Luxembourg. At June 30, 1997,
Standard Management International and its subsidiaries had $147,767,000 in
assets with policies in force in over 98 countries. The majority of its business
is "unit-linked" products with a range of policyholder directed investment
choices coupled with a small death benefit, sold through its subsidiaries:
Premier Life (Luxembourg) and Premier Life (Bermuda). At June 30, 1997, Premier
Life (Luxembourg) had statutory capital and surplus of $8,076,000 and its
minimum capital and surplus was $3,295,000 and Premier Life (Bermuda) had
statutory capital and surplus of $1,558,000 and its minimum capital and surplus
was $250,000.

Standard Life owns 99.4% of Dixie National Life. At June 30, 1997, Dixie
National Life's statutory assets were $34,950,000, the adjusted statutory
capital was $4,038,000 and the ratio of its adjusted statutory capital to its
statutory assets was 11.6%. Dixie National Life has a rating of B ("Adequate")
by A.M. Best. Dixie National Life markets a variety of life insurance products
throughout the Mid-South offering primarily "burial expense" policies.

Standard Marketing is a wholesale distributor of life insurance and annuity
products. Through its network of master general agents and independent agents,
Standard Marketing distributes life insurance and annuity products for Standard
Life and Dixie National Life and for a select group of unaffiliated insurance
companies. Standard Marketing earns override commission income from the sale of
these products.

On November 8, 1996, Standard Life acquired through merger Shelby Life from
DLAC, a life insurance company located in Memphis, Tennessee (the "Shelby
Merger"). The purchase price was approximately $14,650,000, including
$13,000,000 in cash, 250,000 shares of restricted SMC Common Stock (valued at
$1,250,000) and acquisition costs of $400,000 associated with the purchase of
Shelby Life. Financing for the Shelby Merger was provided by senior debt of
$10,000,000 and $4,000,000 in subordinated convertible debt. SMC's intent at the
time it purchased Shelby Life was to cease writing new business as the new
business premium volume did not justify the costs of marketing support, and to
continue to earn profits from the existing business. Consistent with that
intent, Shelby Life ceased writing new business effective November 1, 1996, thus
eliminating marketing and sales costs and thereby reducing statutory surplus
strain. Statutory accounting practices require that acquisition costs associated
with new business (primarily commissions and policy issue costs) be fully
expensed in the year the new business is written. Surplus strain is created when
acquisition costs incurred in connection with new business reduces statutory
surplus. Many states impose minimum levels of surplus as a condition to writing
new business. See "-- Regulation."

The acquisition of Shelby Life was accounted for using the purchase method
of accounting and SMC's consolidated financial statements include the results of
Shelby Life from November 1, 1996, the effective date

64
<PAGE> 77

of acquisition. Under purchase accounting, Standard Life allocated the total
purchase price of Shelby Life to the assets and liabilities acquired, based on a
preliminary determination of their fair values and recorded the excess of
acquisition cost over net assets acquired as goodwill. Standard Life recorded
goodwill of $9,000 which will be amortized on a straight-line basis over 20
years. Standard Life may adjust this allocation when a final determination of
such values is made.

On March 18, 1996, Standard Life completed the sale of a duplicate charter
associated with First International to The Guardian Insurance and Annuity Co.,
Inc. ("GIAC"), a subsidiary of The Guardian Group, New York, New York. Standard
Life received proceeds of approximately $10,393,000, including $1,500,000 for
the charter and licenses associated with First International. Standard Life
realized a net pretax gain of $1,041,692 and a tax benefit of $1,420,000 on this
sale or $2,461,692 ($.47 per share). In addition, First International, Standard
Life and GIAC have entered into a series of other agreements that include
provisions for Standard Life to retain the economic interest in certain First
International policies and administer First International policies in force at
the date of sale. See "Business of SMC -- Reinsurance."

In an unrelated matter, SMC decided in February 1996 to terminate the
reinsurance agreement between Standard Reinsurance of North America Ltd.
("Standard Reinsurance") and Salamandra Joint-Stock Insurance Company in Ukraine
("Salamandra"), and not to renew the Barbados license of Standard Reinsurance
due to an insignificant amount of reinsurance premium volume (less than
$100,000). This resulted in the termination of Standard Reinsurance operations
and the write-off of SMC's investment in Standard Reinsurance and certain
intangible assets of Standard Reinsurance amounting to $155,856 ($.03 per
share).

The combined effect of the gain on sale of First International and related
contracts, and the Standard Reinsurance write-offs, was an increase in revenues
of $885,836 and a tax benefit of $1,420,000, for net income effect of
approximately $2,305,836 or $.44 per share for the year ended December 31, 1996.

In June 1988, Standard Life ceded a block of business to National Mutual
Life Insurance Company ("National Mutual"). Effective May 31, 1996, Standard
Life terminated by recapture the reinsurance agreement with National Mutual. As
a result of this recapture, Standard Life received assets of $4,826,000 and
liabilities of $4,826,000, primarily ordinary life policies. In connection with
this transaction, Standard Life agreed to pay National Mutual a recapture fee of
$1,200,000, and Standard Life collected administration fees of $375,000 related
to services provided in prior years that had not been recorded previously due to
the uncertainty as to its collection. The net proceeds of $825,000 were recorded
as the present value of the future profits on this block of business, which is
being amortized in proportion to the emergence of profits over 20 years. The
premium income, and corresponding increase in reserves, of $4,234,000, recorded
in connection with the recapture of the reinsurance agreement with National
Mutual will not recur in the future.

ACQUISITION STRATEGY

A principal component of SMC's strategy is to grow through the acquisition
of life insurance companies and blocks of in force life insurance and annuities.
SMC regularly investigates acquisition opportunities in the life insurance
industry that complement or are otherwise strategically consistent with its
existing business. Any decision to acquire a block of business or an insurance
company will depend on a favorable evaluation of various factors. SMC believes
that availability of blocks of business in the marketplace will continue in
response to ongoing industry consolidation and risk-based capital requirements
as well as other regulatory and rating agency concerns. In addition, SMC plans
to market annuity and life insurance products directly as it has done in the
past. SMC currently has no plans or commitments to acquire any specific
insurance business or other material assets besides Savers Life. No assurance
can be given that SMC will be successful in consummating any future acquisition.

SMC has the information systems and administrative capabilities necessary
to add additional blocks of business without a proportional increase in
operating expenses. In addition, SMC has developed management techniques for
reducing or eliminating the expenses of the companies it acquires through the
consolidation of their operations with those of SMC, and for increasing
investment yields. Such techniques include reduction

65
<PAGE> 78

or elimination of overhead, including the acquired company's management, staff
and home office, elimination of marketing expenses and, where appropriate, the
substitution of Standard Marketing's network for the acquired company's current
distribution system, and the conversion of the acquired company's data
processing operations to SMC's system.

SMC may effect its acquisitions through the purchase or exchange of shares,
if the acquisition candidate is an insurance company, or an assumption
reinsurance transaction, if the proposed acquisition concerns a block of
business. SMC's acquisitions may be subject to certain regulatory approvals,
policyholder consents and stockholder approval, if applicable.

MARKETING

Domestic Marketing. Standard Marketing was organized as a wholesale
distribution system to provide a lower cost alternative to the traditional
captive agency force. Standard Marketing has established a network of
approximately 4,000 independent general agents. These agents distribute a full
line of life insurance and annuity products issued by Standard Life and Dixie
National Life and a select group of unaffiliated insurance carriers that
Standard Marketing represents. As part of its normal recruiting, Standard
Marketing selectively recruits new agents from those formerly associated with
companies acquired by SMC. SMC does not market its annuity products through
stockbrokers.

Crediting rates, commissions, the perceived quality of the issuer, product
features and services are generally the principal factors influencing an agent's
willingness and ability to sell particular life and annuity products. SMC
believes that both agents and policy owners value the service provided by SMC.
Standard Marketing assists its agents in submitting and processing policy
applications and helps ensure that issuing insurers pay commissions on a timely
basis. Standard Life issues an annuity and pays the Standard Marketing agent's
commission within 24 hours after the submission of the policy application.
Standard Marketing also assists its agents with licensing applications and
provides other administrative support. Standard Marketing provides marketing
support for its agents, including sales seminars and other continuing education
programs, point of sale materials, illustrated proposal services, toll-free
access for sales inquiries and access to senior executives. In addition,
Standard Marketing can introduce agents to lead services who will provide such
services at discounted rates that Standard Marketing has negotiated.

Standard Marketing agents offer a full portfolio of life insurance and
annuity products that Standard Marketing has selected on the basis of their
competitive position and likely consumer acceptance. Such portfolio includes
FPDAs and whole and universal life insurance issued by Standard Life and Dixie
National Life, for which Standard Marketing is the exclusive distributor, and
deferred annuities, whole life, term and universal life insurance, and pension
and payroll deduction products issued primarily by the following unaffiliated
insurers: American National Life Insurance Company, United Presidential Life
Insurance Company, U.S. Financial Life Insurance Company and others. Each of
these unaffiliated insurers is rated "A-" to "A++" by A.M. Best. Standard
Marketing's relationships with these companies are non-exclusive and are
terminable by either party upon 30 days' notice. Standard Marketing regularly
evaluates the products its agents offer to determine whether products or
insurers should be added to, or deleted from, the Standard Marketing portfolio.
SMC does not insure any of the policies and contracts Standard Marketing's
agents sell for unaffiliated insurers.

Each general agent operates his own agency and is responsible for all
expenses of the agency. The general agents are compensated directly by the
issuing insurance companies, which perform all policy issuance, underwriting and
accounting functions. SMC is not dependent on any one agent or agency for any
substantial amount of its business. No single agent accounted for more than 4%
of Standard Life's annual sales in 1996, and the top twenty individual agents
accounted for approximately 36.6% of Standard Life's volume in 1996. At June 30,
1997, approximately 40% of Standard Marketing's independent agents were located
in Indiana, Florida, Ohio, Georgia and Illinois, with the balance distributed
across the country. SMC is attempting to increase the number and geographic
diversity of its agents. In 1996, SMC began writing significant amounts of
business in California and Michigan due to Standard Marketing's expansion
efforts.

66
<PAGE> 79

SMC does not have exclusive agency agreements with its agents and
management believes most of these agents sell products similar to those sold by
SMC for other insurance companies. This could result in a sales decline if SMC's
products were to become relatively less competitive. Standard Life's 1996 FPDA
sales increased partially due to an aggressive marketing campaign implemented by
Standard Life with increased crediting rates. First year interest crediting
rates were increased approximately 1% on certain FPDAs sold after April 15,
1996. Also contributing to the increase in premiums was the continued
development of Standard Life's distribution system through marketing support
from Standard Marketing and an increase in the agency base achieved primarily
through the recruitment of larger managing general agencies and expanding
geographical concentration into the Mid-South and California.

Standard Marketing receives, directly from the insurance companies it
serves, override commissions on sales by its agents, which are in addition to
the commissions paid to Standard Marketing's independent agents. The
availability of override commissions provides an economic incentive to Standard
Marketing to recruit agents who produce business. The following table shows for
the periods indicated the aggregate override commissions and service fees
received by Standard Marketing:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Standard Life and Dixie National
Life(1)......................... $546 $ 988 $ 829 $867
Unaffiliated insurance
companies(2).................... 116 397 252 55
------ ------ ------ ----
Total........................ $662 $1,385 $1,081 $922
====== ====== ====== ====
</TABLE>

- -------------------------
(1) These amounts are eliminated in SMC's consolidated financial statements.

(2) Unaffiliated commission income as a percentage of revenues is .5%, 1.0%, .8%
and .2% for the six months ended June 30, 1997 and the years ended December
31, 1996, 1995 and 1994, respectively.

International Marketing. The subsidiaries of Standard Management
International, Premier Life (Luxembourg) and Premier Life (Bermuda), produced
aggregate new premium deposits of approximately $7,000,000, $17,000,000,
$32,000,000 and $1,700,000 during the six months ended June 30, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively. The decrease in 1996
is primarily due to a decrease in marketing costs and to changes in tax planning
laws in certain countries in Western Europe, which made Standard Management
International products less attractive. The countries within the European Union
have been the main contributor to these sales. Although SMC expects this to be
the case in the future, it plans to increase marketing efforts in other parts of
the world as well.

Although Standard Management International anticipates as part of its long
term plan to grow significantly through internal sales, acquisitions of other
European insurance companies may be considered. It has designed and launched new
single and regular premium products in recent years. It is also in discussions
with a number of companies to form alliances to produce tailored products for
their markets. It is expected that these alliances will be consummated in 1997.
It is currently the intention that Premier Life (Luxembourg) will write business
within the European Union and Premier Life (Bermuda) will write international
business elsewhere in the world. The market for Standard Management
International's products is considered to be medium to high net worth
individuals who typically have in excess of $75,000 to invest in a single
premium policy and medium to high earners who have in excess of $3,000 per annum
to invest in a regular premium savings product. The above individuals would come
from a combination of expatriates, residents of European Union countries and
from other targeted areas. The expatriate and European insurance markets are
well established and highly competitive with a large number of domestic and
international groups operating in, or going into, the same markets as Standard
Management International.

Standard Management International's products are distributed via
independent agents who have established connections with these targeted
individuals. Standard Management International is striving to develop into an
entrepreneurial intermediary oriented organization committed to building long
term relationships with high quality distributors, thereby creating a niche
position. Standard Management International

67
<PAGE> 80

places the same emphasis as SMC's U.S. insurance companies on a high level of
service to intermediaries and policyholders while striving to achieve low
overhead costs.

PRODUCTS

SMC primarily markets FPDAs, whole life and universal and
interest-sensitive life insurance policies and unit-linked policies. SMC also
generates cash flow and income from its closed blocks of in force life insurance
and annuities. Closed blocks are blocks of in force life insurance and annuities
that are not currently being marketed by SMC. The closed block designation is
for internal purposes only, it does not have any legal or regulatory
significance and there are no restrictions on the assets or future profits of
closed blocks. The following table sets forth the amounts and percentages of net
premiums received by SMC from currently marketed products and closed block
products for the six months ended June 30, 1997 and the years ended December 31,
1996, 1995 and 1994, respectively. Because GAAP generally excludes annuity
deposits, and premiums from universal and interest-sensitive life insurance and
unit-linked products from premium income, and thus does not fully reflect SMC's
cash flow from new business, the premium information contained in the following
table is reported using statutory accounting principles, which include deposits
on annuities and unit-linked policies and premiums from universal and
interest-sensitive life insurance.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1997 1996 1995 1994
----------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Currently marketed products
FPDAs........................ $21,706 59.4 $37,322 45.4 $12,417 23.0 $50,421 85.7
Universal and
interest-sensitive life... 1,618 4.4 5,384 6.5 2,044 3.8 279 0.4
Single premium immediate
annuity................... 1,630 4.5 1,423 1.7 1,257 2.3 -- --
Whole life................... 954 2.6 2,546 3.1 668 1.2 86 0.2
Unit-linked products......... 7,077 19.4 16,902 20.5 31,793 58.8 1,715 2.9
------- ----- ------- ----- ------- ----- ------- -----
32,985 90.3 63,577 77.2 48,179 89.1 52,501 89.2
Closed blocks
Annuities and life........... 3,579 9.7 9,230 11.2 5,906 10.9 6,364 10.8
Net effect of financial
reinsurance............... -- -- 5,182 6.3 -- -- -- --
Recapture of National
Mutual.................... -- -- 4,373 5.3 -- -- -- --
------- ----- ------- ----- ------- ----- ------- -----
3,579 9.7 18,785 22.8 5,906 10.9 6,364 10.8
------- ----- ------- ----- ------- ----- ------- -----
$36,564 100.0 $82,362 100.0 $54,085 100.0 $58,865 100.0
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>

FPDA sales declined in 1995 reflecting competitive pressures due to
Standard Life not matching other insurer's higher interest crediting and
commission rates. Additionally, in order to reduce surplus strain Standard Life
began ceding a portion of its new annuity business to an unaffiliated reinsurer
effective January 1, 1995, which further reduced FPDA sales revenues by
$20,089,762 in 1995. Deposits from unit-linked products increased in 1995 as a
result of the resumption by Standard Management International of the sale of new
policies in 1994.

FPDA sales increased in 1996 partially due to an aggressive marketing
campaign implemented by Standard Life with increased interest crediting rates.
First year interest crediting rates were increased approximately 1% on certain
FPDAs sold after April 15, 1996. Standard Life also decreased the quota-share
portion of business ceded pursuant to a reinsurance agreement, under which 70%
of a portion of Standard Life's annuity business pursuant to the terms of the
agreement produced after December 31, 1994 was ceded, to 50% at September 1,
1995, which was further decreased to 25% effective April 1, 1996. This reduction
was possible since the surplus strain experienced by Standard Life was not as
great as originally anticipated as a

68
<PAGE> 81

result of lower than expected sales in 1995 and the additional surplus resulting
from the sale of First International. Premium deposits ceded pursuant to this
reinsurance agreement reduced net premium by $8,907,460 in the year ended
December 31, 1996.

The increase in universal and interest-sensitive life products in 1996 is
primarily due to the increase in interest-sensitive life products issued by
Dixie National Life, which is included in results after October 2, 1995, the
effective date of the acquisition.

The increase in closed blocks annuities and life products in 1996 is
primarily due to reinsurance premium assumed from GIAC (net reinsurance premium
assumed of approximately $4,700,000) and the acquisition of Shelby Life,
effective November 1, 1996.

The following table shows, on a GAAP basis, certain information for SMC as
of the dates set forth below:

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
AT JUNE 30, 1997 1996 1995 1994
---------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of annuity contracts in force...... 13,632 13,221(1) 8,637 7,480
Interest-sensitive annuity and other
financial product reserves, net of
reinsurance ceded....................... $ 346,662 $ 333,633(1) $212,500 $173,334
---------- ---------- -------- --------
Number of life policies in force.......... 71,962 73,106(2) 63,038(3) 40,317
Life insurance in force, net of
reinsurance ceded....................... $1,257,343 $1,367,675(2) $826,296(3) $787,414
---------- ---------- -------- --------
Number of separate contracts (primarily
unit-linked products)................... 2,546 2,484 2,951 3,131
Total liabilities related to separate
accounts (primarily unit-linked
products)............................... $ 134,808 $ 128,546 $122,705 $ 94,301
</TABLE>

- -------------------------
(1) The number of annuity contracts in force and interest-sensitive annuity and
other financial product reserves increased in 1996 primarily due to the
increase in FPDA sales in 1996 and the Shelby merger.

(2) The number of life policies and insurance in force increased in 1996, as a
result of the Shelby merger. Shelby Life had 16,603 life policies and
$617,688,000 insurance in force as of November 1, 1996. The decrease in 1997
relates to normal run-off of the closed block.

(3) The number of life policies and insurance in force increased 26,522 and
$219,663,000, respectively in 1995 as a result of Standard Life's
acquisition of Dixie National Life.

CURRENTLY MARKETED PRODUCTS

The individual annuity business is a growing segment of the savings and
retirement industry, which increased in sales from $1 billion in 1970 to more
than $54 billion in 1990. The individual annuity market, which is SMC's primary
target, comprises 42% of those sales. As the 76 million baby boomers born from
1946 through 1964 grow older, demand for insurance products is expected to grow.
SMC believes that those seeking adequate retirement incomes will depend less and
less on Social Security and their employers' retirement programs and more and
more upon their own financial resources. Annuities currently enjoy an advantage
over certain other saving mechanisms because the annuity buyer receives a
tax-deferred accrual of interest on his investment during the accumulation
period.

Standard Life, Dixie National Life and Standard Management International
all currently issue new policies. Standard Life emphasizes the issuance of
FPDAs. Dixie National Life primarily sells "burial expense" life insurance
policies. Standard Management International markets unit-linked products. Over
27% of all net premiums and deposits collected in 1996 by SMC from its currently
marketed products arise from the sale of unit-linked products by Standard
Management International. The balance is represented by the sales of whole life
and universal and interest-sensitive life insurance products by Standard Life
and Dixie National Life and Standard Life's FPDAs. The portfolio of products is
continuously reviewed by management, and product features and terms are adjusted
in response to market conditions in an effort to remain competitive.

69
<PAGE> 82

SMC's gross sales percentage by U.S. geographical region are summarized as
follows:

<TABLE>
<CAPTION>
STATE 1997(1) 1996 1995 1994
----- ------- ---- ---- ----
<S> <C> <C> <C> <C>
Indiana......................................... 20% 18% 24% 30%
Ohio............................................ 11 16 22 18
Florida......................................... 12 14 11 19
California...................................... 12 11 3 2
Louisiana....................................... 5 2 2 --
Virginia........................................ 4 2 -- 1
Michigan........................................ 2 6 4 5
All other states................................ 34(2) 31(2) 34 25
--- --- --- ---
Total........................................... 100% 100% 100% 100%
=== === === ===
</TABLE>

- -------------------------
(1) First six months.

(2) No other state had gross sales greater than 4% for the first six months of
1997 and the year ended December 31, 1996.

Standard Management International's products are sold primarily in Western
Europe.

STANDARD LIFE PRODUCTS

Flexible Premium Deferred Annuities. FPDAs provide for an initial deposit
by an annuitant and optional additional deposits, the time and amount of which
are at the discretion of the annuitant. Standard Life credits the account of the
annuitant with earnings at interest rates that are revised periodically by
Standard Life until the maturity date. This accumulated value is tax deferred.
Revisions to interest rates on FPDAs are restricted by an initial crediting rate
guaranteed for a specific period of time and a minimum crediting rate guaranteed
for the term of the FPDA. At maturity, the annuitant can elect a lump sum cash
payment of the accumulated value or one of the various payout options available.
Standard Life's FPDAs also provide for penalty-free partial withdrawals of up to
10% annually of the accumulation value after the annuitant has held the FPDA for
more than 12 months. In addition, the annuitant may surrender the FPDA at any
time before the maturity date and receive the accumulated value, less any
surrender charge then in effect for that contract. To protect holders of FPDAs
from a sharp reduction in the credited interest rate after a FPDA is issued,
Standard Life permits the FPDA holder of certain annuities to surrender the
annuity during a specified period without incurring a surrender charge if the
renewal crediting rate is below a stated level. This stated level of interest is
referred to as the "bail-out rate" and is typically below the original crediting
rate, but above the minimum guaranteed crediting rate.

As of July 1, 1997, the crediting rates available on Standard Life's
currently marketed FPDAs ranged from 6.80% to 12.25% (5.25% + 7% first year
bonus), with new issues having an interest rate with a one year guarantee
period. After the initial period, the crediting rate may be changed
periodically, subject to minimum guaranteed rates from 3% to 4%. As of July 1,
1997, interest crediting rates after the initial guarantee period ranged from 5%
to 6.75%. The surrender charge is initially 13% or 15% of the contract value
depending on the product and decreases over the applicable penalty period of
nine, ten or thirteen years. As of July 1, 1997, the bail out rate for Standard
Life's FPDAs was 4.5%; most currently marketed products carry a bail out rate
for only the first two years after issue. As of June 30, 1997, Standard Life had
8,082 currently marketed FPDA contracts in force.

Whole Life Insurance. Standard Life offers two types of non-participating
whole life policies: one in face amounts up to $10,000 (which is issued only
upon conversion of other policies) and the other in face amounts up to $50,000.
Whole life insurance products involve fixed premium payments made over time,
with the stated death benefit paid in full upon the death of the insured. The
whole life policy combines the death benefit with a forced savings plan.
Premiums remain level over the life of the policy, with the policyholder
prefunding during the early years of coverage when risk of death is low. Over
time, whole life policies begin to accrue a cash value which can be made
available to the policyholder net of taxes and withdrawal penalties. As of June
30, 1997, Standard Life had 389 currently marketed whole life policies in force.

70
<PAGE> 83

Single Premium Immediate Annuities. Standard Life offers a single premium
immediate annuity ("SPIA"), whereby an annuitant purchases an immediate annuity
with a one-time premium deposit at the time of issuance. Standard Life begins a
payout stream shortly after the time of issuance consisting of principal value
plus accumulated interest credited to such annuity. This product credits
interest based on an investment portfolio earned rate assumption. As of June 30,
1997, Standard Life had 702 SPIA contracts in force.

Single Premium Universal Life. SPULs provide for an initial deposit
(flexible premium universal life ("FPUL") for periodic deposits), credit
interest to account values and charge the account values for mortality and
administrative costs. As of July 1, 1997, the current interest rate on new sales
of SPULs and FPULs was 7% with a guaranteed interest rate of 3%. As of June 30,
1997, Standard Life had 86 and 232 SPUL and FPULs policies in force,
respectively.

DIXIE NATIONAL LIFE PRODUCTS

Life insurance policies sold by Dixie National Life in the final expense,
or burial, market include fixed premium interest sensitive policies that provide
for increasing death benefits, as well as traditional whole life policies. These
policies are designed to cover expenses such as funeral, last illness, monument
and cemetery lot. The policies provide for a death benefit, generally not in
excess of $20,000, and a level premium payment. The products include a cash
value which may be borrowed by the policyholder. Dixie National Life's policies
sold in other markets include interest-sensitive and traditional whole life
policies and forms of term policies. The interest-sensitive whole life policies
have a guaranteed interest rate of 5.50% on products marketed at December 31,
1996. The interest-sensitive and whole life policies include cash values, which
may be borrowed by the policyholder. Dixie National Life issues polices on both
a participating and non-participating basis. As of June 30, 1997, Dixie National
Life had 802 and 26,915 individual annuities and life policies in force,
respectively.

STANDARD MANAGEMENT INTERNATIONAL PRODUCTS

Unit-linked Policies. Standard Management International currently writes
unit-linked life products, which are similar to U.S. produced variable life
products. Separate account assets and liabilities are maintained primarily for
the exclusive benefits of universal life contracts and investment contracts of
which the majority represents unit-linked business where benefits on surrender
and maturity are not guaranteed. They generally represent funds held in accounts
to meet specific investment objectives of policyholders who bear the investment
risk. Investment income and investment gains and losses within the separate
accounts accrue directly to such policyholders. The fees received by Standard
Management International for administrative and contract holder maintenance
services performed for these separate accounts are included in SMC's statements
of operations.

In the past, Standard Management International also wrote investment
contracts and universal life policies and to a lesser extent, traditional life
policies. The investment contracts are mainly short-term single premium
endowments or temporary annuities under which fixed benefits are paid to the
policyholder. The terms of these contracts are such that SMC has relatively
small morbidity or mortality risk. The universal life contracts are mainly
regular premium and single premium endowment contracts. The benefits payable to
the policyholders are directly linked to the investment performance of the
underlying assets.

CLOSED BLOCKS

The premiums received on the closed blocks were primarily from the ordinary
and universal life business. This decline in premium income is expected as a
result of policy lapses, surrenders and expiries from closed blocks of business.

Annuities. SMC's closed blocks of deferred annuities consist primarily of
FPDAs and a small amount of single premium deferred annuities ("SPDAs") which,
unlike FPDAs, do not provide for additional deposits. At July 1, 1997, these
deferred annuities had crediting rates ranging from 5% to 5.5% and guaranteed
minimum crediting rates ranging from 3% to 5.5%. The crediting rate may be
changed periodically. The

71
<PAGE> 84

contract owner is permitted to withdraw all or part of the accumulation value.
SMC's closed blocks of annuities include payout annuities. Payout annuities
consist of those annuities the benefits of which are being paid out over a
specified time period. Payout annuities cannot be terminated by surrender or
withdrawal. SMC's crediting rates on payout annuities range from 5.5% to 6.5%
and cannot be changed. As of June 30, 1997, SMC had 3,998 annuity contracts in
force for closed blocks.

Ordinary Life. The ordinary life policies included in SMC's closed blocks
are composed primarily of fixed premium, cash value whole life products. In
addition, they include annually renewable term policies as well as five, ten and
fifteen-year level premium term policies. As of June 30, 1997, SMC had 37,301
ordinary life policies in force for closed blocks.

Universal Life. Certain closed blocks include universal life business. For
this business, SMC credits deposits and interest to account values and charges
the account values for mortality and administrative costs. As of June 30, 1997,
SMC had 6,733 universal life policies for the closed Shelby Life block of
business.

Financial Reinsurance and Recapture of National Mutual. In connection with
financial reinsurance, Dixie National Life terminated a reinsurance agreement
with Crown Life Insurance Company and received recaptured premium income of
$18,186,377, entered into a financial reinsurance agreement with Cologne Life
Reinsurance Company and ceded $13,091,290 of premium income in 1996.

The policies subject to the recapture of the reinsurance agreement with
National Mutual were primarily ordinary life policies. See "Business of SMC --
Reinsurance."

PRODUCT PROFITABILITY

The profitability of the life insurance and annuity products depends to a
significant degree on the maintenance of profit margins between investment
results from invested assets and interest credited on insurance and annuity
products. During 1996, such margins continued to be positive as a result of
reductions in crediting rates in spite of a fluctuating interest rate
environment.

The long-term profitability of insurance products depends on the accuracy
of the actuarial assumptions that underlie the pricing of such products.
Actuarial calculations for such insurance products, and the ultimate
profitability of such products, are based on four major factors: (i)
persistency, (ii) mortality (iii) return on cash invested by the insurer during
the life of the policy and (iv) expenses of acquiring and administering the
policies.

The average expected remaining life of Standard Life and Dixie National
Life's ordinary life business in force at December 31, 1996 is 9.0 and 10.75
years, respectively. These calculations were determined based upon SMC's
actuarial models and assumptions as to expected persistency and mortality.
Persistency is the extent to which insurance policies sold are maintained by the
insured. The persistency of life insurance and annuity products is a critical
element of their profitability. However, a surrender charge often applies in the
early contract years and declines to zero over time.

Policyholders sometimes do not pay premiums, thus causing their policies to
lapse. For the years 1996, 1995 and 1994, Standard Life experienced total policy
lapses of 6.3%, 5.1% and 6.3% of total policies in force at December 31 of each
year, respectively. The American Council of Life Insurance 1996 Fact Book
reported industry life insurance voluntary termination rates in 1996 of 17.1%
for policies in force less than two years, 5.4% for policies in force for two
years or more and 7.2% for all policies in force.

OPERATIONS

SMC emphasizes a high level of service to agents and policyholders and
strives to achieve low overhead costs. SMC's principal administrative
departments are its financial, policyholder services and management information
services ("MIS") departments. The financial department provides accounting,
budgeting, tax, investment, financial reporting and actuarial services and
establishes cost control systems for SMC. The policyholder services department
reviews policy applications, issues and administers policies and authorizes

72
<PAGE> 85

disbursements related to claims and surrenders. The MIS department oversees and
administers SMC's information processing systems.

SMC's administrative departments in the United States use a common
integrated system that permits SMC to function more efficiently, control costs
and maintain low overhead. SMC's MIS system is now servicing approximately
150,000 active and inactive policies. SMC is continually improving its MIS
systems to provide for continued growth from acquisitions and sales. SMC's 1997
capital budget for systems improvements is $250,000. Also, SMC anticipates
minimal expenditures to be required in the update of the MIS system for the year
2000.

Standard Management International's administrative and MIS departments in
Luxembourg are an autonomous unit from the systems in the United States. SMC is
in the process of improving the MIS systems of Standard Management International
and integrating them with the U.S. systems.

INVESTMENTS

Investment activities are an integral part of SMC's business; investment
income of SMC's insurance subsidiaries is an important part of its total
revenues. Profitability is significantly affected by spreads between rates
credited on insurance liabilities and interest yields on invested assets.
Substantially all credited rates on FPDAs may be changed at least annually. As
of June 30, 1997 and 1996, the weighted average interest rate credited on SMC's
interest-sensitive liability portfolio, excluding liabilities related to
separate accounts, was approximately 5.68% and 5.27% per annum, and the weighted
average net yield of SMC's investment portfolio for the six months ended June
30, 1997 and was 7.59% and 7.19% for an average interest spread of 191 basis
points for the six months ended June 30, 1997 compared to 192 basis points in
the first six months of 1996. The consistency in the average interest spread in
1997 is primarily attributable to the increase in investment portfolio yields,
which offsets the effects of sales of FPDAs in 1996 and 1997 with higher and
more competitive interest crediting rates. Increases or decreases in interest
rates could increase or decrease the average interest rate spread between
investment yields and interest rates credited on insurance liabilities, which in
turn could have a beneficial or adverse effect on the future profitability of
SMC. Sales of fixed maturity securities that result in investment gains may also
tend to decrease future average interest rate spreads. State insurance laws and
regulations prescribe the types of permitted investments and limit their
concentration in certain classes of investments.

The following table shows SMC's pre-tax investment performance for the
periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average invested assets(1).................. $377,820 $285,186 $253,055 $221,138
Net investment income....................... 14,346 20,871 18,517 18,517
Weighted average annual yield(2)............ 7.59% 7.32% 7.32% 7.26%
Net realized investment gains............... $ 206 $ 1,302 $ 688 $ 558
</TABLE>

- -------------------------
(1) Average invested assets are computed by dividing the total of the amortized
cost of investments at the beginning of the period plus the individual
quarter-end balances by the number of quarterly periods plus one.

(2) The weighted average annual yield on SMC's investment portfolio for each
period is computed by dividing net investment income (exclusive of realized
and unrealized gains and losses) by average invested assets for such period
and, in the case of the six month period, multiplying the result by two.

73
<PAGE> 86

The following table shows the amortized cost, gross unrealized gain (loss)
and estimated fair value of SMC's investment securities all of which are
available for sale:

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities:
United States Treasury securities and obligations
of United States government agencies........... $ 15,340 $ 15 $ 364 $ 14,991
Obligations of states and political
subdivisions................................... 7,693 111 84 7,720
Foreign government securities..................... 21,394 63 365 21,092
Mortgage-backed securities........................ 69,441 257 791 68,907
Utilities......................................... 26,591 290 799 26,082
Corporate bonds................................... 211,629 2,918 3,432 211,115
Redeemable preferred stock........................ 554 52 -- 606
-------- ------ ------- --------
Total fixed maturity securities................ 352,642 3,706 5,835 350,513
Equity securities................................... 55 8 -- 63
-------- ------ ------- --------
Total.......................................... $352,697 $3,714 $ 5,835 $350,576
======== ====== ======= ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities:
United States Treasury securities and obligations
of United States government agencies........... $ 20,753 $ 51 $ 420 $ 20,384
Obligations of states and political
subdivisions................................... 3,588 106 -- 3,694
Foreign government securities..................... 10,042 51 166 9,927
Mortgage-backed securities........................ 72,264 247 919 71,592
Utilities......................................... 31,000 295 675 30,620
Corporate bonds................................... 210,977 3,086 3,539 210,524
Redeemable preferred stock........................ 527 42 -- 569
-------- ------ ------ --------
Total fixed maturity securities................ 349,151 3,878 $5,719 347,310
Equity securities................................... 58 4 -- 62
-------- ------ ------ --------
Total.......................................... $349,209 $3,882 $5,719 $347,372
======== ====== ====== ========
</TABLE>

The fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services or
by discounting expected future cash flows using a current market rate applicable
to the coupon rate, credit and maturity of the investments.

SMC balances the duration of its invested assets with the expected duration
of benefit payments arising from insurance liabilities. The "duration" of a
security is the time-weighted present value of the security's cash flows and is
used to measure a security's price sensitivity to changes in market interest
rates. At December 31, 1996, the adjusted modified duration of fixed maturities
and short-term investments for its U.S. insurance subsidiaries was 5.5 years
compared to 5.4 years at December 31, 1995.

The amortized cost and estimated fair value of fixed maturity securities at
June 30, 1997 by contractual maturity are shown below. Actual maturities will
differ from contractual maturities because borrowers may

74
<PAGE> 87

have the right to call or prepay obligations with or without call or prepayment
penalties and because most mortgage-backed securities provide for periodic
payments throughout their lives.

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................................. $ 5,062 $ 5,083
Due after one year through five years.................... 20,173 20,334
Due after five years through ten years................... 111,161 110,107
Due after ten years...................................... 146,251 145,476
-------- --------
Subtotal............................................ 282,647 281,000
Redeemable preferred stock............................... 554 606
-------- --------
Mortgage-backed securities............................... 69,441 68,907
-------- --------
Total fixed maturity securities..................... $352,642 $350,513
======== ========
</TABLE>

SMC's investment strategy is guided by strategic objectives established by
the Investment Committee of the Board of Directors of Standard Life. SMC's major
investment objectives are: (i) to ensure adequate safety of investments and to
protect and enhance capital; (ii) to maximize after-tax return on investments;
(iii) to match the anticipated duration of investments with the anticipated
duration of policy liabilities; and (iv) to provide sufficient liquidity to meet
cash requirements with minimum sacrifice of investment yield. Consistent with
its strategy, SMC invests primarily in securities of the U.S. government and its
agencies, investment grade utility and corporate debt securities and
collateralized mortgage obligations ("CMOs"). From time to time when
opportunities arise, however, below investment grade securities may be
purchased. Protection against default risk is a primary consideration. SMC has
determined it will not invest more than 7% of its bond portfolio in below
investment grade securities.

The following table sets forth the quality of SMC's fixed maturity
securities as of June 30, 1997, classified in accordance with the ratings
assigned by the National Association of Insurance Commissioners ("NAIC"):

<TABLE>
<CAPTION>
PERCENT OF FIXED
NAIC RATING (1) MATURITY SECURITIES
--------------- -------------------
<S> <C>
1........................................................... 48%
2........................................................... 47
---
Investment Grade.......................................... 95
3-4......................................................... 4
5-6......................................................... 1
---
Below Investment Grade.................................... 5
---
Total fixed maturity securities........................ 100%
===
</TABLE>

- -------------------------
(1) The NAIC assigns securities quality ratings and uniform book values called
"NAIC Designations," which are used by insurers when preparing their annual
statements. The NAIC assigns ratings to publicly traded as well as
privately-placed securities. The ratings assigned by the NAIC range from
Class 1 to Class 6, with a rating in Class 1 being of the highest quality.

SMC engages Conseco Capital Management Inc. ("CCM"), a wholly owned
subsidiary of Conseco, Inc., to manage SMC's invested assets (other than
mortgage loans, policy loans, real estate and other invested assets), subject to
the direction of SMC's Investment Committee. A quarterly fee equal to .035% of
the total market value of the assets under management as of the end of each
quarter is paid to CCM for its investment advisory services.

Approximately 20% of SMC's fixed maturities available for sale at June 30,
1997 is comprised of mortgage-backed securities. Investments in mortgage-backed
securities include CMOs and mortgage-backed pass-through securities.
Approximately 74% of the book value of the mortgage-backed securities in SMC's

75
<PAGE> 88

portfolio is backed by an agency of the U.S. government (although generally not
by the full faith and credit of the U.S. government) as to the full amount of
both principal and interest. Approximately 7% of the book value of
mortgage-backed securities in SMC's portfolios is backed by the full faith and
credit of the U.S. government as to the full amount of both principal and
interest. SMC closely monitors the market value of all investments within its
mortgage-backed portfolio.

The following table summarizes SMC's mortgage-backed securities at June 30,
1997:

<TABLE>
<CAPTION>
ESTIMATED
% OF % OF AVG. LIFE AVG. TERM
AMORTIZED FIXED FAIR FIXED OF TO FINAL
COST MATURITIES VALUE MATURITIES INVESTMENT MATURITY
--------- ---------- ----- ---------- ---------- ---------
(DOLLARS IN THOUSANDS) (IN YEARS) (IN YEARS)
<S> <C> <C> <C> <C> <C> <C>
Agency CMOs:
Planned and target amortization
classes........................ $23,288 6.6 $22,888 6.5 7.5 24.8
Sequential and support classes.... 272 .1 287 .1 5.5 20.9
------- ---- ------- ---- ---- ----
Total.......................... 23,560 6.7 23,175 6.6 7.5 24.7
Non-agency CMOs:
Planned amortization classes...... 1,491 .4 1,454 .4 6 26.5
Sequential classes................ 16,639 4.7 16,811 4.8 7.3 16.8
------- ---- ------- ---- ---- ----
Total.......................... 18,130 5.1 18,265 5.2 7.2 17.5
------- ---- ------- ---- ---- ----
Total CMOs.......................... 41,690 11.8 41,440 11.8 7.3 21.4
Agency mortgage-backed pass-through
securities........................ 27,751 7.9 27,467 7.8 5.3 16.2
------- ---- ------- ---- ---- ----
Total mortgage-backed
securities................... $69,441 19.7 $68,907 19.6 6.6 19.4
======= ==== ======= ==== ==== ====
</TABLE>

The market values for SMC's mortgage-backed securities were determined from
broker-dealer market makers, internally developed methods and nationally
recognized statistical rating organizations.

Certain mortgage-backed securities are subject to significant prepayment
risk, since, in periods of declining interest rates, mortgages may be repaid
more rapidly than scheduled as individuals refinance higher rate mortgages to
take advantage of the lower current rates. As a result, holders of
mortgage-backed securities may receive large prepayments on their investment
which cannot be reinvested at an interest rate comparable to the rate on the
prepaying mortgages. SMC has reduced this risk of prepayment risk by investing
36% of its mortgage-backed investment portfolio in planned and target
amortization classes. These investments are designed to amortize in a more
predictable manner by shifting the primary risk of prepayment of the underlying
collateral to investors in other tranches ("support classes"). Mortgage-backed
pass-through securities, "sequential" and support class CMOs, which comprised
approximately 64% of the book value of SMC's mortgage-backed securities at June
30, 1997, are more sensitive to this prepayment risk.

SEPARATE ACCOUNTS

Separate account assets and liabilities are maintained primarily for
universal life contracts of which the majority represents unit-linked business
where benefits on surrender and maturity are not guaranteed. They generally
represent funds held in accounts to meet specific investment objectives of
policyholders who bear the investment risk. Investment income and investment
gains and losses accrue directly to such policyholders.

UNDERWRITING

Premiums charged on insurance products are based in part on assumptions
about the incidence and timing of insurance claims. SMC has adopted and follows
underwriting procedures for both its whole life and universal life insurance
policies. To implement these procedures, SMC employs a professional underwriting
staff. All underwriting decisions are made in SMC's home office. To the extent
that an applicant does not

76
<PAGE> 89

meet SMC's underwriting standards for issuance of a policy at the standard risk
classifications, SMC may rate or decline the application. Underwriting with
respect to FPDAs is minimal. No underwriting procedures are applied to Standard
Life's $10,000 conversion policy or Standard Management International's
unit-linked business.

Traditional underwriting procedures are not applied to policies acquired in
blocks. In these cases, SMC reviews the mortality experience for recent years
and compares actual experience to that assumed in the actuarial projections for
the acquired policies.

RESERVES

In accordance with applicable insurance laws, SMC's insurance subsidiaries
have established and carry as liabilities in their statutory financial
statements actuarially determined reserves to satisfy their respective annuity
contract and life insurance policy obligations. Reserves, together with premiums
to be received on outstanding policies and interest thereon at certain assumed
rates, are calculated to be sufficient to satisfy policy and contract
obligations. The actuarial factors used in determining such reserves are based
on statutorily prescribed mortality tables and interest rates.

The reserves recorded in the consolidated financial statements included
elsewhere herein are calculated based on GAAP and differ from those specified by
the laws of the various states and recorded in the statutory financial
statements of SMC's insurance subsidiaries. These differences arise from the use
of different mortality tables and interest rate assumptions, the introduction of
lapse assumptions into the reserve calculation and the use of the net level
premium reserve method on all insurance business. See Note 1 of the Notes to the
Consolidated Financial Statements for certain additional information regarding
reserve assumptions under GAAP.

To determine policy benefit reserves for its life insurance and annuity
products, SMC performs periodic studies to compare current experience for
mortality, interest and lapse rates with projected experience used in
calculating the reserves. Differences are reflected currently in earnings for
each period. SMC historically has not experienced significant adverse deviations
from its assumptions.

REINSURANCE

Consistent with the general practice of the life insurance industry, SMC
has reinsured portions of the coverage provided by its insurance products with
other insurance companies under agreements of indemnity reinsurance. Prior to
January 1, 1995, reinsurance was not maintained with respect to SMC's currently
marketed annuity products. The policy risk retention limit on the life of any
one individual does not exceed $150,000.

Reinsurance ceded on life insurance policies to unaffiliated companies by
SMC in 1996, 1995 and 1994 represented 32.7%, 68.8% and 75.4%, respectively, of
gross combined individual life insurance in force at the end of such years.
Reinsurance assumed in the normal course from unaffiliated companies by SMC in
1996, 1995 and 1994 represented .02%, .04% and .05%, respectively, of net
combined individual life insurance in force, excluding reinsurance with GIAC
described below. SMC cedes reinsurance to numerous reinsurers. At December 31,
1996, approximately $477,980,000 of the face value of life policies and
reinsurance recoverable of $2,944,000 had been ceded to The Lincoln National
Life Insurance Company ("Lincoln National"), $203,097,000 of the face value of
life policies and reinsurance recoverable of $1,288,000 had been ceded to
Security Life of Denver Insurance Company ("Security Life") and $191,813,000 of
the face value of life

77
<PAGE> 90

policies and reinsurance recoverable of $1,007,000 had been ceded to The
Mercantile and General Reinsurance Company ("Mercantile"). Lincoln National is
the lead reinsurer with a total of 29.3% of total reinsurance ceded with
Security Life and Mercantile each accounting for 12.4% and 11.7%, respectively,
of total reinsurance ceded by SMC's life insurance subsidiaries at December 31,
1996. The amount of life insurance business ceded to any other reinsurer is not
material. Of SMC's total life insurance in force at December 31, 1996 that is
reinsured, 100.0% is ceded to insurers rated "A" or better by A.M. Best. SMC
historically has not experienced any material losses in collection of
reinsurance receivables.

Commencing January 1, 1995, SMC began to reinsure a portion of its annuity
business. The primary purposes of the reinsurance agreement were to limit the
net loss arising from large risks, maintain SMC's exposure to loss within
capital resources, and provide additional capacity for future growth.
Furthermore, these reinsurance agreements have allowed SMC to write volumes of
business that it would not otherwise have been able to write due to restrictions
based on its ratio of surplus to liabilities as determined by regulatory
authorities in the State of Florida. By reinsuring a portion of the annuity
business, the liability growth is slowed, thereby avoiding the erosion of
surplus that can occur in periods of increasing sales. If SMC's ratio of surplus
to liabilities falls below 4%, the State of Florida could prohibit SMC from
writing new business in Florida. SMC's largest annuity reinsurer at December 31,
1996, Winterthur Life Re Insurance Company ("Winterthur"), represented
$26,138,000, or 38% of total reinsurance recoverable, $8,907,000 of premium
deposits ceded in 1996 and is rated "A" ("Excellent") by A.M. Best. From January
1, 1995 to August 31, 1995 approximately 70% of certain of Standard Life's
annuity business produced was ceded. SMC decreased the quota-share portion of
business ceded to 50% at September 1, 1995 and further reduced it to 25%
effective April 1, 1996. This reduction was possible since the surplus strain
experienced by Standard Life was not as great as originally anticipated as a
result of lower than expected sales in 1995 and the increase in surplus
resulting from the sale of First International. Winterthur limits dividends and
other transfers by Standard Life to SMC or affiliated companies if adjusted
surplus is less than 5.5% of admitted assets, $19,800,000 at June 30, 1997.

On March 18, 1996, Standard Life completed the sale of First International
to GIAC. Standard Life received sale proceeds of approximately $10,393,000
including $1,500,000 for the charter and licenses associated with First
International. Standard Life realized a net pretax gain of $1,041,692 and a tax
benefit of $1,420,000 on the sale. First International, Standard Life and GIAC
have entered into a series of reinsurance and other agreements that include
provisions for Standard Life to administer First International policies in force
at the date of sale, and for Standard Life to continue to receive the profit
stream from the majority of First International's in force business effective
January 1, 1996.

All the in force business of First International effective January 1, 1996
was ceded to GIAC through a coinsurance indemnity reinsurance agreement. Under
the terms of the agreement, approximately $18,841,000 of First International's
reserves and assets of $18,841,000 were ceded to GIAC as of January 1, 1996. The
assets transferred included cash of $17,046,000, policy loans of $1,371,000, and
net due and deferred premiums of $424,000. The in force business related to this
automatic coinsurance indemnity reinsurance agreement is comprised of the
following two blocks: ("Block I") -- ordinary life policies (issued in New York
and New Jersey), universal life, immediate and deferred annuities (issued in New
York, New Jersey and Vermont), supplemental contracts and group waivers, and
("Block II") -- ordinary life policies (not issued in New York and New Jersey)
issued prior to 1989, and term life policies (issued in New York, New Jersey and
Vermont) issued after 1988.

Effective January 1, 1996, GIAC entered into a modified coinsurance
indemnity reinsurance agreement with Standard Life with respect to Blocks I and
II. Pursuant to this agreement, Standard Life administers the policies in both
Block I and Block II. Under the terms of the agreement, Standard Life assumed
approximately $18,841,000 of reserves for Block I and Block II from GIAC as of
January 1, 1996. During 1996, Standard Life incurred and paid experience rating
refunds to GIAC on Block I for profits earned in excess of specified amounts.
These refunds were calculated and paid on a quarterly basis. As a result, the
economic risks and benefits associated with Block I remained with GIAC.
Effective January 1, 1997, GIAC and Standard Life executed Amendment I to the
modified coinsurance indemnity reinsurance agreement. Under the terms of
Amendment I, GIAC and Standard Life agreed to terminate effective January 1,
1997 the modified coinsurance indemnity reinsurance agreement with regard to
Block I, and Block I reverted

78
<PAGE> 91

completely to GIAC. In accordance with the provisions of SFAS 60, SFAS 97, and
SFAS 113 for a reinsurance assuming enterprise, in accordance with deposit
accounting, Standard Life has not recorded revenue or expense during 1996 for
the Block I reinsurance. A ceding commission of $1,100,000 received by First
International in connection with the sale was deferred by First International in
accordance with FAS 113. When First International was sold, the amount was paid
to SMC by GIAC as part of First International's statutory capital and surplus.
There is no experience rating refund on Block II and, accordingly, the economic
risks and benefits associated with Block II remain with Standard Life. Under the
terms of the reinsurance agreement, Standard Life is permitted to appoint an
investment advisor subject to approval from GIAC for the Block II assets.
Standard Life has appointed Gibraltar Investments as such investment advisor for
Block II assets. Investment advisory fees are paid from the Block II assets and
reduce Block II profits. The Block II contract was determined to be a risk
transfer assumption reinsurance contract by Standard Life under SFAS 60, SFAS
97, and SFAS 113. In accordance with these pronouncements, Standard Life has
recorded premium income of $1,119,000 and net benefits and expenses of $682,000
in its 1996 income statement for the Block II business. In addition, on its
balance sheet at December 31, 1996, Standard Life has recorded the policy
reserves of $8,265,000 and the related due from reinsurers of $8,265,000 for the
assets held in a GIAC trust account.

As part of the acquisition of First International by SMC in 1992, Standard
Life entered into an indemnity reinsurance agreement with First International
effective July 1, 1992. This business was subsequently assumed by Standard Life
effective January 1, 1993. At the date of the sale of First International to
GIAC, Standard Life ceded this block of business with policy reserves of
$12,514,000 and related assets to GIAC. Consideration of $700,000 paid in
connection with the purchase agreement represented additional sales proceeds.
All risks and rewards related to the $700,000 have occurred and have therefore
been recognized. This block of business ("Block III") consisted of term life
policies (not issued in New York, New Jersey or Vermont) issued after 1988 and
immediate and deferred annuities (not issued in New York, New Jersey and
Vermont) and lottery annuities. Standard Life will continue to receive profits
from Block III through experience rating refunds from GIAC on Block III. These
experience rating refund calculations are prepared and paid on a quarterly basis
for profits in excess of specified amounts. The experience rating refund
payments will continue so long as any of the underlying policies remain in
force. Under the terms of the reinsurance agreement, Standard Life is permitted
to appoint an investment advisor subject to approval from GIAC for the Block III
assets. Standard Life has appointed Gibraltar Investments as such investment
advisor for Block III assets. Investment advisory fees are paid from the Block
III assets and reduce the experience rating refunds. For GAAP accounting
purposes, Standard Life concluded that this contract did not involve the
transfer of risk to GIAC in accordance with SFAS 113. Standard Life has recorded
premiums of $1,033,000 and net investment income of $932,000 and benefits and
expenses of $1,946,000 in its 1996 income statement for the Block III contract.
In addition, on its December 31, 1996 balance sheet, Standard Life has recorded
the policy reserves of $12,766,000 and the related due from reinsurers for the
assets of $12,675,000 held in a GIAC trust account.

Standard Life received an administration fee of $316,000 for the year ended
December 31, 1996 from First International for the administration of the Block I
and Block II policies that were in force at the time of the sale of First
International.

SMC decided in February 1996 to terminate the reinsurance agreement between
Standard Reinsurance and Salamandra, and not to renew the Barbados license of
Standard Reinsurance. This resulted in the termination of Standard Reinsurance's
operations and the write-off of SMC's investment in Standard Reinsurance and
certain intangible assets of Standard Reinsurance amounting to $155,856.

Standard Life terminated by recapture in May 1996 the reinsurance agreement
with National Mutual. Standard Life received assets of $4,826,000 and
liabilities of $4,826,000, primarily ordinary life policies. In connection with
this transaction, Standard Life agreed to pay National Mutual a recapture fee of
$1,200,000 and Standard Life collected administration fees of $375,000 related
to services provided in prior years that had not been recorded previously due to
the uncertainty as to its collection. The net proceeds of $825,000 were recorded
as the present value of the future profits on this block of business, which is
being amortized in proportion to the emergence of profits over 20 years. The
premium income, and corresponding increase in

79
<PAGE> 92

reserves of $4,234,000, recorded in connection with the recapture of the
reinsurance agreement with National Mutual will not recur in the future.

In order to write an increasing amount of new business while continuing to
meet the statutory requirements of the states in which it conducts its insurance
operations, it has been necessary for Dixie National Life to utilize various
forms of surplus relief. The principal source of surplus relief since 1989 has
been financial reinsurance agreements, which for GAAP purposes are treated as
financing arrangements, but for statutory accounting purposes provide reserve
credits that, in equal amount, increase statutory surplus. Dixie National Life
has a financial reinsurance agreement that entitles it to a credit to its
statutory reserves of $1,500,000 at December 31, 1996, with the amount of the
credit decreasing each quarter by the amount of profit generated to Dixie
National Life by the underlying block of business.

COMPETITION

The life insurance industry is highly competitive and consists of a large
number of both stock and mutual insurance companies, many of which have
substantially greater financial resources, broader and more diversified product
lines and larger staffs than those possessed by SMC. There are approximately
2,000 life insurance companies in the United States which may offer insurance
products similar to those marketed by SMC. Competition within the life insurance
industry occurs on the basis of, among other things, product features such as
price and interest rates, perceived financial stability of the insurer,
policyholder service, name recognition and ratings assigned by insurance rating
organizations. Additionally, when SMC bids on companies it wishes to acquire, it
typically is in competition with other entities.

SMC must also compete with other insurers to attract and retain the
allegiance of agents. SMC believes it has been successful in attracting and
retaining agents because it has been able to offer a competitive package of
innovative products, competitive commission structures, prompt policy issuance
and responsive policyholder service. Because most annuity business written by
life companies is through agents, management believes that competition centers
more on the strength of the agent relationship rather than on the identity of
the insurer.

Competition also is encountered from the expanding number of banks,
securities brokerage firms and other financial intermediaries which are
marketing insurance products and which offer competing products such as savings
accounts and securities. In the case of banks, these insurance products are sold
for non-affiliate insurance companies in return for a sales fee. A change in
legislation may increase interest on the part of banks to begin selling
annuities or to expand their existing efforts to sell annuities. The decision
could result in a partial shift in the distribution of annuities from insurance
agents to national banks, which, in turn, could result in a decrease in sales
for SMC, or it could result in an increase in the number of annuities sold
because of distribution through national banks (or securities firms), which
could result in new distribution opportunities for SMC. SMC has not been
involved in distribution of annuities through national banks but anticipates
expansion into financial institutions with the pending acquisition of Savers
Life.

Financial institutions, school districts, marketing companies, agents who
market insurance products and policyholders use the ratings of an insurer as one
factor in determining which insurer's annuity to market or purchase. Standard
Life and Dixie National Life have a rating of "B+" and "B", respectively by A.M.
Best. A rating of "B+" is assigned by A.M. Best to companies which, in their
opinion, have achieved very good overall performance when compared to the
standards established by A.M. Best, and have a good ability to meet their
obligations to policyholders over a long period of time. A rating of "B" is
assigned by A.M. Best to companies which, in their opinion, have achieved good
overall performance when compared to the standards established by A.M. Best.
According to A.M. Best, these companies generally have an adequate ability to
meet their obligations to policyholders, but their financial strength is
vulnerable to unfavorable changes in underwriting or economic conditions. In
evaluating a company's financial and operating performance, A.M. Best reviews
the company's profitability, leverage and liquidity as well as the company's
book of business, the adequacy and soundness of its reinsurance, the quality and
estimated market value of its assets, the adequacy of its reserves and the
experience and competence of its management. A.M. Best's ratings are based upon
factors relevant to policyholders, agents, insurance brokers and intermediaries
and are not directed to the protection of investors. Generally, rating agencies
base their ratings on information furnished to them by the issuer and on

80
<PAGE> 93

investigations, studies and assumptions by the rating agencies. There is no
assurance that any particular rating will continue for any given period of time
or that it will not be changed or withdrawn entirely if, in the judgment of the
rating agency, circumstances so warrant. Although a higher rating by A.M. Best
or another insurance rating organization could have a favorable effect on
Standard Life and Dixie National Life's business, management believes that
Standard Life and Dixie National Life are able to compete on the basis of their
competitive crediting rates, asset quality, strong relations with their
independent agents and the quality of service to their policyholders.

FEDERAL INCOME TAXATION

The life insurance and annuity products marketed and issued by Standard
Life and Dixie National Life generally provide the policyholder with an income
tax advantage, as compared to other saving investments such as certificates of
deposit and bonds, in that income taxation on the increase in value of the
product is deferred until receipt by the policyholder. With other savings
investments, the increase in value is taxed as earned. Life insurance benefits
which accrue prior to the death of the policyholder and annuity benefits are
generally not taxable until paid and life insurance death benefits are generally
exempt from income tax. The tax advantage for life insurance and annuity
products is provided in the Internal Revenue Code ("IRC"), and is generally
followed in all states and other United States taxing jurisdictions.
Accordingly, it is subject to change by Congress and the legislatures of the
respective taxing jurisdictions.

SMC, Standard Marketing and other U.S. non-insurance subsidiaries file a
consolidated return for federal income tax purposes. Standard Life and Dixie
National Life, as life insurance companies, file separate federal income tax
returns. As of December 31, 1996, SMC, Standard Marketing and other U.S. non-
insurance subsidiaries had consolidated net operating loss carryforwards of
approximately $8,600,000 for tax return purposes which expire from 2005 to 2011.

At December 31, 1996, Standard Life had tax return net operating loss
carryforwards of approximately $1,400,000, which expire in 2004 and 2005. As a
result of changes in ownership of SMC and Standard Life, use of the loss
carryforwards of Standard Life are subject to annual limitations. The change in
ownership of Savers Life will not result in additional limitations on the use of
the loss carryforwards available to Standard Life. The maximum tax return
operating loss carry forwards available for use by Standard Life in any one year
are approximately $300,000.

At December 31, 1996, Dixie National Life had tax return net operating loss
carryforwards of approximately $5,800,000, which expire in 2010 and 2011.

Standard Management International is a Luxembourg holding company which is
currently exempt from Luxembourg income tax. Premier Life (Bermuda) is exempt
from income tax until March 2016 pursuant to a decree from the Minister of
Finance. Premier Life (Luxembourg) is subject to Luxembourg income taxation
(statutory corporate rate of 39.39%) and a capital tax of approximately 1% of
its net equity. At December 31, 1996, Premier Life (Luxembourg) had accumulated
corporate income tax loss carryforwards of approximately $5,900,000, all of
which may be carried forward indefinitely. To the extent that such income is
taxable under U.S. law, such income will be included in SMC's consolidated
return.

INFLATION

The primary direct effect on SMC of inflation is the increase in operating
expenses. A large portion of SMC's operating expenses consists of salaries which
are subject to wage increases at least partly affected by the rate of inflation.
SMC attempts to minimize the impact of inflation on operating expenses through
programs to improve productivity.

The rate of inflation also has an indirect effect on SMC. To the extent
that the government's economic policy to control the level of inflation results
in changes in interest rates, SMC's new sales of insurance products and
investment income are affected. Changes in the level of interest rates also have
an effect on interest spreads, as investment earnings are reinvested.

81
<PAGE> 94

FOREIGN OPERATIONS AND CURRENCY RISK

SMC's foreign operations represent the Standard Management International
group, which consists of a Luxembourg holding company and two life insurance
subsidiaries: Premier Life (Luxembourg) and Premier Life (Bermuda). Standard
Management International policyholders invest in assets denominated in a broad
range of currencies. Policyholders effectively bear the currency risk, if any,
as these investments are matched by policyholder separate account liabilities.
Therefore, their investment and currency risk is limited to premiums they have
paid. Policyholders are not permitted to invest directly into options, futures
and derivatives.

Standard Management International could be exposed to currency fluctuations
if currencies within the conventional investment portfolio or certain actuarial
reserves are mismatched. The assets and liabilities of this portfolio and the
reserves are continually matched by the company and at regular intervals by the
independent actuary. In addition, Premier Life (Luxembourg)'s stockholders'
equity is denominated in Luxembourg francs. Premier Life (Luxembourg) does not
hedge its translation risk because its stockholders' equity will remain in
Luxembourg francs for the foreseeable future and no significant realized foreign
exchange gains or losses are anticipated.

Due to the nature of unit-linked products issued by Standard Management
International, which represent over 91% of the Standard Management International
portfolio, the investment risk rests with the policyholder. Investment risk for
Standard Management International exists where Standard Management International
makes investment decisions with respect to the remaining traditional business
and for the assets backing certain actuarial and regulatory reserves. The
investments underlying these liabilities mostly represent short-term investments
and fixed maturity securities. These short-term investments and fixed maturity
securities are normally bought and/or disposed of only on the advice of
independent consulting actuaries who perform an annual exercise comparing
anticipated cash flows on the insurance portfolio with the cash flows from the
fixed maturity securities. Any resulting material foreign currency mismatches
are then covered by buying and/or selling the securities as appropriate.

REGULATORY FACTORS

SMC's insurance subsidiaries are subject to regulation by the insurance
regulatory authorities in the jurisdictions in which they are domiciled and the
insurance regulatory bodies in the other jurisdictions in which they are
licensed to sell insurance. The purpose of such regulation is primarily to
ensure the financial stability of insurance companies and to provide safeguards
for policyholders rather than to protect the interest of stockholders. The
insurance laws of various jurisdictions establish regulatory agencies with broad
administrative powers relating to the licensing of insurers and their agents,
the regulation of trade practices, management agreements, the types of permitted
investments and maximum concentration, deposits of securities, the form and
content of financial statements, rates charged by insurance companies, sales
literature and insurance policies, accounting practices and the maintenance of
specified reserves, capital and surplus. Each of SMC's insurance subsidiaries is
required to file detailed periodic financial reports with supervisory agencies
in certain of the jurisdictions in which it does business.

Most states have enacted legislation regulating insurance holding
companies. The insurance holding company laws and regulations vary by state, but
generally require an insurance holding company and its insurance company
subsidiaries licensed to do business in the state to register and file certain
reports with the regulatory authorities, including information concerning
capital structure, ownership, financial condition, certain intercompany
transactions and general business operations. State holding company laws also
require prior notice or regulatory agency approval of certain material
intercompany transfers of assets within the holding company structure.

As a holding company, Standard Management's ability to pay operating
expenses and meet debt service obligations, if any, depends on the receipt of
sufficient funds, primarily through management fees, rental income, dividends
and interest payments on its Surplus Debentures from its subsidiaries. Subject
to the restrictions described below, Standard Management may receive dividends
from its direct subsidiaries, Standard Life, Standard Management International
and Standard Marketing. Dixie National Life is a

82
<PAGE> 95

subsidiary of Standard Life. Accordingly, any dividends paid by Dixie National
Life to Standard Life may be paid to Standard Management only if Standard Life
is entitled to pay dividends to Standard Management.

Dividends from Standard Life to Standard Management are limited by laws
applicable to insurance companies. As an Indiana domiciled insurance company,
Standard Life may pay a dividend or distribution from its surplus profits,
without the prior approval of the Commissioner of the Indiana Department of
Insurance, if the dividend or distribution, together with all other dividends
and distributions paid within the preceding twelve months, does not exceed the
greater of (i) net gain from operations or (ii) 10% of surplus, in each case as
shown in its preceding annual statutory financial statements. Also, regulatory
approval is required when dividends to be paid exceed unassigned surplus. For
the year ended December 31, 1996, Standard Life reported statutory net gain from
operations of $1,427,000 and statutory surplus of $22,970,000 and unassigned
surplus of $1,140,000. Standard Life paid a dividend of $1,000,000 on May 1,
1997. Standard Life anticipates paying additional dividends of approximately
$600,000 during the remainder of 1997, and the approval of the Commissioner of
the Indiana Department of Insurance will be required.

Under Luxembourg law, Standard Management International dividends are
limited to its accumulated earnings without regulatory approval. Standard
Management International and Premier Life (Luxembourg) were not permitted to pay
dividends in 1996 and 1995 due to accumulated losses, and none are anticipated
in 1997. Premier Life (Bermuda) did not pay dividends in 1996 and 1995. Pursuant
to the management services agreement with Standard Management, Premier Life
(Luxembourg) paid Standard Management a management fee of $100,000 per year
during 1996 and 1995 for certain management and administrative services. The
agreement provides that it may be modified or terminated by either Standard
Management or Premier Life (Luxembourg).

Most states, including Indiana, require administrative approval of the
acquisition of 10% or more of the outstanding shares of an insurance company
incorporated in the state or the acquisition of 10% or more of the outstanding
shares of an insurance holding company whose insurance subsidiary is
incorporated in the state. The request for approval must be accompanied by
detailed information concerning the acquiring parties and the plan of
acquisition. The acquisition of 10% of such shares is generally deemed to be the
acquisition of "control" for the purpose of the holding company statutes.
However, in many states the insurance authorities

83
<PAGE> 96

may find that "control" in fact does or does not exist in circumstances in which
a person owns or controls either a lesser or a greater amount of securities.

In some instances many state regulatory authorities require deposits of
assets for the protection of policyholders either in those states or for all
policyholders. At December 31, 1996, securities representing approximately 4% of
the book value of SMC's U.S. insurance subsidiaries' invested assets were on
deposit with various state treasurers or custodians. Such deposits must consist
of securities that comply with the standards that the particular state has
established. Assets of Standard Management International of $7,750,000 at
December 31, 1996 were held by a custodian bank approved by the Luxembourg
regulatory authorities to comply with local insurance laws.

In recent years, the NAIC and state insurance regulators have reexamined
existing laws and regulations and their application to insurance companies. This
reexamination has focused on insurance company investment and solvency issues,
risk-based capital guidelines, assumption reinsurance, interpretations of
existing laws, the development of new laws, the interpretation of nonstatutory
guidelines, the standardization of statutory accounting rules and the
circumstances under which dividends may be paid. The NAIC has encouraged states
to adopt model NAIC laws on specific topics such as holding company regulations
and the definition of extraordinary dividends. It is not possible to predict the
future impact of changing state regulation on the operations of SMC.

The NAIC, as well as Indiana and Mississippi, has adopted RBC requirements
for U.S. life/health insurance companies to evaluate the adequacy of statutory
capital and surplus in relation to investment and insurance risks such as asset
quality, mortality and morbidity, asset and liability matching, benefit and loss
reserve adequacy, and other business factors. The RBC formula is used by state
insurance regulators as an early warning tool to identify, for the purpose of
initiating regulatory action, insurance companies that potentially are
inadequately capitalized. The RBC guidelines are intended to be a regulatory
tool only, and are not intended as a means to rank insurers generally. In
addition, the formula defines minimum capital standards that supplement the
previously existing system of low fixed minimum capital and surplus requirements
on a state-by-state basis. Regulatory compliance is determined by a ratio of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by the NAIC. Enterprises below specific
trigger points or ratios are classified within certain levels, each of which
requires specific corrective action. If a company's RBC ratio is in the Company
Action Level range defined as an RBC ratio of 1.5-2, the company must submit a
plan to improve its RBC ratio. The Regulatory Action Level range defined as an
RBC ratio of 1-1.5 provides that regulators will order corrective actions. At
the Authorized Control Level range defined as an RBC ratio of 0.7-1, regulators
are authorized to take control of the company. Finally, at the Mandatory Control
Level defined as ratios below 0.7, regulators must take over the company. The
RBC ratios of SMC's insurance subsidiaries are all in excess of 4 at December
31, 1996. However, should the insurance subsidiaries' RBC position decline in
the future, the insurance subsidiaries' continued ability to pay dividends and
the degree of regulatory supervision or control to which they are subjected
could be affected.

The NAIC calculates twelve financial ratios based on statutory financial
statements ("IRIS ratios") to assist state regulators in monitoring the
financial condition of insurance companies. A "usual range" of results for each
ratio is used as a benchmark for analysis, and a company's variation from this
range may be either favorable or unfavorable. State insurance departments may
make inquiries of SMC when at least four IRIS ratios are outside the usual
range. These inquiries could lead to restrictions on the amount of business that

84
<PAGE> 97

may be written in an individual state. The following table presents the IRIS
ratios as determined by the NAIC for SMC's insurance subsidiaries which varied
from the "usual range" for 1996.

<TABLE>
<CAPTION>
REPORTED
COMPANY RATIO NAME USUAL RANGE VALUE
------- ---------- ----------- --------
<S> <C> <C> <C>
Standard Life..................... Change in Capital and Surplus 50 to -10 78
Change in Premium 50 to -10 218
Change in Product Mix 5.0 to - 5.4
Dixie National Life............... Change in Capital and Surplus 50 to -10 -38
Net Income to Total Income -to 0 -16
Surplus Relief 10 to -10 15
Change in Premium 50 to -10 115
Change in Reserving Ratio 20 to -20 -25
</TABLE>

Explanation of Ratios:

Change in Capital and Surplus. These ratios, calculated on a gross and net
basis, are a measure of improvement or deterioration in the company's financial
position during the year. The negative value for Dixie National Life is
primarily due to losses from operations incurred by Dixie National Life for the
year ended December 31, 1996.

Change in Premium. This ratio represents the percentage change in premium
from prior to current years.

Change in Product Mix. This ratio represents the average change in the
percentage of total premium from each product line during the year.

Net Income to Total Income. This ratio is a measure of the company's
profitability. The negative value for Dixie National Life is primarily due to
the losses from operations incurred by Dixie National Life for the year ended
December 31, 1996.

Surplus Relief. The positive ratio for Dixie National Life results from a
financial reinsurance agreement at December 31, 1996. See "-- Reinsurance."

Change in Reserving Ratio. The change in reserving ratio represents the
number of percentage points of difference between the reserving ratio for
current and prior years.

SMC attempts to manage its assets and liabilities so that income and
principal payments received from investments are adequate to meet the cash flow
requirements of its policyholder liabilities. The cash flows of SMC's
liabilities are affected by actual maturities, surrender experience and credited
interest rates. SMC periodically performs cash flow studies under various
interest rate scenarios to evaluate the adequacy of expected cash flows from its
assets to meet the expected cash requirements of its liabilities. SMC utilizes
these studies to determine if it is necessary to lengthen or shorten the average
life and duration of its investment portfolio. Because of the significant
uncertainties involved in the estimation of asset and liability cash flows,
there can be no assurance that SMC will be able to effectively manage the
relationship between its asset and liability cash flows.

In December 1995, the NAIC passed a model law for disclosure in life
insurance policy illustrations which became effective on January 1, 1997. This
law is not anticipated to have a significant effect on SMC. New rules adopted by
the NAIC are effective only to the extent adopted by the states in which SMC
operates, and it is not possible to predict the future impact of changing state
and federal regulation on the operations of SMC.

The statutory filings of SMC's insurance subsidiaries require
classifications of investments and the establishment of an AVR, an account
designed to stabilize a company's statutory surplus against fluctuations in the
market value of stocks and bonds, according to regulations prescribed by the
NAIC. The AVR account consists of two main components: a "default component" to
provide for future credit-related losses on fixed income investments and an
"equity component" to provide for losses on all types of equity investments,
including real estate. The NAIC requires an additional reserve, called the IMR
which consists of the portion

85
<PAGE> 98

of realized capital gains and losses from the sale of fixed income securities
attributable to changes in interest rates. The IMR is required to be amortized
against earnings on a basis reflecting the remaining period to maturity of the
fixed income securities sold. These regulations affect the ability of SMC's
insurance subsidiaries to reflect future investment gains and losses in current
period statutory earnings and surplus.

The amounts related to AVR and IMR for the insurance subsidiaries at June
30, 1997 are summarized as follows:

<TABLE>
<CAPTION>
MAXIMUM
AVR AVR IMR
--- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Standard Life......................................... 3,557 6,663 8,283
Dixie National Life................................... 232 407 127
</TABLE>

The annual addition to the AVR for 1997 will be 20% of the maximum reserve
over the accumulated balance. If the calculated reserve with current year
additions exceeds the maximum reserve amount, the reserve is reduced to the
maximum amount. For the six months ended June 30, 1997 and the year ended
December 31, 1996, SMC's U.S. subsidiaries each made the required contribution
to the AVR .

Most jurisdictions require insurance companies to participate in guaranty
funds designed to cover claims against insolvent insurers. Insurers authorized
to transact business in these jurisdictions are generally subject to assessments
based on annual direct premiums written in that jurisdiction to pay such claims,
if any. These assessments may be deferred or forgiven under most guaranty laws
if they would threaten an insurer's financial strength and, in certain
instances, may be offset against future state premium taxes. The incurrence and
amount of such assessments have increased in recent years and may increase
further in future years. Standard Life and Dixie National Life were assessed,
and paid, $144,000 and $63,000 for the year ended December 31, 1996,
respectively. The likelihood and amount of all future assessments cannot be
reasonably estimated and are beyond the control of SMC.

As part of their routine regulatory oversight process, approximately once
every three to five years, state insurance departments conduct periodic detailed
examinations ("Examinations") of the books, records and accounts of insurance
companies domiciled in their states. Standard Life underwent an Examination
during 1996 for the five-year period ended December 31, 1995. The final report
on such examination has been issued by the Indiana Department of Insurance and
did not raise any significant issues. The Mississippi Department of Insurance
concluded the Report of Examination of Dixie National Life for the period of
January 1, 1991 through December 31, 1994 on October 18, 1995 and did not raise
any significant issues.

Although the federal government generally does not directly regulate the
insurance industry, federal initiatives often have an impact on the business.
Congress and certain federal agencies are investigating the current condition of
the insurance industry (encompassing both life and health and property and
casualty insurance) in the United States in order to decide whether some form of
federal role in the regulation of insurance companies would be appropriate.
Congress is currently conducting a variety of hearings relating in general to
insurers. It is not possible to predict the outcome of any such congressional
activity nor the potential effects thereof on SMC.

Congressional initiatives have been introduced which are directed at repeal
of the McCarran-Ferguson Act (which exempts the "business of insurance" from
most federal laws to the extent it is subject to state regulation), and judicial
decisions have been issued which narrow the definition of "business of
insurance" for McCarran-Ferguson Act purposes. Current and proposed federal
measures which may also significantly affect the insurance industry including
removal of barriers preventing banks from engaging in the insurance business.

EMPLOYEES

As of June 30, 1997, SMC had 99 employees: Standard Life had 60 employees,
Standard Management International had 16 employees (3 of whom are covered by a
collective bargaining agreement), Standard Marketing had 12 employees, and
Standard Management had 9 employees. Dixie National Life has no current direct
employees. SMC believes that its future success will depend, in part, on its
ability to continue to

86
<PAGE> 99

attract and retain highly-skilled technical, marketing, support and management
personnel. Management believes that it has excellent relations with its
employees.

PROPERTIES

SMC leases approximately 31,000 square feet in an office building located
at 9100 Keystone Crossing, Indianapolis, Indiana, under the terms of a lease
which expires on June 1, 2001. SMC entered into a lease on March 31, 1997, for
approximately 16,000 square feet in a warehouse located at 2525 North Shadeland,
Indianapolis, Indiana, under the terms of a lease which expires on September 30,
1999.

Standard Management International entered into a lease on March 15, 1996
for approximately 3,000 square feet in an office building located at 1, rue
Emile Bian, L-1235 Luxembourg, Luxembourg, under the terms of a lease which
expires on December 15, 1997.

Dixie National Life leases approximately 1,000 square feet in an office
complex located at 855 South Pear Orchard Road, Suite 305, Ridgeland,
Mississippi, under the terms of a lease which expires on December 31, 1997.

LEGAL PROCEEDINGS

John J. Quinn, a former officer and director of SMC, was appointed as the
Indiana Commissioner of Insurance in February 1997. In connection with that
appointment he resigned as an officer and director of SMC effective as of April
15, 1997. He subsequently declined such appointment. On June 19, 1997, Mr. Quinn
commenced an action in the Superior Court of Marion County, Indiana, against SMC
claiming that his employment agreement contained a provision to the effect that,
following a termination of his employment with SMC under certain circumstances,
Mr. Quinn would be entitled to receive a lump sum payment equal to the amount
determined by multiplying the number of shares of SMC Common Stock subject to
unexercised stock options previously granted by SMC to Mr. Quinn on the date of
termination, whether or not such options were then exercisable, by the highest
per share fair market value of the SMC Common Stock on any day during the
six-month period ending on the date of termination. Upon payment of such amount,
such unexercised stock options would be deemed to have been surrendered and
canceled. Mr. Quinn further claims that his employment agreement contained an
additional provision that he would be entitled to receive a lump sum payment
equal to two years of annual salary, following termination of employment. Mr.
Quinn has asserted to SMC that he is entitled to a lump sum termination payment
of $1,654,000, and liquidated damages not exceeding $3,308,000, by virtue of his
voluntarily leaving SMC's employment.

SMC disputes Mr. Quinn's claims. Outside counsel is in the process of
investigating and responding to Mr. Quinn's claim. The ultimate outcome of the
action can not presently be determined. Accordingly, no provision for any
liability that may result has been made in the financial statements. Management
believes that the conclusion of such litigation will not have a material adverse
effect on SMC's consolidated financial condition.

SMC 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 SMC. The outcomes of these legal proceedings are
not expected to have a material adverse effect on the consolidated financial
position, liquidity, or future results of operations of SMC based on SMC's
current understanding of the relevant facts and law.

87
<PAGE> 100

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion highlights the principal factors affecting the
results of operations and the significant changes in balance sheet items of SMC
on a consolidated basis for the periods listed as well as SMC's liquidity and
capital resources. This discussion should be read in conjunction with the SMC
Consolidated Financial Statements and the Notes thereto appearing elsewhere
herein.

INTRODUCTION

SMC acquired First International on July 10, 1992, Standard Management
International on December 15, 1993, Dixie National Life on October 2, 1995 and
Shelby Life on November 8, 1996. These acquisitions are accounted for using the
purchase method of accounting (effective June 30, 1992 for the First
International acquisition, December 31, 1993 for the Standard Management
International acquisition, October 2, 1995 for the Dixie National Life
acquisition and November 1, 1996 for the Shelby Life acquisition). Therefore,
these subsidiaries are included in the SMC Consolidated Financial Statements
commencing with their respective acquisition effective dates. SMC acquired a
block of insurance liabilities and assets from The Midwest Life Insurance
Company in Liquidation (the "Midwest Block") effective June 30, 1992, and it is
included in the SMC Consolidated Financial Statements commencing with that date.
SMC disposed of First International on March 18, 1996 (effective March 1, 1996)
and terminated the operations of Standard Reinsurance on March 1, 1996.

Product Profitability. Margins on life insurance and annuity products are
affected by interest rate fluctuations. Rising interest rates would result in a
decline in the market value of assets. However, as there are positive cash flows
from renewal premiums, investment income and maturities of existing assets, the
need for early disposition of investment assets to meet operating cash flow
requirements would be unlikely. Rising interest rates would also result in
available cash flows from maturities being invested at higher interest rates,
which would help support a gradual increase in new business and renewal interest
rates on interest-sensitive products. A sharp, sudden rise in the interest rate
environment without a concurrent increase in crediting rates could result in
higher surrenders, particularly for annuities. The effect of surrenders would be
to reduce earnings modestly over the long term. Earnings in the period of the
surrender could increase or decrease depending on whether surrender charges were
applicable and whether such changes differed from the write-off of related
deferred acquisition costs or present value of future profits.

When interest rates fall, SMC generally attempts to adjust the credited
interest rates subject to competitive pressures. Although SMC believes that such
strategies will continue to permit it to achieve a positive spread, a
significant decline in the yield on SMC's investments could adversely affect the
results of operations and financial condition of SMC.

Purchased Insurance Business. In accordance with industry practice, when
SMC purchased First International, the Midwest Block, Dixie National Life and
Shelby Life, and recaptured a block of insurance from National Mutual on July
31, 1996, effective as of May 1, 1996 (the "National Mutual Block"), it assigned
a portion of the purchase price, called the present value of future profits, to
the right to receive future cash flows arising from existing insurance policies.
This asset was recorded when the business was purchased at the value of
projected future cash flows on existing policies, less a discount to present
value. As future cash flows emerge, they are treated as a recovery of this
asset. Therefore, if cash flows emerging from the purchased business during a
period exactly equal the projections, they are offset by that period's
amortization of the cost of the policies purchased. In that event, the only
income statement effect from the purchased business is the realization of the
discount that was initially deducted from the asset to reflect its present
value. Changes in the future annual amortization of this asset are not expected
to have a significant effect on the results of operations, because the amount of
amortization is expected to be equal to the profits emerging from the purchased
policies, net of interest on the unrecovered present value of future profits
balance. This asset is amortized over the expected life of the related policies
purchased. Present value of future profits is increased for the estimated effect
of realizing unrealized investment losses and decreased for the estimated effect
of realizing unrealized investment gains.

88
<PAGE> 101

In selecting the interest rate to calculate the discounted present value of
the projected future profits, SMC used the risk rate of return it needs to earn
in order to invest in the business being acquired or recaptured.

In determining this required rate of return, SMC considers the following
factors:

- The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows (as described
above).

- The cost of the capital required to fund the acquisition or recapture.

- The likelihood of changes in projected future cash flows that might occur
if there are changes in insurance regulations and tax laws.

- The acquired company's compatibility with other SMC activities that may
favorably affect future cash flows.

- The complexity of the acquired company or recaptured business.

- Recent prices (i.e., discount rates used in determining valuations) paid
by others to acquire or recapture similar blocks or business.

The discount rate used to determine the present value of the projected
future profits is used to determine the subsequent amortization of the cost of
the purchased policies for acquisitions prior to November 19, 1992. For
acquisitions subsequent to November 19, 1992, the discount rate used to amortize
the unamortized balance of the present value of future profits is the crediting
rate of the underlying policies.

The discount rate selected may affect subsequent earnings in those
instances where the purchase price of the policies exceeds the value of net
assets acquired (including the value of future profits discounted at the
selected interest rate). Selection of a lower (or higher) discount rate will
increase (or decrease) the portion of the purchase price assigned to the present
value of future cash flows and will result in an offsetting decrease (or
increase) in the amount of the purchase price assigned to goodwill. The impact
on subsequent earnings caused by this variation in purchase price allocation
will depend on the characteristics of the policies purchased. For products where
the profits emerge at relatively constant levels over an extended period of time
(for example, most of SMC's immediate and deferred annuities), use of a lower
rate may result in an increase in reported earnings in the early years after an
acquisition followed by a decrease in earnings in later years. For products
where profits emerge over a shorter period of time or in amounts that decrease
over the life of the product (for example, ordinary and term life products),
selection of a lower rate will generally result in a decrease in reported
earnings in the early years after an acquisition followed by an increase in
reported earnings in later years. For SMC, the majority of the cost of policies
purchased relates to ordinary life products and the balance to deferred annuity
products.

The activity related to the present value of future profits of the business
acquired or recaptured for SMC is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period...................... $23,806 $15,246 $ 8,299 $9,144
Additions during the period from acquisitions and
recaptures..................................... -- 10,348 7,901 --
Deletions during the period from disposal of
subsidiaries................................... -- (733) -- --
Net amortization during the period................ (1,052) (1,249) (780) (845)
Adjustments relating to net unrealized (gains)
losses on securities available for sale........ (16) 194 (174) --
------- ------- ------- ------
Balance at end of period............................ $22,738 $23,806 $15,246 $8,299
======= ======= ======= ======
</TABLE>

The percentage of future expected net amortization of the present value of
future profits before the effect of net unrealized gains and losses, based on
the present value of future profits at December 31, 1996 and current assumptions
as to future events on all policies in force, will be between 6% and 8% in each
of the years 1997 through 2001.

89
<PAGE> 102

The discount rate used to calculate the present value of future profits for
business acquired prior to November 19, 1992, reflected in SMC's June 30, 1997
consolidated balance sheet ranged from 7.5% to 18%. SMC used a 15% discount rate
to calculate the present value of future profits on the business of the Dixie
National Life acquisition, which is being amortized over 30 years as the
majority of the present value of future profits related primarily to the
ordinary life business. SMC used a 15% discount rate to calculate the present
value of future profits on the business of the Shelby Life acquisition, which is
being amortized over 20 years based on the mix of annuity and life business in
Shelby Life.

Acquisition of Blocks of Business. SMC's growth strategy includes the
acquisition of in force blocks of business through assumption reinsurance
agreements. SMC has not used assumption reinsurance for the purpose of acquiring
any third-party business other than in connection with the acquisition of the
Midwest Block in 1992. The accounting recognition given these acquisitions is
dependent upon the type of business acquired. FPDAs and payout annuities are
recorded at full account value. Funds received are recorded as invested assets.
The excess of the liabilities assumed over assets received is recorded as the
present value of future profits and amortized in relation to expected gross
profits.

Produced Insurance Business. Insurance products generate two types of
profit streams: (i) from the excess of investment income earned over that
credited to the policyholder and (ii) from the excess of premiums received over
costs incurred for policy issuance, administration and mortality. Costs incurred
in issuing new policies are deferred and recorded as deferred acquisition costs
("DAC"), which is amortized using present value techniques so that profits are
realized in proportion to premium revenue for certain products and estimated
gross profits for certain other products. Profits from all of these elements are
recognized over the lives of the policies; no profits are recorded at the time
the policies are issued.

Amortization of DAC was $469,000 for the six months ended June 30, 1997 and
$1,221,000, $1,142,000 and $262,000 for the years ended December 31, 1996, 1995
and 1994, respectively. The increase in current year amortization expense
resulted primarily from increased amortization of DAC as gross profits from
business sold in recent years began to emerge. DAC of $18,078,000 at December
31, 1996 and additions to policy acquisition costs of $3,598,000 for business
produced during the six months ended June 30, 1997 are generally being amortized
over the expected lives of the policies, a period of approximately 20 years, in
a constant relationship to the present value of estimated future gross profits.
Interest is being accreted at 7% during year one and 6% thereafter, the
projected crediting rate on the policies. DAC is increased for the estimated
effect of realizing unrealized investment losses and decreased for the estimated
effect of realizing unrealized investment gains. The offset to these amounts is
recorded directly to shareholders' equity, net of taxes. Future expected
amortization of DAC for the next five years before the effect of net realized
and unrealized gains and losses, based on DAC at June 30, 1997 and current
assumptions, is as follows:

<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross amortization................. $2,260 $2,277 $2,287 $2,202 $2,045
Interest accreted.................. (850) (720) (599) (493) (403)
------ ------ ------ ------ ------
Net amortization................... $1,410 $1,557 $1,688 $1,709 $1,642
====== ====== ====== ====== ======
</TABLE>

The amounts included in the foregoing table do not include any amortization
of DAC resulting from the sale of new products after June 30, 1997. Any changes
in future annual amortization of this asset are not expected to have a
significant effect on results of operations because the amount of amortization
is expected to be proportionate to the profits from the produced policies, net
of interest on DAC.

Variances Between Actual and Expected Profits. Actual experience on
purchased and produced insurance may vary from projections due to differences in
renewal premiums collected, investment spreads, mortality costs, surrender
benefits, persistency, administrative costs and other factors. Variances from
original projections, whether positive or negative, are included in net income
as they occur. To the extent that these variances indicate that future
experience will differ from the estimated profits reflected in the
capitalization and amortization of the cost of policies purchased or the cost of
policies produced, current and future amortization rates may be adjusted.

90
<PAGE> 103

Accounting for Annuities and Universal and Interest-Sensitive Life
Products. The Company primarily accounts for its annuity and universal and
interest-sensitive life policy deposits in accordance with Statement of
Financial Accounting Standards No. 97 ("SFAS No. 97"), "Accounting and Reporting
by Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses on the Sale of Investments." Under SFAS No. 97, a benefit
reserve is established at the time of policy issuance in an amount equal to the
deposits received. Thereafter, the benefit reserve is adjusted for any
additional deposits, interest credited and partial or complete withdrawals.
Revenues for annuities and universal and interest-sensitive life policies, other
than certain non-interest sensitive annuities, consist of policy charges for
surrenders and partial withdrawals, mortality and administration, and investment
income earned. Such revenues do not include the annuity and universal and
interest-sensitive life policy deposits. Expenses related to these products
include interest credited to policyowner account balances, operating costs for
policy administration, amortization of DAC and mortality costs in excess of
account balances.

Costs relating to the acquisition of new business, primarily commissions
paid to agents, which vary with and are directly related to the production of
new business, are deferred to the extent that such costs are recoverable from
future profit margins. At the time of issuance, the acquisition expenses,
approximately 12.7% of initial annuity premium deposits and 50% of premiums from
universal and interest-sensitive life products for SMC, are capitalized as DAC.
In accordance with SFAS No. 97, DAC with interest is amortized over the lives of
the policies in a constant relationship to the present value of estimated future
gross profits.

Unit-linked Product Accounting. Separate account assets and liabilities are
maintained primarily for contracts of which the majority represents unit-linked
products where benefits on surrender and maturity are not guaranteed. They
generally represent funds held in accounts to meet specific investment
objectives of policyholders who bear the investment risk. Investment income and
investment gains and losses accrue directly to such policyholders. SMC earns
income from the investment management fee it charges on such unit-linked
contracts, which range from .8% to 1.2% of the value of the underlying separate
accounts.

Proposed Acquisition of Savers Life. Upon the consummation of the Merger,
each share of Savers Life Common Stock outstanding immediately prior to the
Effective Time of the Merger will be converted into (i) $1.50 in cash, which the
holder of such share of Savers Life Common Stock may elect to receive in shares
of SMC Common Stock, (ii) $6.50 in value of shares of SMC Common Stock, the
number of such shares, to be rounded to the nearest hundredth of a share,
determined by dividing $6.50 by the Average Trading Price of SMC Common Stock
for the ten consecutive trading days ending on the fifth day prior to the
earlier of the SMC Annual Meeting or the Savers Life Special Meeting, plus (iii)
the right to receive the Performance Premium if any. As a result, the number of
shares of SMC Common Stock outstanding after the Effective Date will be
significantly increased. See "Summary -- The Merger Agreement -- Conversion of
Shares in the Merger" and "Summary -- Comparative Per Share Data of SMC and
Savers Life." The number of outstanding shares of SMC Common Stock may be
further increased to the extent that any Performance Premium is payable. See
"The Merger Agreement -- Performance Premium."

The consolidated results of operations of SMC may be adversely impacted by
the acquisition of Savers Life to the extent that the operating losses currently
being experienced by Savers Life continue. SMC intends to pursue the sale of the
Savers Life major medical product line in order to eliminate such operating
losses; however, no assurance can be given that any such sale will be
consummated or that such losses will be eliminated. SMC also intends to attempt
to reduce certain other expenses through the consolidation of certain services
and administration. See "Risk Factors -- No Assurance Businesses Can Be Combined
Successfully" and "The Merger Agreement -- Operation of Savers Life After the
Effective Time."

DISCUSSION OF CHANGES IN THE CONSOLIDATED STATEMENT OF OPERATIONS FROM SIX
MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996

Operating Income. The income from operations (before net realized
investment gains and gain on disposal of subsidiaries) was $1,189,000 in the
first six months of 1997, compared to $27,000 for the comparable period in 1996.
The change resulted primarily from operations in the United States producing
income from operations of $366,000 compared to a loss from operations of
$(308,000) for the first six months of 1997 and 1996, respectively. The increase
is primarily due to an increase in interest spreads on an increasing

91
<PAGE> 104

asset base, while operating expenses have declined when compared to 1996. The
income from international operations also increased to $823,000 for the first
six months of 1997 compared to $335,000 for the first six months of 1996. The
international operating gains resulted primarily from decreased operating
expenses, reflecting reduced marketing activity during the period, and the
strengthening of the U.S. dollar.

Premium Income. Premium income is composed of premiums, including renewal
premiums, received on ordinary life insurance policies. As noted above, SMC's
new product sales are composed primarily of annuity products. Under GAAP,
deposits from interest-sensitive annuities and other financial products are not
recorded as revenues. GAAP premium income for the first six months of 1997 was
$3,562,000, a decrease of $3,567,000 or 50% from $7,129,000 for the first six
months of 1996. This decrease is attributable to the recapture of premiums ceded
of $4,234,000 due to the termination and recapture of the reinsurance agreement
with National Mutual in the second quarter of 1996, which offsets increases in
premium income for the inclusion of Shelby Life in the results of operations for
periods after November 1, 1996. SMC recorded net premium income of $760,000 for
the six months ended June 30, 1997 for the Shelby Life block which more than
offsets the decline in premiums from the regular policy lapses, surrenders and
expiries in SMC's closed blocks of business.

Net premium deposits received from the sales of interest-sensitive
annuities and other financial products (which are not recorded as revenues) were
$25,127,000 compared to $18,796,000 for the first six months of 1997 and 1996,
respectively. The increase in premium deposits is partially due to an increase
in gross domestic premium deposits. Gross domestic premium deposits received
from interest-sensitive annuities and financial products were $29,833,000 for
the six months ended June 30, 1997 compared to $23,799,000 for the six months
ended June 30, 1996. The increase in gross premium deposits is the continuing
result of an aggressive marketing campaign implemented by Standard Life with the
introduction of attractive new annuity products and the effects of increasing
first year crediting rates approximately 1% commencing during the second quarter
of 1996. Also contributing to the increase in premiums is the introduction of
new products, the competitiveness of SMC's products, the continued development
of SMC's distribution system through marketing support from Standard Marketing
and an increase in the agency base achieved through the recruitment of larger
managing general agencies and expanding geographical concentration into the
Mid-South and California. Since SMC's operating income is primarily a function
of its investment spreads, persistency of annuity inforce business, mortality
experience, and operating expenses, a change in annuity premium deposits in a
single period does not directly cause operating income to change, although
continued increases or decreases in annuity premiums may affect the growth rate
of total assets on which investment spreads are earned.

SMC also decreased the quota-share portion of business ceded pursuant to a
reinsurance agreement from 70% to 50% at September 1, 1995, which was further
decreased to 25% effective April 1, 1996. Premium deposits ceded pursuant to
this reinsurance agreement reduced net premium deposits by $4,706,000 in the
first six months of 1997 compared to $5,003,000 in the first six months of 1996.

Net Investment Income. Net investment income increased $4,955,000 or 53% to
$14,346,000 for the first six months of 1997 from $9,391,000 for the comparable
period of 1996. The increase primarily resulted from an increase in the weighted
average annualized yield of SMC's investment portfolio (exclusive of realized
and unrealized gains and losses) to 7.59% from 7.19% for the first six months of
1997 and 1996, respectively, and the increase in total invested assets
(amortized cost) of approximately 38.9% from December 31, 1995 to June 30, 1997,
most of which (approximately $100,000,000) occurred in the fourth quarter of
1996 due to the acquisition of Shelby Life. As of June 30, 1997, yields
available on new investments were declining.

Net Realized Investment Gains. Net realized investment gains decreased
$250,000 or 55% to $206,000 from $456,000 for the first six months of 1997 and
1996, respectively. Net realized investment gains fluctuate from period to
period and arise when securities are sold in response to changes in the
investment environment which provide opportunities to maximize return on the
investment portfolio without adversely affecting the quality and overall yield
of the investment portfolio. The pretax net unrealized loss on SMC's securities
available for sale increased to $2,121,000 at June 30, 1997 from $1,837,000 at
December 31, 1996. In the absence of decreases in interest rates, SMC may be
unable to realize gains on its investment portfolio at the levels of prior years
or could recognize losses from sales of securities prior to maturity.

92
<PAGE> 105

Gain on Disposal of Subsidiaries. On March 18, 1996, SMC completed the sale
of a duplicate charter associated with First International to GIAC. SMC received
sale proceeds of $10,393,000, including $1,500,000 for the charter and licenses
associated with First International. In addition, First International, Standard
Life and GIAC have entered into a series of other agreements that include
provisions for Standard Life to retain the economic interest in certain First
International policies and administer First International policies in force at
the date of such sale.

In an unrelated matter, SMC decided in February 1996 to terminate the
reinsurance agreement between Standard Reinsurance and Salamandra, and not to
renew the Barbados license of Standard Reinsurance. This resulted in a first
quarter 1996 write-off of SMC's investment in Standard Reinsurance and certain
intangible assets of Standard Reinsurance amounting to $156,000.

The combined effect of the pre-tax gain on the sale of First International
and related contracts, and the Standard Reinsurance write-offs, was $886,000
pre-tax and $2,306,000 after-tax in the first quarter of 1996.

Policy Charges. Policy charges, which represent the amounts assessed
against policyholder account balances for the cost of insurance, policy
administration and surrenders, increased $1,569,000 or 129% to $2,783,000 for
the six months ended June 30, 1997 compared to $1,214,000 for the six months
ended June 30, 1996. The increase in policy charges resulted from an increase in
policy charges for Standard Life's universal life insurance products of $984,000
due to the inclusion of Shelby Life in the results of operations for periods
after November 1, 1996 and an increase in policy surrender charges on FPDAs of
$294,000. The increase in annuity policy withdrawals and surrender charges on
FPDAs generally corresponds to the aging and growth of SMC's annuity business in
force.

Amortization of Excess of Net Assets Acquired Over Acquisition
Cost. Amortization of excess of net assets acquired over acquisition cost
("negative goodwill") is recorded to amortize into earnings the negative
goodwill recorded in connection with the acquisition of Standard Management
International in 1993. The negative goodwill is being amortized on a
straight-line basis over five years. Amortization of negative goodwill was
$694,000 for each of the six months ended June 30, 1997 and 1996.

Management Fees and Similar Income From Separate Accounts. Management fees
and similar income from separate accounts consist of the investment management
fees earned by Standard Management International on its separate account assets
and investment contracts. Management fees and similar income from separate
accounts increased $2,000 to $838,000 for the first six months of 1997 from
$836,000 for the first six months of 1996. Such income fluctuates in
relationship to total separate account assets and the return earned on such
assets.

Benefit and Claims. Benefits and claims include life insurance and payout
annuity benefits paid and changes in policy reserves. Benefits and claims
decreased $2,855,000 or 40% to $4,368,000 for the first six months of 1997 from
$7,223,000 for the first six months of 1996. The decrease in benefits and claims
results from an increase in change in policy reserves related to the termination
and recapture of a reinsurance agreement with National Mutual in the second
quarter of 1996. This decrease offset the increase in benefits and claims from
the inclusion of Shelby Life (approximately $1,462,000 in the first six months
of 1997) in the results of operations for periods after November 1, 1996.
Throughout SMC's history, it has experienced both periods of higher and lower
benefit claims. Such volatility is not uncommon in the life insurance industry
and, over extended periods of time, periods of higher claims experience tend to
be offset by periods of lower claims experience.

Interest Credited on Interest-Sensitive Annuities and Other Financial
Products. Interest credited on interest-sensitive annuities and other financial
products was $8,166,000 for the first six months of 1997, an increase of
$3,162,000 or 63% from $5,004,000 for the comparable prior year period. The
increase resulted primarily from the inclusion of interest credited of
$1,907,000 in the first six months of 1997 from Shelby Life products, increases
in interest credited rates on new annuity sales and the increases in the growth
in policy reserves for FPDAs from sales. At June 30, 1997, the weighted average
interest credited rate for Standard Life's currently marketed annuities and
other financial product liabilities was 5.68% compared to 5.35% at June 30,
1996.

93
<PAGE> 106

Salaries and Wages. Salaries and wages were $2,904,000 for the first six
months of 1997, an increase of $441,000 or 18% from $2,463,000 for the
comparable prior year period. This increase was caused primarily by an increase
in the number of employees in 1997 and an increase in incentive compensation
expense in the first six months of 1997 of $190,000 based on operating income
for the six months ended June 30, 1997.

Amortization. Amortization expense includes charges to operations for the
amortization of deferred acquisition costs, the present value of future profits,
the excess of cost over net assets acquired and subsidiary organization costs.
Amortization expense increased $418,000 or 36% to $1,577,000 for the first six
months of 1997 from $1,159,000 for the first six months of 1996. The increase in
current year amortization expense resulted primarily from the amortization of
present value of future profits of $412,000 in the first six months of 1997 for
the acquisition of Shelby Life.

Other Operating Expenses. Other operating expenses decreased $593,000 or
15% to $3,317,000 for the first six months of 1997 from $3,910,000 for the first
six months of 1996. The decrease in other operating expenses resulted primarily
from eliminating in 1997 the additional cost to convert the operations and
expand the marketing effort in Dixie National Life incurred in the first six
months of 1996 and a reduction in international operating expenses.

Interest Expense and Financing Costs. Interest expense and financing costs
increased $801,000 or 289% to $1,078,000 in 1997 from $277,000 in 1996. The
increase in interest expense and financing costs during 1997 resulted primarily
from increased borrowing of $10,100,000 on the Amended Credit Agreement and
borrowings of $4,000,000 from an insurance company in connection with the
acquisition of Shelby Life.

Federal Income Taxes. Federal income tax expense (credit) was $575,000 for
the first six months of 1997, compared to $(1,118,000) for the first six months
of 1996. The large credit in 1996 is primarily due to tax benefits of $1,420,000
related to the sale of First International.

Extraordinary Gain on Early Redemption of Redeemable Preferred
Stock. Extraordinary gains are recorded on the early redemption of the Class S
Preferred Stock for the amount by which SMC is able to repurchase the Class S
Preferred Stock below its book value plus accrued and unpaid dividends. SMC
recorded no extraordinary gain for the first six months of 1997 compared to
$267,000 for the six months ended June 30, 1996. Effective August 1, 1997, SMC
redeemed all of its issued and outstanding Class S Preferred Stock at a
redemption value of $10.00 per share plus accumulated and unpaid dividends.

Common and Common Equivalent Shares. The weighted average number of common
and common equivalent shares for the six months ended June 30, 1996 included
522,810 common equivalent shares that were not included in this calculation for
the comparable six months in 1997. These additional common equivalent shares
were included in the 1996 calculation due to the increase in net income in the
first quarter of 1996 from the sale of First International. Such additional
common equivalent shares are not included in any other reporting period. The
inclusion of the additional common equivalent shares in the six months ended
June 30, 1996 calculations had the effect of decreasing earnings per share for
the period by $.03.

DISCUSSION OF CHANGES IN THE CONSOLIDATED STATEMENT OF OPERATIONS FROM YEAR
ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Operating Income. The income from operations (before net realized
investment gains, gain on disposal of subsidiaries and reduction in accruals of
certain legal expenses) was $1,174,000 in 1996, or $.24 per share, compared to
$461,000 for 1995, or $.09 per share. The change resulted primarily from
international operations producing income from operations of $1,218,000 compared
to a loss of $(22,000) for 1996 and 1995, respectively. The international
operating gains resulted primarily from increased management fees on an
increasing separate account base due to portfolio sales in 1995 and 1996, and
increased value of assets under management, coupled with a decrease in marketing
costs in 1996 when compared to 1995. The income from operations in the United
States decreased to ($44,000) in 1996 compared to $483,000 in 1995. The decline
was attributable to an increase in interest expense from borrowings to
repurchase SMC Common Stock, Class S Preferred Stock and the purchase of Shelby
Life and additional costs incurred to convert the operations and expand the
marketing effort in Dixie National Life.

94
<PAGE> 107

Premium Income. GAAP premium income for 1996 was $10,468,000, an increase
of $4,964,000 or 90% from $5,504,000 for 1995. This increase is mainly
attributable to recapture of premiums ceded of $4,234,000 due to the termination
and recapture of a reinsurance agreement with National Mutual and the inclusion
of Dixie National Life and Shelby Life in the results of operations for periods
after October 2, 1995 and November 1, 1996, respectively. These amounts offset
the decline in premiums from the cession of a portion of First International's
life insurance business and the regular policy lapses, surrenders and expiries
in SMC's closed blocks of business.

Net premiums received from the sales of interest-sensitive annuities and
other financial products (which are not recorded as revenues) were $42,347,000
compared to $17,524,000 for the years ended December 31, 1996 and 1995,
respectively. The increase in premium deposits is partially due to an increase
in gross domestic premium deposits. Gross domestic premium deposits received
from interest-sensitive annuities and financial products were $51,254,000 for
the year ended December 31, 1996 compared to $37,614,000 for the year ended
December 31, 1995. The increase is the result of an aggressive marketing
campaign implemented by Standard Life with increased crediting interest rates.
First year interest crediting rates were increased approximately 1% on certain
FPDAs sold after April 1, 1996. Also contributing to the increase in premiums is
the continued development of SMC's distribution system through marketing support
from Standard Marketing and an increase in the agency base achieved through the
recruitment of larger managing general agencies and expanding geographical
concentration into the Mid-South and California.

SMC also decreased the quota-share portion of business ceded pursuant to a
reinsurance agreement from 70% to 50% at September 1, 1995, which was further
decreased to 25% effective April 1, 1996. Premium deposits ceded pursuant to
this reinsurance agreement reduced net premium deposits by $8,907,000 in the
year ended December 31, 1996 compared to $20,090,000 in 1995.

Net Investment Income. Net investment income increased $2,354,000 or 13% to
$20,871,000 for the year ended December 31, 1996 from $18,517,000 for 1995. The
increase primarily resulted from an increase in total invested assets (amortized
cost) of approximately 32% from 1995 to 1996, most of which occurred in the
fourth quarter due to the acquisition of Shelby Life. The average net yield on
SMC's invested assets was 7.32% for both years ended December 31, 1996 and 1995.
The continued growth in SMC's total invested assets reflects increased sales of
FPDAs and the inclusion of the invested assets from Dixie National Life of
approximately $26,400,000 and Shelby Life of approximately $100,400,000 in the
consolidated balance sheet effective October 2, 1995 and November 1, 1996,
respectively, which was offset by the invested assets ceded in the GIAC
reinsurance transaction of approximately $18,000,000.

Net Realized Investment Gains. Net realized investment gains increased
$614,000 or 89% to $1,302,000 from $688,000 for the years ended December 31,
1996 and 1995, respectively. The increase primarily resulted from active
portfolio management by SMC. Net realized investment gains fluctuate from period
to period and arise when securities are sold in response to changes in the
investment environment which provide opportunities to maximize return on the
investment portfolio without adversely affecting the quality and overall yield
of the investment portfolio.

95
<PAGE> 108

Policy Charges. Policy charges increased $84,000 or 3% to $2,551,000 for
the year ended December 31, 1996 compared to $2,467,000 for the year ended
December 31, 1995. The increase in policy charges resulted from an increase in
policy surrender charges on FPDAs of $254,000 and the inclusion of Dixie
National Life and Shelby Life in operating results for periods after October 2,
1995 and November 1, 1996, respectively, for an increase of $1,359,000 which
offset a decrease of $1,502,000 for the absence of policy charges from SMC's
closed blocks of universal life business which were sold to GIAC through a
reinsurance contract effective January 1, 1996.

Amortization of Excess of Net Assets Acquired Over Acquisition
Cost. Amortization of negative goodwill was $1,388,000 for each of the years
ended December 31, 1996 and 1995.

Management Fees and Similar Income from Separate Accounts. Management fees
and similar income from separate accounts increased $270,000 or 21% to
$1,564,000 for the year ended December 31, 1996 from $1,294,000 for the year
ended December 31, 1995. This increase is due primarily to an increase in the
value of assets held in separate accounts from $94,301,000 at December 31, 1994
to $128,546,000 at December 31, 1996 and to higher service fees being levied on
certain transactions. Net deposits from sales of unit-linked products by
Standard Management International were $16,902,000 and $31,793,000 for the years
ended December 31, 1996 and 1995, respectively.

Other Income. Other income increased $897,000 or 236% to $1,277,000 for the
year ended December 31, 1996 compared to $380,000 for 1995. The increase
resulted primarily from administration fees of $316,000 and the reserve and
experience refund adjustments in connection with the agreements with GIAC and
increased commissions received by Standard Marketing from the sale of
unaffiliated products.

Benefits and Claims. Benefits and claims increased $4,128,000 or 71% to
$9,919,000 for the year ended December 31, 1996 from $5,791,000 for the year
ended December 31, 1995. The increase resulted primarily from an increase in
reserves of $4,234,000 related to the termination and recapture of a reinsurance
agreement with National Mutual. Throughout SMC's history, it has experienced
both periods of higher and lower benefit claims. Such volatility is not uncommon
in the life insurance industry and, over extended periods of time, periods of
higher claims experience tend to be offset by periods of lower claims
experience.

Interest Credited on Interest-Sensitive Annuities and Other Financial
Products. Interest credited on interest-sensitive annuities and other financial
products was $11,281,000 for the year ended December 31, 1996, an increase of
$1,272,000 or 13% from $10,009,000 for 1995. The increase resulted primarily
from SMC's increase of credited interest rates on new annuity sales, and the
increases in the growth in policy reserves for FPDAs from sales and the
inclusion of Shelby Life in the operations results effective November 1, 1996.
At December 31, 1996, the weighted average interest credited rate for Standard
Life's annuities and other financial product liabilities was 5.35% compared to
5.27% at December 31, 1995.

Salaries and Wages. Salaries and wages were $5,053,000 for the year ended
December 31, 1996, an increase of $352,000 or 7% from $4,701,000 for 1995. This
fluctuation was caused primarily by an increase in incentive compensation of
$315,000.

Amortization. Amortization expense increased $548,000 or 27% to $2,592,000
for the year ended December 31, 1996 from $2,044,000 for the year ended December
31, 1995. The increase in current year amortization expense resulted primarily
from increased amortization of $79,000 of deferred acquisition costs as gross
profits from business sold in recent years began to emerge and increased
surrenders and their corresponding increase in the amortization of deferred
acquisition costs, and from an increase of $602,000 for the amortization of
present value of future profits for the acquisitions of Dixie National Life,
Shelby Life and National Mutual. These items more than offset reduced
amortization of excess of cost over net assets acquired of $46,000 and present
value of future profits of $120,000 due to the sale of First International.

Other Operating Expenses. Other operating expenses increased $789,000 or
12% to $7,122,000 for the year ended December 31, 1996 from $6,333,000 for the
year ended December 31, 1995. The increase in other operating expenses resulted
primarily from the expenses of Dixie National Life and Shelby Life included in
the results for the periods after October 2, 1995 and November 1, 1996,
respectively, and the increased expenses related to potential acquisitions and
advisory fees.

96
<PAGE> 109

Interest Expense and Financing Costs. Interest expense and financing costs
increased $687,000 or 582% to $805,000 for the year ended December 31, 1996 from
$118,000 for the year ended December 31, 1995. The increase in interest expense
and financing costs during 1996 resulted primarily from the borrowing on the
Amended Credit Agreement. The borrowing under the Amended Credit Agreement and
the original credit agreement primarily occurred after December 31, 1995 in
connection with the acquisition of Shelby Life and the repurchase of SMC Common
Stock and Class S Preferred Stock.

Class Action Litigation and Settlement Costs. Class action litigation and
settlement costs were recorded to reflect the estimated costs of litigation and
settlement of the shareholder class action lawsuit, based on the terms of the
settlement agreement and assumptions as to the future estimated legal and other
costs to settle the lawsuit, which was settled in March 1995, and to register
the Class S Preferred Stock which was distributed to the class participants in
February 1996. There were no class action litigation and settlement expenses in
the years ended December 31, 1996 and 1995. However, with the signing of the
Settlement Agreement with the 22 persons who previously excluded themselves from
the class and the reevaluation of the future estimated legal and other costs to
settle the lawsuit, SMC recorded a reduction of $314,000 in the second quarter
of 1995 in the estimated future costs to settle the lawsuit and register the
Class S Preferred Stock.

Federal Income Taxes. Federal income tax expense (credit) was $(730,000)
for the year ended December 31, 1996, compared to $243,000 for the year ended
December 31, 1995. The large credit in 1996 is primarily due to tax benefits of
$1,420,000 related to the sale of First International and also from the
amortization of excess of net assets acquired over acquisition cost resulting
from the acquisition of Standard Management International of $472,000 not being
subject to United States income tax.

Extraordinary Gain on Early Redemption of Redeemable Preferred Stock. The
extraordinary gain was $502,000 for the year ended December 31, 1996 compared to
no gain for the year ended December 31, 1995.

DISCUSSION OF CHANGES IN THE CONSOLIDATED STATEMENT OF OPERATIONS FROM YEAR
ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

Operating Income. The income from operations (before net realized
investment gains and class action litigation and settlement costs) increased to
$461,000, or $.09 per share, from $293,000, or $.06 per share, for 1995 and
1994, respectively. The increase resulted from U.S. operations producing income
from operations of $483,000 compared to a U.S. loss from operations of
$(720,000) for 1995 and 1994, respectively. The U.S. operating gains resulted
primarily from increased interest spreads on an increasing asset base due to
annuity sales in 1995 and 1994. The improvement in U.S. operations was offset by
a decline in international income from operations from $1,013,000 in 1994 to a
loss of $(22,000) in 1995 as the costs of resuming marketing were absorbed.

Premium Income. GAAP premium income for 1995 was $5,504,000, an increase of
21% from $4,565,000 for 1994. Increased premium income resulted primarily from
the inclusion of Dixie National Life in the results of operations effective
October 2, 1995.

Net premiums received from the sales of interest-sensitive annuities and
other financial products (which are not recorded as revenues) were $17,524,000
for the year ended December 31, 1995 compared to $53,490,000 for the year ended
December 31, 1994. The decline is partially due to increased competitive
pressures. To protect its profit margins, SMC was not willing to match other
insurers' high interest crediting and commission rates which caused a decrease
in gross domestic premium deposits of $15,876,000 in 1995 when compared to 1994.
Additionally, Standard Life began ceding a portion of its new annuity business
to an unaffiliated reinsurer effective January 1, 1995. Premium deposits ceded
pursuant to the reinsurance agreement with the reinsurer reduced net premiums by
$20,090,000 for 1995. There was no such reinsurance in 1994.

Net Investment Income. Net investment income increased 15% to $18,517,000
in 1995 from $16,057,000 in 1994. This increase primarily resulted from growth
in SMC's total invested assets attributable to the increased sales of FPDAs in
1994 and the inclusion of Dixie National Life in the results of operations
effective

97
<PAGE> 110

October 2, 1995. The amortized cost of total invested assets increased 12% to
$274,148,000 in 1995 from $245,619,000 in 1994. These increased assets also
benefited from a higher concentration of investments in fixed maturity
securities. The average annualized yield of SMC's investment portfolio for the
year ended December 31, 1995 increased to 7.32% from 7.26% for 1994.

Net Realized Investment Gains. Net realized investment gains increased 23%
to $688,000 in 1995 from $558,000 in 1994. 1995 results reflect increased gains
on sales of investments due to rising values of fixed maturity securities as
interest rate levels decreased, combined with active portfolio management. Net
realized gains fluctuate from period to period and arise when securities are
sold in response to changes in the investment environment which provide
opportunities to maximize return on the investment portfolio without adversely
affecting the quality of the investment portfolio.

Policy Charges. Policy charges increased 21% to $2,467,000 for 1995
compared to $2,031,000 for 1994. The increase in universal life policy charges
resulted from increased surrender charges on interest-sensitive annuity products
and the inclusion of Dixie National Life in operating results for periods after
October 2, 1995.

Amortization of Excess of Net Assets Acquired Over Acquisition
Cost. Amortization of negative goodwill increased 31% to $1,388,000 for 1995
compared to $1,063,000 for 1994 due to a reallocation of the purchase price of
Standard Management International in the fourth quarter of 1994 which increased
negative goodwill.

Management Fees and Similar Income from Separate Accounts. Management fees
and similar income from separate accounts decreased 32% to $1,294,000 in 1995
from $1,888,000 in 1994. This decrease is due to a change in the mix of the
types of separate accounts whereby those earning higher investment management
fees represent a significantly smaller portion of the total in 1995 than in
1994. Most of the new policies sold in 1995 carried significantly smaller
investment management fees than the policies lapsed or surrendered in 1995. Net
deposits from sales of unit-linked products by Standard Management International
were $31,793,000 in 1995 and $1,715,000 in 1994.

Other Income. Other income includes primarily override commissions received
by Standard Marketing from unaffiliated companies and other income recorded by
Standard Management International. Other income increased 7% to $380,000 for
1995 from $356,000 in 1994. The increase primarily resulted from commissions
from the sale of unaffiliated products and to a lesser extent the inclusion of
Dixie National Life in the results of operations after October 2, 1995. These
increases more than offset any loss of fee income generated by Standard
Advertising which was sold in early 1995.

Benefits and Claims. Benefits and claims increased 3% to $5,791,000 for
1995 from $5,603,000 for 1994. The increase in benefits and claims resulted
primarily from an increase in death benefits in 1995 when compared to the
favorable mortality experience in 1994. Mortality experience is volatile and
these trends are not predictable from period to period.

Interest Credited on Interest-Sensitive Annuities and Other Financial
Products. Interest credited on interest-sensitive annuities and other financial
products was $10,009,000 for 1995, an increase of $1,333,000 or 15% from
$8,676,000 for the prior year. The increase resulted primarily from increases in
interest credited from the growth in policy reserves for FPDAs. This more than
offset any decreases from the decline in credited interest rates on
interest-sensitive annuities and other financial products. At December 31, 1995,
the weighted average interest credited rate for Standard Life's
interest-sensitive annuities and other financial product liabilities was 5.27%
compared to 5.82% at December 31, 1994.

Salaries and Wages. Salaries and wages were $4,701,000 for 1995, an
increase of 20% from $3,910,000 for the prior year. This increase was caused by
$185,000 of unusual charges due to the termination of certain international
marketing programs and the subsequent reduction of SMC's staff in Luxembourg in
1995, the capitalization of certain salaries of $203,000 associated with the
internal development of computer software in 1994, increased salaries for new
marketing efforts for Standard Management International in 1995 and the
inclusion of Dixie National Life in the results of operations for periods after
October 2, 1995. Additionally, the average wages per employee increased in 1995.

Amortization. Amortization expense for 1995 was $2,044,000, an increase of
$829,000, or 68%, from $1,215,000 for the prior year. The increase in current
year amortization expense resulted primarily from

98
<PAGE> 111

increased amortization of deferred acquisition costs as gross profits from
business sold in recent years began to emerge and from the amortization of
present value of future profits for the acquisition of Dixie National Life,
which more than offset reduced amortization of present value of future profits
on previous acquisitions as persistency of the purchased business began to
improve.

Other Operating Expenses. Other operating expenses for the year ended
December 31, 1995 were $6,333,000, reflecting a decrease of 4%, compared to
$6,563,000 for the year ended December 31, 1994. The decrease in other operating
expenses resulted primarily from decreases in consulting, legal and other
expenses related to potential acquisitions and the sale of Standard Advertising
in early 1995, which more than offset the increased expenses of operating Dixie
National Life from October 2, 1995 to December 31, 1995.

Interest Expense and Financing Costs. Interest expense and financing costs
increased 151% to $118,000 in 1995 from $47,000 in 1994. The increase in
interest expense during 1995 resulted primarily from the payments on the capital
lease obligations.

Class Action Litigation and Settlement Costs. SMC recorded a reduction of
$314,000 in 1995 in the estimated future costs to settle the lawsuit and list
the Class S Preferred Stock.

Federal Income Taxes. Federal income tax expense was $243,000 for 1995,
compared to a credit of $(78,000) for 1994. The effective rate of 16% is less
than the statutory rate of 34% primarily because the amortization of excess of
net assets acquired over acquisition cost resulting from the acquisition of
Standard Management International is not subject to United States income tax.
SMC receives the benefits of a special deduction available to small life
insurance companies and the utilization of capital and operating loss carry
forwards in the life insurance subsidiaries. However, the losses incurred by
Standard Management and the foreign subsidiaries, primarily due to class action
litigation and settlement costs, and operating costs in excess of management
fees, provide no current tax benefit as Standard Management and the foreign
subsidiaries are in a net operating loss carryforward position. The benefits of
the special deduction available to small life insurance companies will no longer
be available when consolidated assets exceed $500,000,000.

LIQUIDITY AND CAPITAL RESOURCES

Standard Management is an insurance holding company. The liquidity
requirements of Standard Management are met primarily from management fees,
equipment rental fees and payments for other charges and dividends and interest
on Surplus Debentures received from Standard Management's subsidiaries as well
as Standard Management's working capital. These are Standard Management's
primary source of funds to pay operating expenses and meet debt service
obligations. The payment of dividends and interest on Surplus Debentures and
management and other fees by Standard Life to Standard Management is subject to
restrictions under the insurance laws of Indiana, Standard Life's jurisdiction
of domicile. These internal sources of liquidity have been supplemented in the
past by external sources such as lines of credit and revolving credit agreements
and long-term debt and equity financing in the capital markets.

SMC reported on a consolidated GAAP basis net cash provided by operations
of $1,726,000 and $6,331,000 for the years ended December 31, 1996 and 1995,
respectively. Although deposits received on SMC's interest-sensitive annuities
and other financial products are not included in cash flow from operations under
GAAP, such funds are available for use by SMC. Cash provided by operations plus
net deposits received, less net account balances returned to policyholders on
interest-sensitive annuities and other financial products, resulted in positive
cash flow of $26,717,000 and $6,003,000 for the years ended December 31, 1996
and 1995, respectively. Cash generated on a consolidated basis is available to
Standard Management only to the extent that it is generated at Standard
Management level or is available to Standard Management through dividends,
interest, management fees or other payments from subsidiaries.

In April 1993, Standard Management instituted a program to repurchase SMC
Common Stock from time to time. The purpose of the stock repurchase program is
to enhance shareholder value. Standard Management had repurchased 1,134,356
shares of SMC Common Stock for $5,826,000 as of July 31, 1997. Of these
repurchases 419,026 were paid for through additional borrowing under the Amended
Credit Agreement, 39,016 shares from the proceeds of the additional borrowings
of the subordinated convertible

99
<PAGE> 112

notes, and the remainder were paid from working capital. At July 31, 1997,
Standard Management was authorized to purchase an additional 365,644 shares
under this program.

Between February 1996 and July 1997, SMC repurchased 141,761 shares of
Class S Preferred Stock at an aggregate price of $964,000 primarily through
additional borrowings under the Amended Credit Agreement. On August 1, 1997, SMC
redeemed all of its issued and outstanding shares of Class S Preferred Stock for
an aggregate redemption price of $1,840,000 including accumulated and unpaid
dividends. Such redemption was financed with the proceeds of the additional
borrowings of the subordinated convertible notes.

At June 30, 1997, Standard Management had "parent company only" cash and
short-term investments of $5,048,000. This cash balance reflects the $1,000,000
dividend received from Standard Life in May 1997 and proceeds that remained at
June 30, 1997 from the additional borrowings from the subordinated convertible
notes. These funds are available to Standard Management for general corporate
purposes. Standard Management's "parent company only" operating expenses (not
including class action litigation and settlement costs and interest expense)
were $3,470,000 and $2,793,000 for the years ended December 31, 1996 and 1995,
respectively.

Pursuant to the management services agreement with Standard Management,
Standard Life paid Standard Management a monthly fee of $150,000 during 1996 and
1995 for certain management services related to the production of business,
investment of assets and evaluation of acquisitions. The management service
agreement between Standard Management and Standard Life for 1997 has been
renegotiated to increase the monthly fee to $166,667 (annual fee of $2,000,000).
This amended management service agreement has been approved by the Commissioner
of the Indiana Department of Insurance. Pursuant to the management service
agreements with Standard Life, Dixie National Life paid fees of $1,524,000 for
the year ended December 31, 1996. The Mississippi Department of Insurance has
approved a decrease of the monthly payment to $83,333 (annual fee of $1,000,000)
from Dixie National Life to Standard Life in 1997. Both of these agreements
provide that they may be modified or terminated by the Indiana and Mississippi
departments of insurance in the event of financial hardship of Standard Life or
Dixie National Life.

Pursuant to the management services agreement with Standard Management,
Premier Life (Luxembourg) paid Standard Management a management fee of $25,000
per quarter during 1996 and 1995 for certain management and administrative
services. The agreement provides that it may be modified or terminated by either
Standard Management or Premier Life (Luxembourg). Standard Management does not
plan to modify this agreement in 1997.

At April 1, 1995, Standard Management sold its property and equipment to an
unaffiliated leasing/ financing company for $1,396,000 and subsequently entered
into a capital lease obligation whereby Standard Management pays a monthly
rental amount of $45,000. Standard Management charges a monthly equipment rental
fee to its subsidiaries for this equipment and additional equipment purchased
after April 1, 1995. The amount of the rental fee income received from Standard
Management's subsidiaries was $592,000 and $853,000 for the six months ended
June 30, 1997 and year ended December 31, 1996, respectively.

On November 8, 1996, Standard Life acquired through merger Shelby Life from
DLAC for approximately $14,650,000, including $13,000,000 in cash, 250,000
shares of restricted SMC Common Stock (valued at $1,250,000) and $400,000 of
acquisition costs. Financing for the Shelby Life transaction was provided by
senior debt of $10,000,000 under the Amended Credit Agreement and $4,000,000 in
subordinated convertible debt described below.

The Amended Credit Agreement permits Standard Management to borrow up to
$16,000,000 in the form of a seven-year reducing revolving loan arrangement.
Standard Management has agreed to pay a non-use fee of .50% per annum on the
unused portion of the commitment. In connection with the original and Amended
Credit Agreement, Standard Management issued warrants to the bank to purchase
61,500 shares of SMC Common Stock. Borrowing under the Amended Credit Agreement
may be used for contributions to surplus of insurance subsidiaries, acquisition
financing, and repurchases of Class S Preferred and SMC Common Stock. The debt
is secured by a Pledge Agreement of all of the issued and outstanding shares of
common stock of Standard Life and Standard Marketing. Interest on the borrowing
under the Amended Credit Agreement is

100
<PAGE> 113

determined, at the option of Standard Management, to be: (i) a fluctuating rate
of interest based on the corporate base rate announced by the bank from time to
time plus one percent per annum, or (ii) a rate at LIBOR plus 3.25%. Annual
principal repayments of $2,667,000 begin in November 1998 and conclude in
November 2003. Indebtedness incurred under the Amended Credit Agreement is
subject to certain restrictions and covenants including, among other things,
certain minimum financial ratios, minimum statutory surplus requirements for the
insurance subsidiaries, minimum consolidated equity requirements for Standard
Management and certain investment and indebtedness limitations. At June 30,
1997, Standard Management was in compliance with all restrictions and covenants
in the Amended Credit Agreement. At June 30, 1997, Standard Management had
borrowed $16,000,000 under the Amended Credit Agreement at a weighted average
interest rate of 9.202%. SMC has received a commitment to increase the Amended
Credit Agreement to $20,000,000 to finance the acquisition of Savers Life.

In connection with the acquisition of Shelby Life, SMC borrowed $4,000,000
from an insurance company pursuant to a subordinated convertible debt agreement
which was due in December 2003 and required interest payments in cash at 12% per
annum, or, if SMC chose, in non-cash additional subordinated convertible debt
notes at 14% per annum until December 31, 2000. At June 30, 1997, this
subordinated convertible debt agreement was amended at the principal amount of
$4,372,000 which is due July 2004 unless previously converted, and requires
interest payments in cash on January 1 and July 1 of each year at 10% per annum.
At June 30, 1997, SMC borrowed an additional $5,628,000 from an insurance
company pursuant to another subordinated convertible debt agreement
(collectively, the "Notes") which is due July 2004 unless previously converted,
and requires interest payments in cash on January 1 and July 1 of each year at
10% per annum. Proceeds from the additional borrowings were used for
contributions to surplus of insurance subsidiaries of $2,400,000, redemption of
Class S Preferred Stock of approximately $1,840,000 and the balance for other
general corporate purposes. The Notes are convertible into Common Stock at the
rate of $5.747 per share. The Notes may be prepaid in whole or in part at the
option of SMC commencing on July 1, 2000 at redemption prices equal to 105% of
the principal amount (plus accrued interest) and declining to 101% of the
principal amount (plus accrued interest). The Notes may be prepaid prior to July
1, 2000 under certain limited circumstances. The subordinated convertible debt
agreements contains terms and financial covenants substantially similar to those
in the Amended Credit Agreement.

Assuming an increase in the current level of debt under the Amended Credit
Agreement to $20,000,000 and current interest rates at June 30, 1997 (weighted
average rate of 9.202%) Standard Management annual debt service would be
approximately $2,800,000 in interest paid. In addition, Standard Management has
1997 obligations under a capital lease of $539,000.

From the funds borrowed by Standard Management pursuant to the Amended
Credit Agreement and the subordinated convertible debt agreements, $13,000,000
was loaned to Standard Life pursuant to a Surplus Debenture which requires
Standard Life to make quarterly interest payments to Standard Management at a
variable corporate base rate plus 2% per annum, and annual principal payments of
$1,000,000 per year beginning in 2007 and concluding in 2019. The interest and
principal payments are subject to quarterly approval by the Indiana Department
of Insurance, depending upon satisfaction of certain financial tests relating to
levels of Standard Life's capital and surplus and general approval of the
Commissioner of the Indiana Department of Insurance. Standard Management
currently anticipates these quarterly approvals will be granted. Assuming the
approvals are granted and the June 30, 1997 interest rate of 10.50% continues in
1997, Standard Management will receive interest income of $1,357,000 from its
Surplus Debenture receivable for 1997.

Dividends from Standard Life to Standard Management are limited by laws
applicable to insurance companies. As an Indiana domiciled insurance company,
Standard Life may pay a dividend or distribution from its surplus profits,
without the prior approval of the Indiana Commissioner of Insurance, if the
dividend or distribution, together with all other dividends and distributions
paid within the preceding twelve months, does not exceed the greater of (i) net
gain from operations or (ii) 10% of surplus, in each case as shown in its
preceding annual statutory financial statements. Also, regulatory approval is
required when dividends to be paid exceed unassigned statutory surplus. For the
year ended December 31, 1996, Standard Life reported statutory net gain from
operations of $1,427,000, statutory surplus of $22,970,000 and unassigned
surplus of

101
<PAGE> 114

$1,140,000. Standard Life paid a dividend of $1,000,000 on May 1, 1997. Standard
Life anticipates paying additional dividends of approximately $600,000 in the
remainder of 1997, and the approval of the Commissioner of the Indiana
Department of Insurance will be required.

Standard Management anticipates the available cash from its existing
working capital, plus anticipated 1997 dividends, management fees, rental income
and interest payments on its Surplus Debenture receivable will be more than
adequate to meet its anticipated "parent company only" cash requirements for
1997.

Standard Management has a note receivable of $2,858,000 from an affiliate
and a note payable of $2,858,000 to a different affiliate. This note receivable
and note payable are eliminated in the consolidated financial statements.

U.S. Insurance Operations. The principal liquidity requirements of Standard
Life are its contractual obligations to policyholders, dividend, rent,
management fee and Surplus Debenture payments to Standard Management and other
operating expenses. The primary source of funding for these obligations has been
cash flow from premium income, net investment income, investment sales and
maturities and sales of FPDAs. These sources of liquidity for Standard Life
significantly exceed scheduled uses. Liquidity is also affected by unscheduled
benefit payments including death benefits and policy withdrawals and surrenders.
The amount of withdrawals and surrenders is affected by a variety of factors
such as renewal interest crediting rates, interest rates for competing products,
general economic conditions, Standard Life's A.M. Best ratings (currently rated
"B+") and events in the industry that affect policyholders' confidence.

The policies and annuities issued by Standard Life contain provisions that
allow policyholders to withdraw or surrender their policies under defined
circumstances. These policies and annuities generally contain provisions which
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals or surrenders. Standard Life closely monitors the surrender and
policy loan activity of its insurance products and manages the composition of
its investment portfolios, including liquidity, in light of such activity.

Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals. In addition to the potential effect on liquidity,
unanticipated withdrawals in a changing interest rate environment could
adversely affect earnings if SMC were required to sell investments at reduced
values to meet liquidity demands. SMC manages the asset and liability portfolios
in order to minimize the adverse earnings effect of changing market interest
rates. SMC seeks assets that have duration characteristics similar to the
liabilities that they support. SMC also prepares cash flow projections and
performs cash flow tests under various market interest rate scenarios to assist
in evaluating liquidity needs and adequacy. SMC's U.S. insurance subsidiaries
currently expect available liquidity sources and future cash flows to be
adequate to meet the demand for funds.

Statutory surplus is computed according to rules prescribed by the NAIC, as
modified by the Indiana Department of Insurance, or the states in which the
insurance subsidiaries do business. Statutory accounting rules are different
from GAAP and are intended to reflect a more conservative perspective. With
respect to new business, statutory accounting practices require that: (i)
acquisition costs (primarily commissions and policy issue costs) and (ii)
reserves for future guaranteed principal payments and interest in excess of
statutory rates, be expensed in the year the new business is written. These
items cause a reduction in statutory surplus ("surplus strain") in the year
written for many insurance products. SMC designs its products to minimize such
first-year losses, but certain products continue to cause a statutory loss in
the year written. For each product, SMC controls the amount of net new premiums
written to manage the effect of such surplus strain. SMC's long-term growth
goals contemplate continued growth in its insurance businesses. To achieve these
growth goals, SMC's U.S. insurance subsidiaries will need to increase statutory
surplus. Additional statutory surplus may be secured through various sources
such as internally generated statutory earnings, equity sales, infusions by
Standard Management with funds generated through debt or equity offerings or
mergers with other life insurance companies. If additional capital is not
available from one or more of these sources, SMC believes that it could reduce
surplus strain through the use of reinsurance or through reduced writing of new
business.

Standard Life produced statutory net income of $751,000 and $3,291,000 for
the six months ended June 30, 1997 and the year ended December 31, 1996,
respectively. As a result, SMC did not make cash

102
<PAGE> 115

capital contributions to Standard Life during 1996 to maintain adequate levels
of statutory capital and surplus. However, Standard Management contributed
$2,400,000 to Standard Life in the second quarter of 1997 to facilitate growth
in premiums written. In March 1996, Standard Life sold its subsidiary, First
International, and realized an increase in statutory capital and surplus of
approximately $4,951,000 from the statutory gain on the sale and related
reinsurance transactions.

Commencing January 1, 1995, Standard Life began to reinsure a portion of
its annuity business. This reinsurance agreement has allowed SMC to write
volumes of business that it would not otherwise have been able to write due to
regulatory restrictions based on its ratio of surplus to liabilities as
determined by regulatory authorities in the State of Florida. By reinsuring a
portion of the annuity business, the liability growth is slowed, thereby
avoiding the erosion of surplus that occurs in periods of increasing sales. If
SMC's ratio of surplus to liabilities falls below 4%, the State of Florida could
prohibit SMC from writing new business in Florida. Standard Life's largest
annuity reinsurer at June 30, 1997, Winterthur, is rated "A" ("Excellent") by
A.M. Best. From January 1, 1995 to August 31, 1995, approximately 70% of certain
of Standard Life's annuity business produced was ceded. Standard Life decreased
the quota-share portion of business ceded to 50% at September 1, 1995 and
further reduced it to 25% effective April 1, 1996 to reflect the reduced need
for additional capital and increase current earnings potential. This reduction
was possible since the surplus strain experienced by Standard Life was not as
great as originally anticipated as a result of lower than expected sales in 1995
and the increase in surplus resulting from the sale of First International.
Winterthur limits dividends and other transfers by Standard Life to Standard
Management or affiliated companies in certain circumstances.

Management believes that operational cash flow of Standard Life will be
sufficient to meet its anticipated needs for 1997. As of June 30, 1997, Standard
Life had statutory capital and surplus for regulatory purposes of $25,546,000
compared to $22,970,000 at December 31, 1996. The increase is primarily due to
the capital contribution of $2,400,000 from Standard Management in the second
quarter of 1997 and an increase in admitted goodwill under statutory accounting
practices in connection with the acquisition of Dixie National Life. As the life
insurance and annuity business produced by Standard Life and Dixie National Life
increases, Standard Life expects to continue to satisfy statutory capital and
surplus requirements through statutory profits, through the continued
reinsurance of a portion of its new business, and through additional capital
contributions by Standard Management. During 1996, Standard Management did not
make any capital contributions to Standard Life, other than the SMC Common Stock
associated with the Shelby merger. Net cash flow from operations on a statutory
basis of Standard Life, after payment of benefits and operating expenses, was
$17,921,422 and $4,263,011 for the years ended December 31, 1996 and December
31, 1995, respectively. If the need arises for cash which is not readily
available, additional liquidity could be obtained from the sale of invested
assets.

State insurance regulatory authorities impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of RBC specify various weighting factors
that are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a ratio
(the "RBC Ratio") of the enterprise's regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level RBC, as defined by the
NAIC. Enterprises below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. Each of
SMC's insurance subsidiaries has an RBC Ratio that is at least 400% of the
minimum RBC requirements; accordingly, the subsidiaries meet the RBC
requirements.

Standard Life's acquisition of Shelby Life, and merger of Shelby Life into
Standard Life, effective November 1, 1996 is anticipated to have a positive
effect on Standard Life's liquidity and cash flows. Shelby Life ceased writing
new business effective November 1, 1996, thus reducing the surplus strain
normally associated with the issuance of new policies. The anticipated profits
from Shelby Life's book of business are expected to exceed the related interest
expense connected with the $13,000,000 of Surplus Debentures issued by Standard
Life in connection with the acquisition of Shelby Life. The statutory net income
of Shelby Life was $1,660,855 for the year ended December 31, 1995 and $851,472
for the ten months ended October 31, 1996.

103
<PAGE> 116

International Operations. The consolidated balance sheet of SMC at June 30,
1997, includes a $2,081,000 credit representing the negative goodwill on the
purchase of Standard Management International which will be amortized into
future earnings. This amortization is a non-cash credit to SMC statements of
operations.

Standard Management International dividends are limited to its accumulated
earnings without regulatory approval. Standard Management International and
Premier Life (Luxembourg) were not permitted to pay dividends in 1996 and 1995
due to accumulated losses. Premier Life (Bermuda) did not pay dividends in 1996
and 1995. SMC does not anticipate any dividends from these companies in 1997.

Due to the nature of unit-linked products issued by Standard Management
International, which represent over 91% of the Standard Management International
portfolio, the investment risk rests with the policyholder. Investment risk for
Standard Management International exists where Standard Management International
makes investment decisions with respect to the remaining traditional business
and for the assets backing certain actuarial and regulatory reserves. The
investments underlying these liabilities mostly represent short-term investments
and fixed maturity securities. These short-term investments and fixed maturity
securities are normally bought and/or disposed of only on the advice of
independent consulting actuaries who perform an annual analysis comparing
anticipated cash flows on the insurance portfolio with the cash flows from the
fixed maturity securities. Any resulting material mismatches are then covered by
adjusting the securities in the investment portfolio as appropriate.

Proposed Acquisition of Savers Life. The acquisition of Savers Life will
cost approximately $14,200,000, plus acquisition costs, of which approximately
$4,000,000 is to be borrowed in cash under the Amended Credit Agreement. The
balance of the purchase price will be paid in shares of SMC Common Stock. Any
Performance Premium paid will increase the purchase price and will be
distributed in the form of cash and SMC Common Stock. SMC anticipates that
existing working capital, unused proceeds from borrowings under the Amended
Credit Agreement, and management fees and dividends payable by Savers Life will
be adequate to pay the cash portion of any Performance Premium as well as to
cover debt service on the additional borrowings under the Amended Credit
Agreement through 1998.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Mergers, Acquisitions and Consolidations. The U.S. insurance industry has
experienced an increasing number of mergers, acquisitions, consolidations and
sales of certain business lines. These consolidations have been driven by a need
to reduce costs of distribution and overhead and maintain business in force.
Additionally, increased competition, regulatory capital requirements and
technology costs have also contributed to the level of consolidation in the
industry. These forces are expected to continue as is the level of industry
consolidation.

Foreign Currency Risk. Standard Management International policyholders
invest in assets denominated in a wide range of currencies. Policyholders
effectively bear the currency risk, if any, as these investments are matched by
policyholder separate account liabilities. Therefore, their investment and
currency risk is limited to premiums they have paid. Policyholders are not
permitted to invest directly into options, futures and derivatives. Standard
Management International could be exposed to currency fluctuations if currencies
within the conventional investment portfolio or certain actuarial reserves are
mismatched. The assets and liabilities of this portfolio and the reserves are
continually matched by the company and at regular intervals by the independent
actuary. In addition, Premier Life (Luxembourg)'s shareholders' equity is
denominated in Luxembourg francs. Premier Life (Luxembourg) does not hedge its
translation risk because its shareholders' equity will remain in Luxembourg
francs for the forseeable future and no significant realized foreign exchange
gains or losses are anticipated.

Uncertainties Regarding Intangible Assets. Included in SMC's financial
statements as of June 30, 1997 are certain assets that are valued for financial
statement purposes primarily on the basis of assumptions established by SMC's
management. These assets include deferred acquisition costs, present value of
future profits, costs in excess of net assets acquired and organization and
deferred debt issuance costs. The total value of these assets reflected in the
June 30, 1997 consolidated balance sheet aggregated $44,415,000 or 7% of

104
<PAGE> 117

SMC's assets. SMC has established procedures to periodically review the
assumptions utilized to value these assets and determine the need to make any
adjustments in such values in SMC's consolidated financial statements. SMC has
determined that the assumptions utilized in the initial valuation of these
assets are consistent with the operations of SMC as of June 30, 1997.

Regulatory Environment. Currently, prescribed or permitted statutory
accounting principles ("SAP") may vary between states and between companies. The
NAIC is in the process of codifying SAP to promote standardization of methods
utilized throughout the industry. Completion of this project might result in
changes in statutory accounting practices for SMC's insurance subsidiaries;
however, it is not expected that such changes would materially affect SMC's
insurance subsidiaries' statutory capital requirements.

Financial Services Deregulation. The United States Congress is currently
considering a number of legislative proposals intended to reduce or eliminate
restrictions on affiliations among financial services organizations. Proposals
are extant which would allow banks to own or affiliate with insurers and
securities firms. An increased presence of banks in the life insurance and
annuity businesses may increase competition in these markets. The Company cannot
predict the impact of these proposals on the earnings of the Company.

Recently Issued Accounting Standards. In February 1997, the FASB issued
SFAS No. 128, "Earnings per Share." SFAS No. 128 is required to be adopted on
December 31, 1997. At that time, SMC will be required to change the method
currently used to compute earnings per share and to restate prior periods. Under
the new requirements for calculating primary earnings per share, the dilutive
effect of stock options and stock warrants will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
six months ended June 30, 1997 and 1996 of $.01 and $.04 per share,
respectively. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be material.

Safe Harbor Provisions. Forward-looking statements in this Proxy
Statement/Prospectus are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. There are certain important
factors that could cause results to differ materially from those anticipated by
some of the statements made above. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. In addition to the
factors discussed immediately above and under "RISK FACTORS", among the other
factors that could cause actual results to differ materially are the following:
economic environment, interest rate changes generally and credited rates on new
business, sales volume, product development, regulatory changes, the results of
financing efforts, SMC's accounting policies, competition, the reinsurance
agreement with GIAC and the acquisition of Shelby Life.

105
<PAGE> 118

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning each of SMC's
directors and executive officers, all of whom will continue in office after the
Merger, assuming the election of all nominees for director described above:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald D. Hunter..................... 45 Director, Chairman of the Board, Chief Executive Officer
and President
Stephen M. Coons..................... 56 Director, Executive Vice President, General Counsel and
Secretary
Raymond J. Ohlson.................... 47 Director, Executive Vice President and Chief Marketing
Officer
Paul B. Pheffer...................... 46 Director, Executive Vice President, Chief Financial
Officer and Treasurer
Edward T. Stahl...................... 50 Director, Executive Vice President and Director of
Corporate Development
Ramesh H. Bhat....................... 47 Director
Martial R. Knieser................... 55 Director
Robert A. Borns...................... 61 Director
James C. Lanshe...................... 51 Director
</TABLE>

- -------------------------

The present principal occupation and employment background of each of the
individuals named in the foregoing table is set forth under "ELECTION OF
DIRECTORS." Additional information regarding the management of SMC, including
executive compensation, options granted during fiscal year 1996, employment
agreements, compensation of directors and related party transactions is
discussed herein under "-- Executive Compensation."

DIRECTORS MEETINGS AND COMMITTEES OF SMC BOARD

The SMC Board met six times during 1996, each time pursuant to a regularly
scheduled meeting. No director attended fewer than 75% of the meetings of the
Board or committees thereof on which he served. It is the primary responsibility
of the SMC Board to oversee the management of the business of SMC. To assist in
carrying out its responsibilities, the SMC Board has established four standing
committees: the Executive Committee, the Audit Committee, the Compensation
Committee and the Incentive Stock Option Plan Committee. The Executive Committee
serves as the Nominating Committee.

<TABLE>
<CAPTION>
INCENTIVE STOCK
EXECUTIVE AUDIT COMPENSATION OPTION PLAN
- --------- ----- ------------ ---------------
<S> <C> <C> <C>
R. Hunter* M. Knieser* M. Knieser* M. Knieser*
R. Ohlson R. Borns R. Borns R. Borns
E. Stahl J. Lanshe R. Bhat R. Bhat
</TABLE>

--------------------------------
* Chairman

The principal function of the Executive Committee is acting for the SMC
Board in the management of business when action is required between SMC Board
meetings. The committee meets as necessary, and all actions by the committee are
reported at the next SMC Board meeting. The Executive Committee met once during
1996.

The Audit Committee reviews the results and scope of the audit and other
services provided by SMC's independent auditors and recommends the appointment
of independent auditors to the SMC Board. In addition, the committee also
monitors the effectiveness of the audit effort and financial reporting and the

106
<PAGE> 119

adequacy of financial and operating controls. See "RATIFICATION OF APPOINTMENT
OF SMC'S PRINCIPAL INDEPENDENT AUDITORS." The Audit Committee met once during
1996.

The Compensation Committee approves compensation objectives and policy for
all employees and is responsible for developing and making recommendations to
the SMC Board with respect to SMC's executive compensation policies. In
addition, the Compensation Committee determines periodically and recommends to
the SMC Board the base cash compensation for the Chief Executive Officer and
other executive officers of SMC. The committee reports to stockholders on
executive compensation items as required by the SEC. The Compensation Committee
met four times during 1996.

The Incentive Stock Option Plan Committee has responsibility for granting
stock options to eligible members of management under, and otherwise
administers, the Stock Option Plan. The Incentive Stock Option Plan Committee
met four times during 1996.

COMPENSATION OF DIRECTORS

Each non-employee director of SMC receives an annual cash retainer of
$10,000. Directors who are not employees of SMC receive $1,000 per SMC Board or
SMC Board Committee meeting attended in person. All non-employee directors are
reimbursed for expenses incurred in connection with their services as directors.
Pursuant to the Stock Option Plan, each non-employee director is entitled to
receive, on the date of each Annual Meeting of SMC's Stockholders, an
immediately exercisable option to purchase 500 shares of SMC Common Stock at a
purchase price equal to the fair market value of SMC Common Stock on the date of
grant. If the Stock Option Plan Amendment is approved, the SMC Board could vary,
from year to year, the number of shares subject to options granted to each
non-employee director, provided that such number may not be less than 500. Each
such option will be exercisable for ten years and may terminate earlier upon
termination of directorship. The Stock Option Plan also provides that each
non-employee director is entitled to receive an option to purchase 500 shares of
SMC Common Stock upon commencement of service as a director. Officers of SMC do
not receive an annual retainer, meeting fees, shares of SMC Common Stock or
other compensation for service as directors of SMC or for service on Committees
of the SMC Board.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The Compensation Committee of the SMC Board approves compensation
objectives and policy for all employees and is responsible for developing and
making recommendations to the Board of Directors with respect to SMC's executive
compensation policies. In addition, the Compensation Committee determines
periodically and recommends to the SMC Board the base cash compensation for the
Chief Executive Officer and other executive officers of SMC.

Executive Compensation Philosophy.

The objectives of SMC's executive compensation program are to:

- Support the achievement of desired Company performance.
- Provide compensation that will attract and retain superior talent and
reward performance, which is critical to both the short-term and
long-term success of SMC.
- Align the executive officers' interests with the success of SMC by
placing a portion of pay at risk with payout dependent upon corporate
performance.

The executive compensation program provides an overall level of
compensation opportunity believed to be competitive within the life insurance
industry, as well as with a broader group of companies of comparable size and
complexity. Actual compensation levels may be greater or less than average
competitive levels in surveyed companies based upon annual and long-term
performance of SMC as well as individual performance. The Compensation Committee
uses its discretion to set executive compensation at levels warranted in its
judgment by external, internal or individual circumstances.

107
<PAGE> 120

Executive Officer Compensation Program.

SMC's executive officer compensation program is comprised of three major
components, all of which are intended to attract, retain and motivate highly
effective executives.

1. Base Salary. Base salary levels for SMC's executive officers are
competitively set relative to companies in the insurance industry and other
comparable companies. In determining salaries, the Committee also takes into
account individual experience and performance and specific issues particular to
SMC. These salaries are embodied in employment agreements negotiated with SMC's
executive officers. See "-- Executive Compensation -- Employment Agreements."

2. Cash Incentive Compensation. Cash incentive compensation is designed to
motivate executives to attain short-term and long-term corporate goals. Annual
cash bonuses depend upon attainment of specified business goals. The
Compensation Committee's policy is to have a significant portion of an
executive's total potential cash compensation tied to SMC's overall expected
performance.

3. Long-term Incentive Compensation. Long-term incentive compensation is
provided to executives and other employees through the Stock Option Plan. The
objectives of the Stock Option Plan are to align executive and stockholder
long-term interests by creating a strong and direct link between executive pay
and stockholder return, and to enable executives to develop and maintain a
significant, long-term ownership position in SMC Common Stock.

The Stock Option Plan authorizes a grant of stock options, within the total
number of shares authorized, to eligible officers and other key employees. The
amount of SMC Common Stock subject to any award made under the Stock Option Plan
is a function of salary and position in SMC. As with the determination of base
salaries and cash incentive compensation, the Incentive Stock Option Plan
Committee exercises subjective judgment and discretion in view of its general
policies. SMC's long-term performance ultimately determines compensation from
stock options, since gains from stock option exercise are entirely dependent on
the long-term growth of SMC's stock price. Awards are made at a level calculated
to be competitive within the life insurance industry as well as a broader group
of companies of comparable size and complexity.

Section 162(m) of the Internal Revenue Code of 1986, as amended, disallows
a public company's compensation deduction with respect to certain
highly-compensated executives in excess of $1,000,000 unless certain conditions
are satisfied. SMC presently believes that this provision is unlikely to become
applicable in the near future to SMC because the levels of base salary and
annual cash incentive compensation of SMC's executive officers are substantially
less than $1,000,000 per annum. Therefore, SMC has not taken any action to
adjust its compensation plans or policies in response to such Section 162(m).

Other Executive Compensation.

SMC provides programs to the executive officers that are generally
available to all employees of SMC including 401(k) plan and medical benefits.

Chief Executive Officer Compensation.

Mr. Hunter was appointed to the position of Chairman of the Board, Chief
Executive Officer and President during 1989. The compensation of Mr. Hunter is
established by the terms of his employment contract, dated January 1, 1989, as
amended. Under his employment contract, a portion of his cash compensation is
tied directly to SMC's financial performance, because his annual cash bonus is a
fixed percentage (3 percent) of SMC's annual gross operating income. During
1996, Mr. Hunter's annual base salary rate was increased from $307,800 to
$316,418. Mr. Hunter's incentive bonus in 1996 was $171,996 in accordance with
his employment agreement. Mr. Hunter was granted stock options with respect to
68,250 shares of SMC Common Stock. Certain options to purchase SMC Common Stock
previously granted to

108
<PAGE> 121

Mr. Hunter were cancelled and replacement options were issued to him in lieu
thereof. See "-- Report on Repricing of Options" and "-- Executive Compensation
- -- Ten-Year Option Repricing Table."

Martial R. Knieser, Chairman
Ramesh H. Bhat
Robert A. Borns

------------------------------
Members of the Compensation Committee

REPORT ON REPRICING OF OPTIONS

Effective May 1, 1996, the Incentive Stock Option Plan Committee cancelled
480,480 options that had previously been granted to certain executive officers
with exercise prices ranging from $8.00 to $13.00 per share (representing the
market price of the SMC Common Stock on the date such options were initially
granted) and granted an identical number of new options with identical terms and
vesting periods (the "Replacement Options") to those persons with an exercise
price of $7.60, the book value per share of SMC Common Stock on September 30,
1995. On May 1, 1996, the last reported sale price per share of the SMC Common
Stock, as reported by Nasdaq, was $4.375. The per share exercise price relating
to each Replacement Option was reduced to $7.238 in connection with the 5% stock
dividend effected on June 21, 1996 for holders of record of SMC Common Stock on
May 17, 1996.

The Stock Option Plan Committee took this action so that these key
executive officers would have options at a price that was equal to the book
value per share of SMC Common Stock but still greater than current market price.
The original option grants to these individuals occurred in the period from
February through November, 1993, during which time the price of SMC Common Stock
was at its all-time high. The Stock Option Committee also took into
consideration the fact that total assets of SMC had increased from $216,878,000
at March 31, 1993 to $426,509,000 at September 30, 1995. Since stock options
were priced at or above the prevailing trading price of the SMC Common Stock on
the grant date, the exercise prices of the options granted to these individuals
were significantly higher than current market price of SMC Common Stock. Because
the Stock Option Plan Committee believed that the relatively high-priced options
would not provide the intended incentives to these individuals, the committee
decided to replace those options with options that had an exercise price equal
to the book value per share at September 30, 1995.

Martial R. Knieser, Chairman
Ramesh H. Bhat
Robert A. Borns

------------------------------
Members of the Incentive Stock Option Plan Committee

109
<PAGE> 122

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the annual and long-term compensation paid
to Mr. Hunter, Chief Executive Officer, and the four other highest-paid
executive officers of SMC during fiscal year 1996 (the "Named Executive
Officers"), for SMC's last three fiscal years:

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------------
ANNUAL COMPENSATION AWARDS
------------------- ------------------
NUMBER OF
SECURITIES
FISCAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) GRANTED(2) COMPENSATION(3)
--------------------------- ------ ------ -------- ------------------ ---------------
$ $ # $
<S> <C> <C> <C> <C> <C>
Ronald D. Hunter.................... 1996 $316,418 $171,996 272,895 $28,645
Chairman of the Board 1995 307,800 56,118 130,200 12,867
CEO and President 1994 300,000 30,000.. -- 8,372
Raymond J. Ohlson................... 1996 211,984 85,998 145,005 12,796
Executive Vice President and 1995 206,210 28,059 72,450 7,795
Chief Marketing Officer 1994 201,984 20,098 -- 6,342
Stephen M. Coons.................... 1996 162,481 85,998 85,260 --
Executive Vice President, 1995 158,055 28,059 52,500 --
General Counsel and Secretary 1994 154,050 15,405 -- --
John J. Quinn....................... 1996 216,641 85,998 120,750 8,084
Executive Vice President, 1995 210,740 28,059 72,450 5,012
Chief Financial Officer and 1994 205,400 20,540 -- 4,733
Treasurer(4)
Edward T. Stahl..................... 1996 121,924 85,998 77,070 6,000
Executive Vice President and 1995 118,603 33,059 52,500 3,000
Director of Corporate Development 1994 115,598 11,560 -- 2,543
</TABLE>

- -------------------------
(1) See "Report of the Compensation Committee of the Board of Directors" for a
description of the incentive bonuses.

(2) All applicable share amounts have been adjusted to reflect the 5% stock
dividend. Options granted in 1996 include the Replacement Options described
above.

(3) Amounts reported for fiscal year 1996 was as follows: (i) matching
contributions by SMC to the 401(k) plan (Mr. Hunter $6,000, Mr. Ohlson
$6,000, Mr. Quinn $6,000 and Mr. Stahl $6,000); (ii) key man life insurance
premiums paid by SMC (Mr. Hunter $4,090, Mr. Ohlson $2,705, and Mr. Quinn
$356); (iii) disability income insurance premiums paid by SMC (Mr. Hunter
$6,555, Mr. Ohlson $4,091, and Mr. Quinn $1,728); (iv) travel allowance paid
by SMC (Mr. Hunter $12,000).

(4) SMC accepted Mr. Quinn's resignation as an officer and director of SMC
effective as of April 15, 1997.

110
<PAGE> 123

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information on stock options granted under the
Stock Option Plan in 1996 to the Named Executive Officers. All options granted
in 1996 were non-qualified stock options, and SMC has not issued any Stock
Appreciation Rights ("SARs"). All applicable share and per share amounts have
been adjusted to reflect the 5% stock dividend.

<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR PRICE DATE PRESENT VALUE(2)
---- -------------------- ------------------ -------- ---------- ----------------
(#) ($/SH) ($)
<S> <C> <C> <C> <C> <C>
Ronald D. Hunter.......... 68,250 8.90% $4.286 1/2/06 $210,210
105,000 13.69 7.238 6/16/03 211,050
99,645 12.99 7.238 11/08/03 208,258
Raymond J. Ohlson......... 42,000 5.48% $4.286 1/2/06 $129,360
26,250 3.42 7.238 2/2/03 50,662
39,375 5.13 7.238 6/16/03 79,144
37,380 4.87 7.238 11/08/03 78,124
Stephen M. Coons.......... 34,125 4.45% $4.286 1/2/06 $105,105
26,250 3.42 7.238 6/16/03 52,763
24,885 3.24 7.238 11/8/03 52,009
John J. Quinn............. 42,000 5.48% $4.286 1/2/06 $129,360
78,750 10.27 7.238 6/16/03 158,288
Edward T. Stahl........... 34,125 4.45% $4.286 1/2/06 $105,105
22,050 2.87 7.238 6/16/03 44,321
20,895 2.72 7.238 11/8/03 43,671
</TABLE>

- -------------------------
(1) The options with an exercise price of $4.286 per share were exercisable with
respect to the first third of the aggregate number of shares subject thereto
on their grant date (January 2, 1996); became exercisable with respect to
the second third of the aggregate number of shares subject thereto on
January 2, 1997 and will become exercisable with respect to all the
remaining shares subject thereto on January 2, 1998. The options with an
exercise price of $7.238 per share are Replacement Options and were
exercisable in full on their grant date (May 1, 1996).

(2) In accordance with SEC rules, these values were established using the
Black-Scholes stock option valuation model that was adapted for use in
valuing executive stock options. Assumptions used to calculate the Grant
Date Present Value were: stock price volatility .4980 and interest rate
5.88%. The valuation model was not adjusted for non-transferability, risk of
forfeiture or the vesting restrictions of the options. SMC does not believe
that the Black-Scholes model, whether modified or not modified, or any other
valuation model, is a reliable method of computing the present value of
SMC's employee stock options. The value ultimately realized, if any, will
depend on the amount that the market price of the stock exceeds the exercise
price on the date of exercise.

111
<PAGE> 124

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

No stock options were exercised by Named Executive Officers during fiscal
year 1996. The following table sets forth information with respect to Named
Executive Officers concerning unexercised options held as of the end of fiscal
year 1996. SMC has not issued any SARs.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald D. Hunter........................ 314,195.. 88,900... 13$,400... $26,800
Raymond J. Ohlson....................... 165,305.. 52,150... 8,250.... 16,500
Stephen M. Coons........................ 97,510... 40,250... 6,700.... 13,400
John J. Quinn........................... 141,050.. 52,150... 8,250.... 16,500
Edward T. Stahl......................... 89,320... 40,250... 6,700.... 13,400
</TABLE>

EMPLOYMENT AGREEMENTS

SMC has employment agreements with Messrs. Hunter, Ohlson, Coons, Quinn and
Stahl, which agreements provide that, if their employment is terminated due to
certain acts, for a period of one year thereafter, each shall not (i) sell or
attempt to sell, within Indiana, any type of products marketed by SMC, (ii) sell
or attempt to sell any types of products marketed by SMC to any customer of SMC
and (iii) within Indiana, own, be employed by, or be connected in any manner
with any business similar to the type of business of SMC. Messrs. Hunter,
Ohlson, Coons, Quinn and Stahl also agree that during the employment term and
for a period of six months thereafter, each will assign to SMC or its nominees
all of his right, title and interest in and to all technical information that
each makes, develops or conceives.

Mr. Hunter's employment agreement terminates on January 1, 1998. His salary
under his employment agreement for 1996 was $316,418 per year and is increased
each year by the percent change of the Consumer Price Index ("CPI"). In
addition, Mr. Hunter receives a bonus equal to 3% of the annual gross operating
income of SMC, but not less than 10% of his annual salary. Following a
termination of his employment with SMC in the event of a change-in-control, Mr.
Hunter will also be entitled to receive a lump sum payment equal to the amount
determined by multiplying the number of shares of SMC Common Stock subject to
unexercised stock options previously granted by SMC and held by Mr. Hunter on
the date of termination, whether or not such options are then exercisable, and
the highest per share fair market value of the SMC Common Stock on any day
during the six-month period ending on the date of termination. Upon payment of
such amount, such unexercised stock options will be deemed to be surrendered and
canceled. In the event of a change-in-control of SMC whereby Mr. Hunter's
employment is terminated, Mr. Hunter is entitled to a lump sum payment equal to
his average annual compensation times 299%.

Mr. Ohlson's employment agreement terminates on June 16, 1998. His salary
under his employment agreement for 1996 was $211,984 per year, and is increased
each year by the percent change of the CPI. In addition, Mr. Ohlson receives a
bonus equal to 1 1/2% of the annual gross operating income of SMC but not less
than 10% of his annual salary. Following a termination of his employment with
SMC in the event of a change-in-control, Mr. Ohlson will also be entitled to
receive a lump sum payment equal to the amount determined by multiplying the
number of shares of SMC Common Stock subject to unexercised stock options
previously granted by SMC and held by Mr. Ohlson on the date of termination,
whether or not such options are then exercisable, and the highest per share fair
market value of the SMC Common Stock on any day during the six month period
ending on the date of termination. Upon payment of such amount, such unexercised
stock options will be deemed to be surrendered and canceled. In the event of a
change-in-control of SMC whereby Mr. Ohlson's employment is terminated, Mr.
Ohlson is entitled to a lump sum payment equal to his average annual
compensation times 299%.

Mr. Coons' employment agreement terminates on March 1, 1998. His salary
under his employment agreement for 1996 was $162,481 per year, and is increased
each year by the percent change of the CPI. In addition, Mr. Coons receives a
bonus equal to 1 1/2% of the annual gross operating income of SMC but not less

112
<PAGE> 125

than 10% of his annual salary. Following a termination of his employment with
SMC in the event of a change-in-control, Mr. Coons will also be entitled to
receive a lump sum payment equal to the amount determined by multiplying the
number of shares of SMC Common Stock subject to unexercised stock options
previously granted by SMC and held by Mr. Coons on the date of termination,
whether or not such options are then exercisable, and the highest per share fair
market value of the SMC Common Stock on any day during the six month period
ending on the date of termination. Upon payment of such amount, such unexercised
stock options will be deemed to be surrendered and canceled. In the event of a
change-in-control of SMC whereby Mr. Coons' employment is terminated, Mr. Coons
is entitled to a lump sum payment equal to his average annual compensation times
299%.

Mr. Quinn was appointed as the Indiana Commissioner of Insurance in
February 1997. In connection with that appointment he resigned as an officer and
director of SMC effective as of April 15, 1997. He subsequently declined such
appointment. On June 19, 1997, Mr. Quinn commenced an action in the Superior
Court of Marion County, Indiana, against SMC. Mr. Quinn's employment agreement
contained a provision to the effect that, following a termination of his
employment with SMC under certain circumstances, Mr. Quinn would be entitled to
receive a lump sum payment equal to the amount determined by multiplying the
number of shares of SMC Common Stock subject to unexercised stock options
previously granted by SMC to Mr. Quinn on the date of termination, whether or
not such options were then exercisable, by the highest per share fair market
value of the SMC Common Stock on any day during the six-month period ending on
the date of termination. Upon payment of such amount, such unexercised stock
options would be deemed to have been surrendered and canceled. Mr. Quinn further
claims that his employment agreement contained an additional provision that he
would be entitled to receive a lump sum payment equal to two years of annual
salary, following termination of employment. Mr. Quinn has asserted to SMC that
he is entitled to a lump sum termination payment of $1,654,000, and liquidated
damages not exceeding $3,308,000, by virtue of his voluntarily leaving SMC's
employment.

Mr. Stahl's employment agreement terminates on January 1, 1998. His salary
under this employment agreement for 1996 was $121,924 and is increased each year
by the percent change of the CPI. In addition, Mr. Stahl receives a bonus equal
to 1 1/2% of the annual gross operating income of SMC, but not less than 10% of
his annual salary. Following a termination of his employment with SMC in the
event of a change-in-control, Mr. Stahl will also be entitled to receive a lump
sum payment equal to the amount determined by multiplying the number of shares
of SMC Common Stock subject to unexercised stock options previously granted by
SMC and held by Mr. Stahl on the date of termination, whether or not such
options are then exercisable, and the highest per share fair market value of the
SMC Common Stock on any day during the six month period ending on the date of
termination. Upon payment of such amount, such unexercised stock options will be
deemed to be surrendered and canceled. In the event of a change-in-control of
SMC whereby Mr. Stahl's employment is terminated, Mr. Stahl is entitled to a
lump sum payment equal to his average annual compensation times 299%.

113
<PAGE> 126

TEN-YEAR OPTION REPRICING TABLE

The following table sets forth certain information concerning the repricing
of stock options held by any executive officer during the three completed fiscal
years since SMC became a reporting company under the Exchange Act. SMC has not
issued any SARs.

<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF MARKET OPTION
SECURITIES PRICE OF EXERCISE TERM
UNDERLYING STOCK AT PRICE AT REMAINING
OPTIONS/SARS TIME OF TIME OF NEW AT DATE OR
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME AND PRINCIPAL POSITION DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
--------------------------- ---- ------------ ------------ ------------ -------- ------------
(#) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Hunter................. 5/1/96 105,000 $4.375 $ 9.41 $7.238 86 months
Chairman of the Board CEO and 99,645 4.375 7.62 7.238 91 months
President
Raymond J. Ohlson................ 5/1/96 26,250 $4.375 $12.38 $7.238 82 months
Executive Vice President and 39,375 4.375 9.41 7.238 86 months
Chief Marketing Officer 37,380 4.375 7.62 7.238 91 months
Stephen M. Coons................. 5/1/96 26,250 $4.375 $ 9.41 $7.238 86 months
Executive Vice President, 24,885 4.375 7.62 7.238 91 months
General Counsel and Secretary
John J. Quinn.................... 5/1/96 78,750 $4.375 $ 8.46 $7.238 86 months
Executive Vice President and
Chief Financial Officer
Edward T. Stahl.................. 5/1/96 22,050 $4.375 $ 9.41 $7.238 86 months
Executive Vice President and 20,895 4.375 7.62 7.238 91 months
Director of Corporate
Development
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Dr. Bhat, a member of the Compensation Committee, was a consultant to SMC
regarding stockholder communications. Pursuant to the terms of a consulting
agreement entered into November 29, 1993, SMC agreed to pay Dr. Bhat $30,000,
$35,000 and $40,000 during the first, second and third year of the agreement,
respectively, plus travel expenses. The consulting agreement terminated November
30, 1996. In July 1994, SMC made two loans to Dr. Bhat in the amounts of
$100,000 and $80,000 at an annual interest rate of prime plus 1%. Both notes
were repaid in 1996.

114
<PAGE> 127

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth certain information regarding the beneficial
ownership of SMC Common Stock; (i) by each stockholder known by SMC to own
beneficially more than five percent (5%) of the outstanding SMC Common Stock;
(ii) by each of SMC's directors and director nominees; (iii) by each of SMC's
Named Executive Officers and (iv) by all directors and Named Executive Officers
of SMC as a group. All amounts have been adjusted for the 5% stock dividend.
This information is as of June 30, 1997 based upon Schedules 13-G filed with the
SEC.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OUTSTANDING SHARES(2)
------------------------ --------------------- ---------------------
<S> <C> <C>
Ronald D. Hunter..................................... 835,263(3) 15.91%
9100 Keystone Crossing
Indianapolis, Indiana 46240
Ramesh H. Bhat....................................... 335,353(4) 6.86
9100 Keystone Crossing
Indianapolis, Indiana 46240
Martial R. Knieser................................... 286,955(5) 5.89
9100 Keystone Crossing
Indianapolis, Indiana 46240
Raymond J. Ohlson.................................... 226,767 4.47
John J. Quinn........................................ 205,467(6) 4.07
Edward T. Stahl...................................... 152,122 3.12
Stephen M. Coons..................................... 147,969(7) 2.96
Robert A. Borns...................................... 30,500 --*
Paul B. Pheffer...................................... 25,000 --*
James C. Lanshe...................................... 6,013 --*
Great American Reserve Insurance Company............. 760,670(8)(11) 13.51
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Capitol American Life Insurance Company.............. 631,360(9)(11) 11.48
11815 N. Pennsylvania Street
Carmel, Indiana 46032
Transport Life Insurance Company..................... 348,008(10)(11) 6.67
11815 N. Pennsylvania Street
Carmel, Indiana 46032
All directors, director nominees and Named Executive
Officers as a group (nine persons)................. 2,251,409 37.98
</TABLE>

- -------------------------
* Less than one percent

(1) Except as otherwise noted below, each person named in the table possesses
sole voting and sole investment power with respect to all shares of SMC
Common Stock listed in the table as owned by such person. Shares
beneficially owned include shares that may be acquired pursuant to the
exercise of outstanding options or warrants that are exercisable within 60
days of June 30, 1997 as follows: Mr. Hunter - 380,345, Dr. Bhat - 20,179,
Dr. Knieser - 2,600, Mr. Ohlson - 203,455, Mr. Quinn - 179,200, Mr. Stahl -
118,195, Mr. Coons - 126,385, Mr. Borns - 500, Mr. Pheffer - 25,000, Mr.
Lanshe - 2,075, directors, director nominees and Named Executive Officers as
a group - 1,057,934.

(2) Percentage of total outstanding shares is calculated separately for each
person on the basis of the actual number of outstanding shares as of June
30, 1997 and assumes, for purposes of the calculation, that shares issuable
upon exercise of options or warrants exercisable and securities convertible
within 60 days

115
<PAGE> 128

held by such person (but no other stockholders) had been issued as of such
date. Percentages less than 1% are not indicated.

(3) Includes 336 shares beneficially owned by Mr. Hunter's minor child, as to
which Mr. Hunter disclaims beneficial ownership. Includes 250,000 shares
held by Mr. Hunter who is named as a voting trustee under a Voting Trust
created pursuant to the terms of the Stock Purchase Agreement dated as of
July 18, 1996 by and between SMC and DLAC. Under the terms of the voting
trust, the trustees hold and vote the SMC Common Stock held in the trust
and share voting power with respect to such shares. Mr. Hunter disclaims
beneficial ownership of these shares.

(4) Includes 43,260 shares beneficially owned by Dr. Bhat's spouse and minor
children, as to which shares Dr. Bhat disclaims beneficial ownership.

(5) Includes 8,043 shares beneficially owned by Dr. Knieser's spouse and
children, as to which shares Dr. Knieser disclaims beneficial ownership.

(6) Includes 525 shares beneficially owned by Mr. Quinn's minor child, as to
which shares Mr. Quinn disclaims beneficial ownership.

(7) Includes 2,100 shares beneficially owned by Mr. Coons' child, as to which
shares Mr. Coons disclaims beneficial ownership.

(8) Includes 760,670 shares issuable upon conversion of $4,371,573 Convertible
Note, which is convertible at any time.

(9) Includes 631,360 shares issuable upon conversion of $3,628,427 Convertible
Note, which is convertible at any time.

(10) Includes 348,008 shares issuable upon conversion of $2,000,000 Convertible
Note, which is convertible at any time.

(11) Great American Reserve Insurance Company, Capitol American Life Insurance
Company and Transport Life Insurance Company ("Conseco Group") are all
entities beneficially owned by Conseco, Inc. All of the shares, when
issued, will be subject to a Voting Trust Agreement by and among the
Conseco Group, SMC, and two voting trustees appointed by SMC and the
Conseco Group. It is anticipated that Mr. Hunter will be the SMC Trustee.

116
<PAGE> 129

STOCK PERFORMANCE GRAPH

The following performance graph reflects a four-year comparison of
cumulative total stockholder return for SMC Common Stock, the Center for
Research in Security Prices ("CRSP") prepared Total Return Index for The NASDAQ
Stock Market (U.S.) and CRSP index with respect to the performance of the
insurance companies comprising the Nasdaq Insurance Stocks(1). The graph is
constructed on the assumption that $100 was invested on January 29, 1993 (SMC
registered under Section 12 of the Exchange Act on February 2, 1993), in each of
SMC's Common Stock, the CRSP Total Return Index, and the CRSP Nasdaq Insurance
Stock Index.

<TABLE>
<CAPTION>
MEASUREMENT PERIOD SMC NASDAQ STOCK NASDAQ INSURANCE
(FISCAL YEAR COVERED) MARKET STOCKS
<S> <C> <C> <C>
1/29/93 100 100 100
12/31/93 55 112 103
12/31/94 24 109 97
12/31/95 35 154 138
12/31/96 38 190 157
</TABLE>

- -------------------------
(1) The NASDAQ Insurance Stock Index is comprised of 91 insurance companies
selected by CRSP.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The SMC Charter and Bylaws provide for indemnification of its officers and
directors to the maximum extent permitted under the IBCL. In addition, SMC has
entered into separate indemnification agreements with some of its directors
which may require SMC, 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 December 1994, SMC consolidated two loans made to Mr. Hunter, Chairman
of the Board of SMC, in the amount of $325,000 with an annual interest rate of
6.5%, repayable at $2,000 per month (principal and interest) with a final
payment due on December 31, 1996. This loan was refinanced December 29, 1995 and
again at December 31, 1996, at an annual interest rate of 5%, payable at $1,000
per month, with additional annual payments ranging from $50,000 to $84,000
through December 31, 2001. The outstanding principal balance was $338,000 at
December 31, 1996.

In April 1994, SMC made a loan to Mr. Coons in the amount of $70,000, due
May 1, 1995, at an annual interest rate of 7%. This loan was renewed May 1995
and was due in two installments of $40,000 on May 1,

117
<PAGE> 130

1996 and $30,000 on August 1, 1997. This note was repaid in 1996, with SMC
becoming a guarantor supporting a $70,000 loan to Mr. Coons on June 25, 1996.
The guaranty will be effective until the earlier of repayment of the loan or
June 25, 1999.

Mr. Ohlson, President of Standard Life and Standard Marketing, was the sole
owner of Ohlson & Associates, an independent insurance marketing organization.
On April 1, 1994, the assets of Ohlson & Associates were sold to Standard
Marketing for $174,000, payable on an installment basis over a four year period.

SMC entered into a covenant not to compete agreement with Keith Settle,
former Chief Operations Officer of SMC, on February 12, 1997, effective July 1,
1996. In accordance with the covenant not to compete agreement, Mr. Settle (i)
received a lump sum payment of $150,000 on February 19, 1997, (ii) will receive
a lump sum payment of $125,000 on each of July 1, 1997 and July 1, 1998 and a
lump sum payment of $100,000 on July 1, 1999, and (iii) will retain his
non-qualified stock options to purchase 75,000 and 69,000 shares of SMC Common
Stock at $8.25 and $5.50 per share, respectively, until July 1, 1999. The
covenant not to compete agreement also contains provisions which prohibit Mr.
Settle from (i) competing with SMC's business in the counties contiguous to
Marion County, Indiana, (ii) competing with SMC and soliciting customers of SMC
to purchase competitive products, (iii) soliciting employees of SMC to terminate
their employment with SMC and (iv) disclosing confidential and proprietary
information of SMC.

ADDITIONAL INFORMATION REGARDING SAVERS LIFE

DESCRIPTION OF BUSINESS

INTRODUCTION

Savers Life is a domestic stock insurance company domiciled in the state of
North Carolina with licenses to sell insurance products in the states of North
Carolina, South Carolina, Virginia and Florida. Savers Life was founded in 1980
and began selling annuities in 1981. Savers Life historically has offered
Medicare supplement health insurance policies, major medical health insurance
policies, term and whole life insurance policies, single premium deferred
annuities and immediate annuities. Savers Life sells its insurance products to
individual customers through an extensive independent broker network. Savers
Life also sells products of other insurance companies through its independent
broker network and receives fee income for this effort. The primary products of
other insurance carriers sold by Savers Life are annuities and Health
Maintenance Organization ("HMO") products. Savers Life and World have agreed to
the transfer of the major medical product line of Savers Life to World through a
coinsurance agreement, under which World has assumed, through coinsurance
effective July 1, 1997, 100% of the product line subject to certain risk sharing
arrangements. See "RISK FACTORS -- Reinsurance of Major Medical Product Line"
and "ADDITIONAL INFORMATION REGARDING SAVERS LIFE -- Description of Business --
Products". During the first six months of 1997, the Savers Life major medical
product line experienced a pre-tax loss of $3,851,000. See "SMC Selected
Unaudited Pro Forma Combined Financial Data". This transaction is expected to
close on or about October 1, 1997 and is subject to normal closing conditions.
At June 30, 1997, Savers Life's statutory assets were $75,532,465 and the
aggregate of its statutory capital, surplus, AVR and IMR was $9,187,057. The
ratio of Savers Life's statutory capital, surplus, AVR and IMR to its total
statutory assets was 12.2% at June 30, 1997. Savers Life is not rated by A.M.
Best.

MARKETING

Savers Life initially sold only annuity products through its affiliations
with a network of North Carolina-based Savings and Loan institutions. In the
late 1980s, the Savings and Loan industry experienced financial crises which led
to a large number of mergers in that industry. Savers Life's distribution
network among the Savings and Loan institutions was threatened by this merger
boom, so Savers Life redirected its marketing efforts, gradually building up a
network of independent brokers. Savers Life currently has approximately 4,000
active brokers. Savers Life is not dependent on any one broker or agency for any
substantial amount of its business.

118
<PAGE> 131

Savers Life employs three Regional Managers, who are responsible for
personally initiating and maintaining direct communications with every broker
appointed by Savers Life. The Regional Managers are responsible for the
recruitment and training of all new brokers. Each broker operates independently
of Savers Life and is responsible for all of his or her expenses. Savers Life
does not have exclusive agreements with its brokers, and management believes
most of these brokers sell products similar to those sold by Savers Life for
other insurance companies. Factors that help the broker determine which product
to sell are premium rates, commission rates and home office service and
administration. Sales could decline if Savers Life's products were to become
relatively less competitive.

Savers Life compensates its brokers on Medicare supplement and life
policies weekly upon receipt of premium revenues. For annuities, the brokers are
compensated monthly upon receipt of premium revenues. For the products of other
contracted insurance carriers that the brokers sell, Savers Life compensates the
brokers monthly for premiums received in the previous month. The contracted
insurance carriers remit commissions and fee income to Savers Life directly in
order that Savers Life can pay its brokers directly.

PRODUCTS

Savers Life issues and markets Medicare supplement health policies, term
and whole life policies, single premium deferred annuities and single premium
immediate annuities. Prior to July 1, 1997, Savers Life wrote association group
major medical health insurance policies. The following table illustrates the
gross premiums received from each policy type on a statutory basis for the six
months ended June 30, 1997 as well as for the years ended December 31, 1996,
1995 and 1994:

<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ---------------------------------------------------
JUNE 30, 1997 1996 1995 1994
------------- ------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Medicare Supplement............. $14,037 60% $28,079 56% $27,163 52% $24,010 49%
Major Medical................... 8,039 35 19,812 39 22,843 44 21,195 44
Life............................ 445 2 1,025 2 1,104 2 1,104 2
Annuities....................... 683 3 1,667 3 959 2 2,213 5
------- --- ------- --- ------- --- ------- ---
Total...................... $23,204 100% $50,583 100% $52,069 100% $48,522 100%
======= === ======= === ======= === ======= ===
</TABLE>

In late 1992, Savers Life management concluded that the life insurance
business was unlikely to grow as fast as the health insurance business. At that
time, Savers Life shifted its focus more towards the health insurance arena and
added a product line to its portfolio of products. That product was an
association group major medical health policy. Savers Life entered into a
brokerage agreement with an agency called American Health Underwriters ("AHU")
to sell the major medical product. This relationship allowed Savers Life to
penetrate this market more quickly than would otherwise have been possible since
AHU had experience with this type of product. AHU had no brokers in the
southeastern United States at that time, so its efforts were directed at
recruiting new brokers in North Carolina, South Carolina and Virginia. Within a
year, AHU was selling the Savers Life major medical product in these three
states.

Sales of major medical products grew rapidly in 1993 and 1994. Because of
this rapid growth of health insurance revenues, Savers Life began to experience
surplus strain. These problems were particularly severe in Florida, which
requires insurance companies to maintain one dollar of capital and surplus for
every four dollars of annual life and health premium revenues. Savers Life
failed this test based upon 1994 premium revenues. Accordingly, in 1995, Savers
Life voluntarily stopped writing new business in Florida. Since that time, the
North Carolina and South Carolina departments of insurance have been closely
monitoring Savers Life's capital and surplus. In response to this situation,
Savers Life took certain other actions which had the effect of restricting sales
of the major medical product, including changing its commission structure and
limiting its recruitment of new brokers. Statutory premiums written in 1996 were
$72,268, $26,089,541 and $15,665,524 in Florida, North Carolina and South
Carolina, respectively. Statutory premiums written for the six months

119
<PAGE> 132

ended June 30, 1997 were $24,862, $11,414,979 and $7,360,866 in Florida, North
Carolina and South Carolina, respectively.

Also in 1995, Savers Life began experiencing lack of profitability in its
major medical product line. The profitability of this product line depends
almost entirely on the management of claims expense in relation to premiums
collected. Under the current expense structure of Savers Life, claims divided by
earned premiums ("loss ratio") should be at or near 70%. The loss ratio does not
include all other expenses, such as commission expenses, general expenses and
insurance taxes, licenses and fees which are taken into account in calculating
net income, nor does it include certain cash policy acquisition costs which are
deferred and amortized over future periods. In 1995, Savers Life's loss ratio
for major medical was approximately 84% resulting in a 1995 pre-tax loss of
approximately $2,899,000. This loss was partly the result of the
under-estimation of claim liability of $1,950,811 at December 31, 1994. This
experience continued into 1996, producing a pre-tax loss for the year ended
December 31, 1996 of $2,387,112, as a result of a major medical loss ratio of
80.4%. For the six months ended June 30, 1997, the loss ratio for this product
line was 95%, resulting in a pre-tax loss of $3,851,000. In May of 1996, Savers
Life took several steps to improve the profitability of the major medical
product. A premium rate increase was implemented in May of 1996 for all plans
issued prior to May of 1995. Because the vast majority of these policies are
monthly premium payment policies, the impact of this premium rate increase was
immediate for this product line. In addition, the benefits offered for
prescription drugs were significantly changed, reducing the annual maximum
payouts and increasing the co-payment amount each insured must pay. Savers Life
also entered into a preferred provider organization contract in order to receive
discounts from hospitals and doctors, as well as a contract with a managed
health care company under which the company will provide programs such as
utilization review and pre-certification for hospital admissions. Savers Life
and World have agreed to the transfer of the major medical product line of
Savers Life to World through a coinsurance agreement, under which World will
assume, through coinsurance effective July 1, 1997, 100% of the product line.
Savers Life ceased writing any new business in this product line on June 30,
1997. At the closing, presently scheduled to occur on or about October 1, 1997,
all of the policies in this product line will be transferred to World as direct
insurance policies of World. Savers Life has agreed to share in the claims
experience of this product line for the period from July 1, 1997 through the end
of 1997 to the extent that the loss ratio for such period does not equal 75%.
The loss ratio is calculated by dividing incurred claims by earned premiums. If
the loss ratio for the period is greater than 75%, Savers Life will be required
to reimburse World in cash for 50% of the amount by which the actual loss ratio
exceeds 75%. If the loss ratio for the period is less than 75%, World will be
required to reimburse Savers Life in cash for 50% of the amount by which the
actual loss ratio is less than 75%. Savers Life will be paid $50,000 per month
by World to administer this block of business between July 1, 1997 and the
closing date. As a result of the agreement with World, Savers Life wrote off all
remaining deferred acquisition costs associated with the major medical product
line, resulting in a $1,752,000 charge against income in the second quarter of
1997. At the closing date, Savers Life will transfer cash of $4,547,000 and
liabilities of $4,511,000 to World.

Savers Life has offered its Medicare supplement product since the
mid-1980's. In recent years, this business has expanded, partly as a result of
legislative changes that made it less difficult for Savers Life to compete in
this area. In 1996, Savers Life experienced unusually high claims expense in its
Medicare supplement product line, producing a pre-tax loss of $1,651,000 and a
loss ratio of 80% for the year ended December 31, 1996. Historically, the loss
ratio for this line of business had been at or near 65%. This increased claims
expense in 1996 was partly the result of the accumulation of claims in late 1995
due to pending changes with certain preferred provider organizations. When these
claims were ultimately processed for payment in 1996, the actual expense
exceeded the reserve, thereby requiring an additional charge. Savers Life
intends to institute a rate increase in June 1997. Savers Life believes that the
current reserves applicable to the Medicare supplement product line are
adequate. For the six months ended June 30, 1997, the Medicare supplement
product line recorded a pre-tax loss of approximately $102,000 with a loss ratio
of 79%.

Annuities have been a part of Savers Life's traditional offering of
products. The profitability of annuity products depends to a significant degree
on the maintenance of profit margins between investment results from invested
assets and interest credited on annuity products. During 1996, such margins
continued to be positive.

120
<PAGE> 133

There has been an increase over the past ten years of annuity companies that are
focusing on the institutional and the broker marketplaces. This increase in
competition, coupled with the consolidations in the banking industry, has had a
negative impact on margins. Increased competition typically requires higher
credited rates and commission loads. In response to these changes, Savers Life
developed a marketing relationship with Keyport Life Insurance Company
("Keyport"), a Rhode Island-based seller of annuities. The profitability of the
Keyport annuities depends upon the difference between the commission received
and the marketing expenses that are associated with this type of product. During
1996 and the first six months of 1997, these margins also continued to be
positive.

SAVERS LIFE PRODUCTS. Medicare Supplement Insurance. Medicare supplement
insurance is designed to help Medicare recipients with the portion of their
medical expenses that Medicare does not cover. This product is regulated by the
federal government. Each insurance company's products are identical in benefits
covered. Medicare supplement plans are identified by the letters A through J.
Savers Life sells plans A through G. Each plan has different benefits to the
insured as well as different premium levels. Medicare supplement plans are
available to anyone who is eligible for Medicare Part B and within the ages of
65 and 85 at date of issue. At the time a person initially becomes eligible for
Medicare Part B ("open enrollment period"), Savers Life must offer a Medicare
supplement policy to that person regardless of potential health problems of the
person. If a person requests insurance coverage after the open enrollment
period, Savers Life is allowed to underwrite the policy and determine
insurability based on the health of the individual. Savers Life has a
combination of products in its in-force block of Medicare supplement business,
including pre-standardization plans and standardized plans A through G. Premiums
on all of these policies can be increased only with regulatory approval in the
states in which the policies were written. With the exception of South Carolina,
premium rate increases can occur no more frequently than annually. South
Carolina allows premium rate increases semiannually after the first policy
anniversary.

Major Medical Policies. Prior to July 1, 1997, Savers Life offered major
medical policies under an association group major medical health insurance plan.
All policyholders who purchase this plan were required belong to an association
known as the National Consumers Alliance ("NCA"). The NCA is an independent
organization established for the purpose of providing various benefits to its
members such as insurance, purchase discounts and travel benefits. Eligibility
to participate in Savers Life's major medical plan is a benefit of membership in
the NCA. In connection with its collection of premiums Savers Life also collects
NCA dues and, for that service, Savers Life is paid a fee. All of the major
medical policies are individual or family policies. No employer group policies
are issued under this plan. Savers Life began selling this policy in October
1992. The Savers Life major medical health insurance plan is a typical indemnity
type plan whereby the insured can choose the deductible amount and the insurance
percentage of coverage needed. Premiums are calculated based on the amount of
the deductible and the percentage of covered health benefits that the insured
chooses. This policy also provides a prescription drug benefit. Premiums can be
increased on this product every six months after the first year of coverage
without regulatory approval. In May 1996, several changes were made in the
premiums and benefits of this product. First, Savers Life implemented a premium
rate increase on all plans issued prior to May 1995. Secondly, Savers Life
significantly changed the benefits offered for prescription drugs, reducing the
annual maximum payouts and increasing the copayment amount each insured must
pay. Savers Life also entered into a Preferred Provider Organization contract in
order to receive discounts from hospitals and doctors. Savers Life also entered
into a contract with a managed health care company, whereby the company will
provide such programs as utilization review and pre-certification for hospital
admissions. All of these changes were introduced in an effort to reduce the
rising claims costs Savers Life had been experiencing in the product over the
last two years. Savers Life reinsures a portion of the risk on these policies.
Before September 1, 1996, all claims expenses over $75,000 per incident were
reinsured at a cost of 4.5% of premiums. Effective September 1, 1996, all claims
expenses over $100,000 per incident were reinsured at a cost of 4.7% of
premiums.

Whole Life Insurance. Savers Life offers two whole life policies, both of
which are non-participating. One policy is a guaranteed issue product offered in
face amounts up to $10,000. This product is offered to anyone between the ages
of 50 and 84 and has level premiums. If death occurs during the first three
years of this policy, the only payout on the policy is a return of all premiums
paid plus interest. After the third anniversary of the policy, the full face
amount is paid to the beneficiary. In the case of accidental death, a separate
payout

121
<PAGE> 134

of double the face amount is paid to the beneficiary. The second whole life
policy offered by Savers Life is offered in face amounts up to $25,000 for issue
ages 0 through 80. The maximum amount available to those over 65 at the time of
issue is $10,000. Underwriting is performed on the policy applications from
health questions the potential insured must answer. This policy offers full
coverage from date of issue and has level premiums.

Term Insurance. Savers Life offers two term life insurance products. One
product offers coverage up to issue age 65 with minimum face amounts of $50,000
for those under 45 and $25,000 minimum for those older than 45. The premiums on
this product increase every ten years. This product is reinsured, with Savers
Life keeping the first $20,000 of face amount and the reinsurer accepting all
over $20,000. The second product offers coverage up to issue age 80. The minimum
face amount for this product is $50,000. The premiums on this product increase
every year at the anniversary date. Savers Life keeps the first $10,000 and the
reinsurer accepts all risk over $10,000.

Single Premium Deferred Annuities. Savers Life offers a tax deferred single
premium annuity product. A minimum deposit of $2,500 is required to purchase
this product. Additional deposits can be made into these annuities. The interest
rate on these products is tied to the 26-week Treasury Bill rate and changes
every 120 days. While this product line has declined in both premium volumes and
management focus, this line had approximately $42,867,000 in accumulated value
at June 30, 1997.

Single Premium Immediate Annuities. Savers Life offers a single premium
immediate annuity, whereby an annuitant purchases an immediate annuity with a
lump sum payment to Savers Life and Savers Life begins a payout stream shortly
thereafter consisting of principal and interest. The interest rate on these
annuities is based on Savers Life's investment portfolio earnings rate at the
date of purchase of the annuity. The average interest rate on this group of
annuities at June 30, 1997 was 6.6%. A beneficiary is designated to receive the
remaining balance, if any exists, upon death of the annuitant. The reserve
recorded on this block of annuities was approximately $1,582,000 at June 30,
1997.

Payout Annuities. Savers Life has a block of annuities in payout status.
These are single premium deferred annuities which have annuitized and the
annuitant has requested monthly principal and interest payments. A beneficiary
is designated to receive the remaining balance, if any exists, upon death of the
annuitant. A reserve of approximately $1,488,000 was recorded on this block at
June 30, 1997.

Annuity Payouts With Life Contingencies. Savers Life has a block of
annuities in payout status which have life contingencies. These policies provide
a monthly payment to the annuitant as long as he or she lives. After a specified
period of time, if the annuitant dies, the payments cease. A reserve of
approximately $1,109,000 was recorded on this block at June 30, 1997.

PRODUCTS OF OTHER COMPANIES. In addition to sales of its own products,
Savers Life markets products of other companies, and for this effort, receives
fee income.

Keyport Annuities. Savers Life sells annuities on behalf of Keyport through
its broker network. Savers Life sells Keyport fixed annuity products that, due
to their relatively high rate of interest, are very popular with Savers Life's
customer base. Savers Life remits the premiums collected to Keyport and is
compensated through commission agreements. Accumulated values which Savers Life
brokers have sold on Keyport's behalf total approximately $155,000,000. A
portion of this fund value, approximately $26,000,000, is subject to renewal
fees paid to Savers Life from Keyport.

QualChoice of North Carolina Product. Savers Life entered into a two-year
marketing and administrative contract with QualChoice of North Carolina
("QualChoice") in 1996 whereby Savers Life is the distribution system for the
small group product offered by QualChoice. QualChoice is an HMO in a twenty-
county area in the northwestern part of North Carolina offering HMO insurance
coverage to both large and small groups. Small group coverage is defined as any
group of employees from one to fifty. Savers Life is compensated for this effort
with a marketing fee, administrative fee and commission reimbursement for its
brokers.

122
<PAGE> 135

OPERATIONS

Savers Life strives to achieve low expense levels while maintaining a
reasonable level of service to its policyholders and brokers. Savers Life's
principal administrative departments are accounting, Medicare administration,
major medical administration, annuity administration and data processing. The
accounting department is responsible for financial reporting, premium billing
and collection and the payment of all expenses other than claims. Medicare
administration is responsible for life and Medicare policy underwriting, policy
issue for life and Medicare products, customer service of life and Medicare
products and life and Medicare claims payments. Major medical administration is
responsible for major medical policy underwriting, policy issue, customer
service and major medical claims payments. This function is being performed for
World for a charge of $50,000 per month which will cease at the closing of the
World transaction. See "RISK FACTORS -- Reinsurance of Major Medical Product
Line" and "ADDITIONAL INFORMATION REGARDING SAVERS LIFE -- Description of
Business -- Products." Data processing is responsible for maintaining data
processing systems for the life, annuity and Medicare products as well as the
accounting system for those products. The major medical system used by Savers
Life is through Policy Management Systems Corporation ("PMSC") in Columbia,
South Carolina. The life and health insurance support staff of PMSC is located
in Dallas, Texas. The information from PMSC's system is manually merged into the
Savers Life accounting system.

INVESTMENTS

Investment activities are an integral part of Savers Life's business.
Although the majority of Savers Life's revenues are contributed from the health
insurance product lines, the majority of the assets are used to support the
annuity product line. Profitability is significantly affected by spreads between
rates credited on insurance liabilities and interest yield on invested assets.
All credited rates on single premium deferred annuities change every 120 days
and are tied to the 26-week U.S. Treasury Bill rate. For the six months ended
June 30, 1997, the average interest rate credited on Savers Life's single
premium deferred annuity portfolio was approximately 5.3%, and the average net
yield of Savers Life's investment portfolio was 6.15%, for a spread of 0.85% at
June 30, 1997. For the year ended December 31, 1996, the average interest rate
credited on Savers Life's single premium deferred annuity portfolio was
approximately 5.1%, and the average net yield of Savers Life's investment
portfolio for the year ended December 31, 1996 was 6.1% for a spread of 1.0% at
December 31, 1996, compared to 0.6% at December 31, 1995. Increases or decreases
in interest rates could increase or decrease the interest rate spread between
investment yields and interest rates credited on insurance liabilities, which in
turn could have a beneficial or adverse effect on the future profitability of
Savers Life. Sales of fixed maturities that result in investment gains may also
tend to decrease future interest yields from the portfolio. State insurance laws
prescribe the types of permitted investments and limit their concentration in
certain classes of investments.

The following table shows Savers Life's pre-tax investment performance for
the periods indicated (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED ---------------------
JUNE 30, 1997 1996 1995
---------------- ---- ----
<S> <C> <C> <C>
Average invested assets(1).......................... $73,761 $75,132 $75,686
Net investment income(2)............................ 2,269 4,569 4,852
Average annual yield(3)............................. 6.15% 6.08% 6.40%
Net realized investment gains....................... $ 35 $ 170 $ 387
</TABLE>

- -------------------------
(1) Average invested assets are computed by dividing the total of the amortized
costs of investments and cash and cash equivalents at the beginning of the
period plus the end of the period by two.

(2) Consists principally of interest and dividend income less investment
expenses.

(3) The average annual yield was computed by dividing the net investment income
(exclusive of realized and unrealized gains and losses) by average invested
assets for such period and, in the case of the six month period, multiplying
the result by two.

123
<PAGE> 136

Savers Life invested in the following mix of invested assets and cash and
cash equivalents at June 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
AMOUNT %
------ -
<S> <C> <C>
Fixed Maturities............................................ $24,889 34%
Equity Securities........................................... 3,483 5
Certificates of Deposit..................................... 28,838 39
Short-term Investments...................................... 7,101 10
Cash........................................................ 326 1
Construction Loans.......................................... 5,405 7
Mortgage and Policy Loans................................... 921 1
Real Estate................................................. 2,414 3
------- ---
Total....................................................... $73,377 100%
======= ===
</TABLE>

Savers Life has two distinctly different liability lines for which to
invest assets. The first is a block of single premium deferred annuities where
the benefit payments arising from these liabilities are spread over a number of
years. The second block is the health insurance block, consisting of both
Medicare supplement and major medical policies. The required cash outflows on
those two blocks are relatively short-term in nature. It is, therefore, critical
that Savers Life invest in assets that will match both its short-term needs and
its long-term needs. Certificates of deposit and short-term investments are
associated with Savers Life's health insurance block, and its remaining
investments are associated with its annuity business.

All of the investment decisions of Savers Life are made by management of
Savers Life and are approved by the Finance Committee of the Savers Life Board.

Fixed maturities consist of bonds held for investment and bonds available
for sale. All of the fixed maturities in the table below in NAIC Rating 1 were
securities of the U.S. government and its agencies and mortgage backed
securities of these agencies. Savers Life owns three mortgage backed securities
with a total book value of approximately $337,000. One of these securities is a
collateralized mortgage obligation with a book value of approximately $189,000.
The following table sets forth the quality of Savers Life's fixed maturity
securities as of June 30, 1997, classified in accordance with the ratings
assigned by the NAIC:

<TABLE>
<CAPTION>
PERCENT OF FIXED
NAIC RATING (1) MATURITIES SECURITIES
--------------- ---------------------
<S> <C>
1........................................................... 99%
2........................................................... 0
---
Investment Grade.......................................... 99
---
3........................................................... 0
4-6......................................................... 1
---
Below Investment Grade.................................... 1
---
Total Fixed Maturities............................... 100%
===
</TABLE>

- -------------------------
(1) The NAIC assigns securities quality ratings and uniform book values called
"NAIC Designations," which are used by insurers when preparing their annual
and quarterly statements. The ratings assigned by the NAIC range from Class
1 to Class 6 with a rating of Class 1 being of the highest quality.

Equity securities consist of both common and preferred stocks. At June 30,
1997, Savers Life owned common stocks with a market value of approximately
$3,433,000 and preferred stocks with a market value of approximately $50,000.

Savers Life invested 40% of its cash and investable assets at June 30, 1997
in certificates of deposit. These certificates of deposit typically have a
maturity of six months or less. These certificates of deposit are usually

124
<PAGE> 137

purchased in denominations of $99,000 per financial institution. Savers Life
uses the services of investment brokers to find certificates of deposit with
attractive yields in financially stable banking institutions.

Short-term investments at June 30, 1997 consisted solely of funds held at
Federated Investors in Boston, MA. The funds are invested in AVR-exempt
securities. These are securities that the NAIC has designated as Rating 1
securities, which have the further distinction of being exempt from AVR. This
investment increased during 1997 due to the intentional increase of the
liquidity of the investment portfolio in anticipation of transferring the
management of the entire portfolio to SMC, and in anticipation of the need for
cash to transfer to World to support the liabilities transferred. As investments
have matured, the proceeds have been kept in cash or short-term investments.

Construction loans include several land development loans with
developer/builders located in North Carolina and Virginia. After an initial
closing, funds are disbursed to the developer incrementally as the infra-
structure (i.e., site grading, storm and sanitary sewer, water, electric,
roadways, curb gutters and amenities) is constructed. Disbursements are made
monthly subject to engineering certification of work in place and Savers Life's
own site inspection. Terms of these loans are typically 18 to 36 months and have
an interest rate of prime plus one percent or greater. An initial fee of one
percent of the loan amount is charged at the beginning of the loan and a fixed
amount per lot is charged as the lots are released from the security of the deed
of trust. These loans are typically based on a 70% or less loan-to-value ratio,
and value judgments are confirmed by independent appraisers.

Construction loans are also made to numerous unaffiliated borrowers known
to Savers Life. These loans are all secured by first lien deeds of trust along
with title insurance, which includes coverage of all material and mechanic's
liens. The properties include detached single-family dwellings and multi-family
dwellings. All construction lending is committed by Savers Life management and
closed by attorneys designated by Savers Life who follow a detailed list of
closing instructions. All of these loans have maturities of twelve months or
less. Loan-to-value ratios in all cases are 80% or less. The interest rate on
these loans is prime plus one percent along with an origination fee of one
percent of the gross loan amount. Sums are disbursed monthly after a physical
inspection confirms progress on construction.

Long-term mortgage loans include borrowings secured by condominiums in the
Salters Cove Subdivision of Garden City, South Carolina. The original term of
these loans was 15 years, and all will mature within the next seven years. These
loans have variable interest rates equal to the three-year Treasury Note rate
plus 2.75%. The rate on these loans changes every three years. In addition,
there are six detached single family dwellings in Forsyth County, North
Carolina, five of which have maturities in 1997 and one in 2001. All mortgage
loans were based on loan-to-cost ratios of 75% or less.

The mortgage loan portfolio had one delinquency in 1995. A loan secured by
a condominium near the campus of Virginia Polytechnical Institute was foreclosed
in 1995. This loan was part of a block of mortgage loans that Savers Life had
purchased in 1993. All of the loans in this block were subsequently packaged and
sold, except for this loan. Because of its payment history, this loan was not
attractive to the purchasers of the block of loans. This property is currently
owned by Savers Life and is producing income. The book value of the loan at the
time of foreclosure was approximately $45,000. During 1996, another mortgage
loan became delinquent. This mortgage loan, with a book value of $431,589 became
delinquent in the third quarter of 1996 and foreclosure proceedings began in the
fourth quarter of 1996. The foreclosure date of this property was in January of
1997. The foreclosed property is located near Charlotte, North Carolina, and is
a retail shopping and office complex. This property was sold on June 17, 1997.
Net proceeds received on this property were $445,000, resulting in a pre-tax
gain of approximately $13,000.

Savers Life owns real estate in three states. In South Carolina, real
estate owned includes two 3.5 acre unimproved commercial sites in Garden City,
SC. These tracts are bordered by U.S. 17 on the west and by the Salters Cove
Subdivision on the east. This real estate was acquired in September 1988 upon
the liquidation of a partnership, of which Savers Life was a party. The assets
of the partnership were distributed evenly among the partners. Savers Life
received seven acres in the front part of the property and a group of
condominiums. The condominiums were subsequently sold and Savers Life issued the
mortgage loans on these condominiums.

125
<PAGE> 138

This property is currently listed with a realtor in South Carolina. In North
Carolina, Savers Life owns its two-story Home Office building in Winston-Salem.
This building is a concrete and glass structure over a steel frame containing a
gross area of 27,000 square feet. Savers Life occupies the top floor of the
building and leases out most of the space on the first floor. Rental income
collected for the year ended December 31, 1996 was approximately $100,000. The
book value of the building at June 30, 1997 was approximately $1,297,000. By
virtue of foreclosure, Savers Life owns a condominium in Blacksburg, Virginia.
This property is leased to students attending Virginia Polytechnical Institute.
The rental income received for this property for the year ended December 31,
1996 was approximately $7,000 and the book value of this property at June 30,
1997 was approximately $45,000.

UNDERWRITING

Premiums charged on insurance products are based in part on assumptions
about the incidence and timing of insurance claims. General underwriting
guidelines and reinsurance decisions are the responsibility of the Underwriting
Committee of the Board of Directors.

Savers Life has adopted underwriting standards for its major medical and
Medicare supplement policies that are administered by professional underwriters
in each department. All health insurance underwriting decisions are made in the
Savers Life Home Office. If an applicant does not meet Savers Life's
underwriting standards for issuance of a policy, the application is denied. The
only exception to this is the open enrollment period for certain Medicare
supplement applicants during which no underwriting is permitted.

Generally, policies have the most favorable claims experience in the time
period directly after the policy has been issued, because the underwriting has
identified potential insureds with health problems and the policy has either
been declined, the health problem has been excluded from coverage or an extra
premium has been charged for the health problem. Typically, the older a policy
is, the poorer the claims experience is for the insurer, because the
underwriting has become less recent or "stale".

Savers Life relies on the underwriting decisions of its reinsurer for both
of its term insurance plans. Savers Life has adopted and follows simplified
underwriting procedures for its whole life policies.

RESERVES

In accordance with applicable insurance laws, Savers Life has established,
and carries as liabilities in its statutory financial statements, actuarially
determined reserves to satisfy its respective annuity contract and life
insurance policy obligations. Reserves, together with premiums to be received on
outstanding policies and interest thereon at certain assumed rates, are
calculated to be sufficient to satisfy policy and contract obligations. The
actuarial factors used in determining such reserves are based on statutorily
prescribed mortality tables and interest rates.

Savers Life also establishes health policy reserves and claim reserves for
both its major medical and Medicare supplement policies. The policy reserves
consist of unearned premium reserves, which record that portion of health
premiums received for insurance coverage beyond the date of the financial
statement being presented. Additionally, claim reserves are established in an
effort to estimate the amount of claims that have been incurred by the insureds,
but have not been reported to the insurer. The method used by Savers Life to
estimate these reserves requires the use of the recent past as an indicator of
claims experience. This method is typically referred to as a lag study, since it
reflects the amount of time between incurred date of the claim and payment date
of the claim. The lag study is used to project claims to be paid in the future
with incurred dates falling on or before the financial statement date.

The reserves recorded in the financial statements included elsewhere in
this Proxy Statement/Prospectus are calculated based on GAAP and differ from
those specified by the laws of the various states and recorded in the statutory
financial statements of Savers Life. These differences arise from the use of the
net unearned premium health reserve for GAAP and the gross unearned premium
health reserve for statutory purposes. Statutory financial statements also
require an additional reserve in anticipation of future premium shortfalls. Life
and annuity reserves are the same for both statutory and GAAP financial
statements.

126
<PAGE> 139

To determine policy benefit reserves for its life insurance products,
Savers Life performs periodic studies to compare current experience for
mortality, interest and lapse rates with projected experience used in
calculating the reserves. Differences are reflected currently in earnings for
each period. Savers Life historically has not experienced significant adverse
deviations from its assumptions. To determine reserves for single premium
deferred annuities, the full accumulated value is recorded as a liability.

REINSURANCE

Consistent with the general practice of the insurance industry, Savers Life
has reinsured portions of the coverage provided by its insurance products with
other insurance companies under agreements of stop loss coverage and indemnity
reinsurance.

Savers Life has a stop loss reinsurance agreement on its major medical
block with RGA Reinsurance Company ("RGA"). Prior to September 1, 1996, this
agreement stated that, on any single claim incident, Savers Life would pay all
eligible claims expenses, and RGA would reimburse Savers Life for all expenses
over $75,000. Effective September 1, 1996, this agreement was amended. The
expenses in excess of $100,000 are reimbursed to Savers Life under the new
agreement. There was no reinsurance receivable at June 30, 1997 from RGA.

Indemnity reinsurance agreements are intended to limit a life insurer's
maximum loss on a particular risk or to obtain a greater diversification of
risk. Indemnity reinsurance does not discharge the primary liability of the
original insurer to the insured, but it is the practice of insurers (subject to
certain limitations of state insurance statutes) to account for risks that have
been reinsured with other approved companies, to the extent of the reinsurance,
as though they are not risks for which the original insurer is liable.
Reinsurance ceded on life insurance policies by Savers Life at December 31, 1996
and 1995 represented 62.4% and 63%, respectively, of gross combined individual
life insurance in force at the end of such periods. At June 30, 1997, 60.7% of
life insurance in force amounts were ceded to reinsurers. Savers Life cedes life
reinsurance to three reinsurers. At June 30, 1997, approximately $34,568,000 of
the face value of life policies had been ceded to Business Men's Assurance
Company, with $10,864,000 ceded to Munich American Reinsurance Company and
$1,633,000 ceded to Optimum Reinsurance Company. The reinsurance receivable at
June 30, 1997 from Business Men's Assurance Company was $156,554 and from Munich
American Reinsurance Company was $61,141. There was no reinsurance receivable at
June 30, 1997 from Optimum Reinsurance Company. All of the reinsurers have an A.
M. Best rating of A- or better.

COMPETITION

The life and health insurance industry is highly competitive and consists
of a large number of both stock and mutual insurance companies, many of which
have substantially greater financial resources, broader and more diversified
product lines and larger staffs than those possessed by Savers Life. Competition
also is encountered from the expanding number of banks, securities brokerage
firms and other financial intermediaries that are marketing insurance products
and which offer competing products such as savings accounts and securities.
Competition within the life insurance industry occurs on the basis of, among
other things, product features such as price and interest rates, perceived
financial stability of the insurer, policyholder service, name recognition and
ratings assigned by insurance rating organizations. Competition in the health
insurance arena has been heightened by the emergence of HMOs in recent years,
many of which have relationships with hospitals and other medical providers in
order to control rising health care costs.

Savers Life must also compete with other insurers to attract and retain the
allegiance of brokers. Savers Life believes it has been successful in attracting
and retaining brokers because it has been able to offer a competitive package of
innovative products, competitive commission structures, prompt policy issuance,
responsive policyholder service and relationships with Regional Managers.

Savers Life is not rated by A. M. Best, an insurance rating organization.
Management of Savers Life does not believe that the lack of a rating has had a
significant impact on sales of its major product lines.

127
<PAGE> 140

FEDERAL INCOME TAXATION

The life insurance and annuity products marketed and issued by Savers Life
generally provide the policyholder with an income tax advantage, as compared to
other savings investments such as certificates of deposit and bonds, in that
income taxation on the increase in value of the product is deferred until
receipt by the policyholder. With other savings investments, the increase in
value is taxed as earned. Annuity benefits are generally not taxable until paid,
and life insurance death benefits are generally exempt from income tax. The tax
advantage for life insurance and annuity products is provided in the Internal
Revenue Code and is generally followed in all states and other United States
taxing jurisdictions. Accordingly, it is subject to change by Congress and the
legislatures of the respective taxing jurisdictions.

Savers Life files an individual company return for federal income tax
purposes. Savers Life has no net operating loss carryforwards at December 31,
1996.

INFLATION

The primary direct effects on Savers Life of inflation are the increase in
health care costs and operating expenses. As hospitals, doctors and other health
care providers feel the effects of inflation, those costs are passed on to the
consumers and their insurance companies. In the future, if inflation should rise
sharply, the claims expenses could be incurred by Savers Life at a rate higher
and quicker than Savers Life could recoup in the form of premium rate increases.

The rate of inflation also has an indirect effect on Savers Life. To the
extent that the government's economic policy to control the level of inflation
results in changes in interest rates, Savers Life's new sales of insurance
products and investment income are affected. Changes in the level of interest
rates also have an effect on interest spreads, as investment earnings are
reinvested.

REGULATORY FACTORS

Savers Life is subject to regulation by the insurance regulatory
authorities in the jurisdictions in which it is domiciled and the insurance
regulatory bodies in the other jurisdictions in which it is licensed to sell
insurance. The purpose of such regulation is primarily to ensure the financial
stability of insurance companies and to provide safeguards for policyholders
rather than to protect the interest of stockholders. The insurance laws of
various jurisdictions establish regulatory agencies with broad administrative
powers relating to the licensing of insurers and their brokers, the regulation
of trade practices, management agreements, the types of permitted investments
and maximum concentration, deposits of securities, the form and content of
financial statements, rates charged by insurance companies, sales literature and
insurance policies, accounting practices and the maintenance of specified
reserves, capital and surplus. Savers Life is required to file quarterly
statutory financial statements in all states in which it is licensed as well as
with the NAIC.

Under North Carolina law, Savers Life may not enter into certain
transactions, including management agreements and service contracts, unless
Savers Life has notified the North Carolina Department of Insurance of its
intention to enter into such transactions and the North Carolina Department of
Insurance has not disapproved of them within the period specified by North
Carolina law. Among other things, such transactions are subject to the
requirement that their terms be fair and reasonable and that the charges or fees
for services performed be reasonable.

Dividends by Savers Life to its stockholders are limited by laws applicable
to insurance companies. As a North Carolina domiciled insurance company, Savers
Life may pay a dividend or distribution from its capital and surplus, without
the prior approval of the North Carolina Commissioner of Insurance, if the
dividend or distribution together with all other dividends and distributions
paid within the preceding twelve months, does not exceed the lesser of (i) net
gain from operations or (ii) 10% of capital and surplus, in each case as shown
in its preceding annual statutory financial statements. Savers Life was not
allowed to pay a dividend in 1995 or 1996 without prior North Carolina
Department of Insurance approval due to its statutory net losses in 1994 and
1995. Savers Life will not be permitted to pay dividends in 1997 without such
approval.

128
<PAGE> 141

In some instances many state regulatory authorities require deposits of
assets for the protection of policyholders either in those states or for all
policyholders. At June 30, 1997, securities representing approximately 15% of
the book value of Savers Life's invested assets were on deposit with various
state treasurers or custodians. Such deposits must consist of securities that
comply with the standards that the particular state has established.

The NAIC, as well as North Carolina, has adopted RBC requirements for
life/health insurance companies to evaluate the adequacy of statutory capital
and surplus in relation to investment and insurance risks such as asset quality,
mortality and morbidity, asset and liability matching, benefit and loss reserve
adequacy and other business factors. The RBC formula is used by state insurance
regulators as an early warning tool to identify, for the purpose of initiating
regulatory action, insurance companies that potentially are inadequately
capitalized. The RBC guidelines are intended to be a regulatory tool only, and
are not intended as a means to rank insurers generally. In addition, the formula
defines minimum capital standards that supplement the previously existing system
of low fixed minimum capital and surplus requirements on a state-by-state basis.
Regulatory compliance is determined by a ratio of the enterprise's regulatory
total adjusted capital, as defined by the NAIC, to its authorized control level
RBC, as defined by the NAIC. Enterprises below specific trigger points or ratios
are classified within certain levels, each of which requires specific corrective
action. The ratio of Total Adjusted Capital to Authorized Control Level RBC for
Savers Life is 2.2 and 2.3 at December 31, 1996 and 1995, respectively. Due to
the negative trend in RBC, the Departments of Insurance of North Carolina and
South Carolina have requested a plan of action to reverse this trend. The
expected plan of action is the sale of the major medical product line, which
sale is expected to substantially increase RBC. However, should Savers Life's
RBC position decline in the future, its ability to pay dividends and the degree
of regulatory supervision or control to which it is subjected may be affected.

The NAIC calculates twelve financial ratios based on statutory financial
statements ("IRIS ratios") to assist state regulators in monitoring the
financial condition of insurance companies. A "usual range" of results for each
ratio is used as a benchmark for analysis, and a company's variation from this
range may be either favorable or unfavorable. State insurance departments may
make inquiries of Savers Life when at least four IRIS ratios are outside the
usual range. These inquiries could lead to restrictions on the amount of
business that may be written in an individual state. The following table
presents the IRIS ratios as determined by the NAIC for Savers Life which varied
from the "usual range" for 1996.

<TABLE>
<CAPTION>
REPORTED
RATIO NAME USUAL RANGE VALUE
---------- ----------- --------
<S> <C> <C>
Change in capital and surplus............................ 50 to -10 -16
Net income to total income............................... -- to 0 -2
Change in reserving ratio................................ 20 to -20 23
</TABLE>

EXPLANATION OF RATIOS:

Change in capital and surplus. These ratios, calculated on a gross and net
basis, are a measure of improvement or deterioration in a company's financial
position during the year. The negative value was primarily due to the statutory
loss from operations of approximately $1.2 million recorded in 1996.

Net Income to Total Income. This ratio is a measure of a company's
profitability. The negative value was primarily due to the statutory loss from
operations recorded in 1996.

Change in Reserving Ratio. The change in reserving ratio represents the
number of percentage points of difference between the reserving ratio for
current and prior years. The positive value was due to the reserve strengthening
within the life product line. The majority of the life reserves consist of whole
life policies which have higher reserve requirements than term policies.

All jurisdictions in which Savers Life operates have adopted the NAIC model
regulation of Medicare supplement policies. The standardization of policy
benefits, which became effective in 1992, commission requirements and other
model regulations have reduced the volatility in this marketplace. Policyholders
make their decisions based on price and customer service. Savers Life does not
believe that the NAIC model regulation has had a material negative impact
although it is impossible to predict the future impact of

129
<PAGE> 142

changing state and federal regulations. This model law does address the loss
ratio of Medicare supplement blocks of business and limits the ratio to no lower
than 65%. If this portion of the regulation is violated, a return of premiums is
required to the policyholders. A return of premiums has not been required of
Savers Life in any of the years since adoption of the model law.

Current proposals in Congress, specifically the Kennedy-Kassenbaum Act, are
expected to have a minimal impact on Savers Life since the primary focus of that
legislation is on employer-sponsored health coverage. Savers Life does not offer
an employer group major medical plan.

New rules adopted by the NAIC are effective only to the extent adopted by
the states in which Savers Life operates, and it is not possible to predict the
future impact of changing state and federal regulation on the operations of
Savers Life.

The statutory filings of Savers Life require classifications of investments
and the establishment of an AVR, an account designed to stabilize a company's
statutory surplus against fluctuations in the market value of stocks and bonds,
according to regulations prescribed by the NAIC. The AVR account consists of two
main components: a "default component" to provide for future credit-related
losses on fixed income investments and an "equity component" to provide for
losses on all types of equity investments, including real estate.

The NAIC requires an additional reserve, called the IMR which consists of
the portion of realized capital gains and losses from the sale of fixed income
securities attributable to changes in interest rates. The IMR is required to be
amortized against earnings on a basis reflecting the remaining period to
maturity of the fixed income securities sold.

The amounts related to AVR and IMR for Savers Life at June 30, 1997 are
summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
MAXIMUM
AVR AVR IMR
--- ------- ---
<S> <C> <C> <C>
Savers Life......................................... $1,509 $1,559 $1,418
</TABLE>

The annual addition to the AVR for 1997 is 20% of the maximum reserve over
the accumulated balance. If the calculated reserve with current year additions
exceeds the maximum reserve amount, the reserve is reduced to the maximum
amount. For the default component, Savers Life made the required contribution to
AVR at June 30, 1997. For the equity component, the reserve exceeded the maximum
and was reduced to the maximum amount.

Most jurisdictions require insurance companies to participate in guaranty
funds designed to cover claims against insolvent insurers. Insurers authorized
to transact business in these jurisdictions are generally subject to
assessments, based on annual direct premiums written in that jurisdiction, to
pay such claims, if any. These assessments may be deferred or forgiven under
most guaranty laws if they would threaten an insurer's financial strength and,
in certain instances, may be offset against future state premium taxes. The
incurrence and amount of such assessments have increased in recent years and are
generally expected to increase further in future years. Savers Life was
assessed, and paid, approximately $41,000 for the year ended December 31, 1996.
No assessments were received or paid for the six months ended June 30, 1997. The
likelihood and amount of all future assessments cannot be reasonably estimated
and are beyond the control of Savers Life.

As part of their routine regulatory oversight process, approximately once
every three to five years, state insurance departments conduct periodic detailed
examinations ("Triennial Examinations") of the books, records and accounts of
insurance companies domiciled in their states. Savers Life underwent a Triennial
Examination during 1995 for the period ended December 31, 1994. The final report
on such examination has been issued by the North Carolina Department of
Insurance, and all issues have been addressed and corrected in the opinion of
management.

EMPLOYEES

As of June 30, 1997, Savers Life had 63 employees. All except the three
Regional Managers work in the Home Office in Winston-Salem, North Carolina.

130
<PAGE> 143

PROPERTIES

Savers Life owns its Home Office building containing approximately 27,000
square feet at 8064 North Point Boulevard, Winston-Salem, North Carolina. Savers
Life occupies the top floor of its two story building and leases most of the
first floor.

LEGAL PROCEEDINGS

Savers Life 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 Savers Life. The outcomes of these legal
proceedings are not expected to have a material effect on the financial
position, liquidity or future results of operations of Savers Life based on
Savers Life's current understanding of the relevant facts and law.

MARKET PRICE AND DIVIDENDS ON SAVERS LIFE COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

At the close of business on August 1, 1997, there were issued and
outstanding 1,779,908 shares of Savers Life Common Stock, the only outstanding
class of its equity securities, held by approximately 584 owners of record.
There is no established public market for Savers Life Common Stock.

Savers Life has not paid a cash dividend on the Savers Life Common Stock
within the past two years.

131
<PAGE> 144

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth certain information regarding the beneficial
ownership of Savers Life Common Stock; (i) by each stockholder known by Savers
Life to own beneficially more than five percent (5%) of the outstanding Savers
Life Common Stock, (ii) by each member of the Saver's Life Board (including two
executive officers of Savers Life) and (iii) by all directors and executive
officers of Savers Life as a group. This information is as of August 1, 1997.

<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF SHARES OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) SHARES(2)
------------------------ --------------------- -----------
<S> <C> <C>
F. Edward Broadwell, Jr., Director.......................... 13,556 *
Jerry E. Francis, Director, Senior Vice President and %
Director of Operations.................................... 46,958(3)(4) 2.6
H. Joe King, Jr., Director.................................. 15,916 *
Arthur H. Little, Director.................................. 26,693 1.5%
James P. Marsh, Director.................................... 15,266 *
Ted Y. Matney, Director..................................... 15,199 *
Theo H. Pitt, Jr., Director................................. 14,705(5) *
William C. Rogers, Sr., Director............................ 15,266 *
Joseph H. Sherrill, Jr., Director........................... 94,675(6) 5.3%
1450 Point Crisp Road
Sarasota, Florida 34242
Jerry D. Stoltz, Sr., Director, President and Treasurer..... 221,515(7) 12.4%
8064 North Point Boulevard
Winston-Salem, North Carolina 27106
William G. White, Jr., Director............................. 17,632 *
All Directors and Executive Officers of Savers Life (14 520,259(8) 28.6%
persons)..................................................
</TABLE>

- -------------------------
* Less than 1%

(1) Except as described in the next sentence or in footnotes following, each
person named in the table possesses sole voting and sole investment power
with respect to all shares of Savers Life Common Stock listed in the table
as owned by such person. Each person named in the table has agreed to vote
his shares of Savers Life Common Stock in favor of approval of the Merger
Agreement and against certain other actions. See "VOTING AGREEMENTS." Shares
beneficially owned include shares that may be acquired pursuant to the
exercise of outstanding options or warrants that are exercisable within 60
days of August 1, 1997 as follows: Mr. Francis -- 15,000, Mr.
Stoltz -- 8,500, directors and executive officers as a group -- 38,300.

(2) Percentage of total outstanding shares is calculated separately for each
person on the basis of the actual number of outstanding shares at the close
of business on August 1, 1997 and assumes, for purposes of the calculation,
that shares issuable upon exercise of options or warrants exercisable within
60 days held by such person (but no other stockholders) had been issued as
of such date. Percentages less than 1% are not indicated.

(3) Does not include 59,984 shares (3.4% of the outstanding shares) held by the
Savers Life 401(k) Plan. As Administrator of the plan, Mr. Francis votes
shares of Savers Life Common Stock held by the plan. The plan does not
provide for pass-through voting rights to beneficial owners of shares of
Savers Life Common Stock vested in their accounts. As beneficial owner of
the shares held by the plan, Mr. Francis intends to vote all shares owned by
the plan in favor of the proposed Merger.

132
<PAGE> 145

(4) Does not include 8,509 shares owned of record by the Savers Life 401(k) Plan
in the account of Mr. Francis.

(5) Does not include 2,250 shares owned of record by Mr. Pitt's wife as
custodian for their son, beneficial ownership of which is disclaimed.

(6) Does not include 6,250 shares owned of record by Mr. Sherrill's wife,
beneficial ownership of which is disclaimed.

(7) Does not include 14,375 shares owned of record by the Savers Life 401(k)
Plan in the account of Mr. Stoltz.

(8) Does not include 33,700 shares (1.9% of the outstanding shares) owned of
record by the Savers Life 401(k) Plan for the accounts of executive officers
of Savers Life, including shares held in the accounts of Mr. Stoltz and Mr.
Francis.

Pursuant to the Merger Agreement SMC has agreed to appoint Mr. Stoltz to
the SMC Board. Mr. Stoltz will stand for election at the 1998 annual meeting of
the stockholders of SMC. Mr. Stoltz is 56 and has been the President and
Treasurer, as well a director serving on the Finance and Executive Committees,
of Savers Life since its founding in 1980. Although nonemployee directors of
Savers Life receive compensation for their services as directors and
reimbursement of expenses incurred in connection with such service, directors of
Savers Life who are employees of Savers Life receive no such compensation for
their service as directors. His ownership of Savers Life Common Stock, as
reflected in the foregoing table, will result in his owning shares of SMC Common
Stock as a result of the Merger, the number of which shares will depend upon
whether he elects to receive shares of SMC Common Stock in exchange for the
$1.50 per share cash portion of the merger consideration, whether he exercises
options that he holds to purchase shares of Savers Life Common Stock prior to
the Effective Time and the Average Trading Price of the SMC Common Stock used to
calculate the exchange ratio.

133
<PAGE> 146

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion highlights the principal factors affecting the
results of operations and the significant changes in balance sheet items of
Savers Life for the periods listed as well as Savers Life's liquidity and
capital resources. This discussion should be read in conjunction with the Savers
Life Financial Statements and the Notes thereto appearing elsewhere herein.

INTRODUCTION

Savers Life is an insurance company domiciled in the state of North
Carolina, with licenses to write insurance products in the states of North
Carolina, South Carolina, Virginia and Florida. Savers Life historically has
written Medicare supplement and association group major medical health insurance
policies, single premium deferred and immediate annuity policies and term and
whole life insurance policies. Savers Life and World have agreed to the transfer
of the major medical product line of Savers Life to World through a coinsurance
agreement, under which World has assumed, through coinsurance effective July 1,
1997, 100% of the product line subject to certain risk sharing arrangements. See
"Risk Factors -- Reinsurance of Major Medical Product Line" and "Additional
Information Regarding Savers Life -- Description of Business -- Products".
During the first six months of 1997, the Savers Life major medical product line
experienced a pre-tax loss of $3,851,000. See "SMC Selected Unaudited Pro Forma
Combined Financial Data". This transaction is expected to close on or about
October 1, 1997 and is subject to normal closing conditions. Savers Life is not
consolidated with any other entity.

The health products, Medicare supplement and major medical, generate
profits from the excess of premium revenues over the incurred claims and
commission and administrative expenses. The most volatile of these factors is
the incurred claims which can be adversely affected by upward trends in provider
costs from both hospitals and doctors.

The profitability of the major medical product line depends almost entirely
on the management of claims expense in relation to the premiums collected. It is
imperative that the loss ratio, which is defined as incurred claims divided by
earned premiums, be at or near 70%. Until 1995, Savers Life experienced loss
ratios at or below 70%. Beginning in 1995, this product line became unprofitable
as the loss ratio climbed above 70%. For the year ended December 31, 1995, the
loss ratio for major medical was approximately 84%. For the year ended December
31, 1996, this loss ratio was approximately 80%. For the six months ended June
30, 1997, this loss ratio was approximately 95%. These loss ratios resulted in
pre-tax losses for the year ended December 31, 1995 of approximately $2,899,000,
pre-tax losses for the year ended December 31, 1996 of approximately $2,387,000
and pre-tax losses for the six months ended June 30, 1997 of approximately
$3,851,000 in this product line. The loss in 1995 included $1,950,811 of claim
expense related to the prior year which were recorded in 1995 as a result of
underestimation of claims liability in 1994.

Savers Life and World have agreed to the transfer of the major medical
product line of Savers Life to World through a coinsurance agreement, under
which World will assume, through coinsurance effective July 1, 1997, 100% of the
product line. Savers Life ceased writing any new business in this product line
on June 30, 1997. At the closing, presently scheduled to occur on or about
October 1, 1997, all of the policies in this product line will be transferred to
World as direct insurance policies of World. Savers Life has agreed to share in
the claims experience of this product line for the period from July 1, 1997
through the end of 1997 to the extent that the loss ratio for such period does
not equal 75%. The loss ratio is calculated by dividing incurred claims by
earned premiums. If the loss ratio for the period is greater than 75%, Savers
Life will be required to reimburse World in cash for 50% of the amount by which
the actual loss ratio exceeds 75%. If the loss ratio for the period is less than
75%, World will be required to reimburse Savers Life in cash for 50% of the
amount by which the actual loss ratio is less than 75%. If the loss ratio for
the last six months of 1997 for this product line was 85%, Savers Life would be
required to pay World approximately $400,000 for its share of the excess loss
ratio. Savers Life will be paid $50,000 per month by World to administer this
block of business between July 1, 1997 and the closing date. As a result of the
agreement with World, Savers Life wrote off all remaining deferred acquisition
costs associated with the major medical product line, resulting in a $1,752,000
charge against income in the second quarter of 1997. At the closing date, Savers
Life will transfer cash of

134
<PAGE> 147

approximately $4,547,000 and liabilities of $4,511,000 to World. The impact on
both the statutory and GAAP income statements will be minimal.

The profitability of the Medicare supplement product line depends almost
entirely on the management of the loss ratio, as well. It is imperative that
this loss ratio be at or near 65%. Because the benefits to be paid by insurance
companies are defined by the U. S. government, the only adjustment Savers Life
can make is through premium revenues. Until 1996, Savers Life experienced loss
ratios at or near 65%. For the year ended December 31,1996, the Medicare
supplement loss ratio reached approximately 80%. This loss ratio generated a
pre-tax loss in the Medicare supplement product line of approximately $1,651,000
for the year ended December 31, 1996. This product line generated a pre-tax gain
for the year ended December 31, 1995 of approximately $1,805,000. The increased
loss ratio in 1996 was partly the result of the accumulation of claims in late
1995 due to pending changes with certain preferred provider organizations. When
these claims were ultimately processed for payment in 1996, the actual expense
exceeded the reserve, thereby requiring an additional charge in 1996. The 1995
financial results were not restated for this underestimation of the claim
liability. For the six months ended June 30, 1997, this product line experienced
a loss ratio of 79% and recorded a pre-tax loss of $102,000. Savers Life
implemented a premium rate increase in June 1997 in an attempt to reduce this
loss ratio.

The annuity product line contributes profits in two ways for Savers Life.
The first is the interest spread earned on the annuity block in force. This is
the difference between what Savers Life earns on its investments and what it is
required to pay its annuityholders in interest. The second is the fee income
earned on the sale of annuity products of Keyport. In this case, Savers Life
receives fee income for each annuity written on Keyport's books.

The life insurance product line is very small in relation to the other
product lines of Savers Life. This product line generates profits from favorable
mortality experience.

The vast majority of premium revenues consists of Medicare supplement and
major medical premiums. For the year ended December 31, 1996, Medicare
supplement premiums were $28.1 million and major medical premiums were $18.9
million. These premiums constituted 98% of the premium revenues. For the six
months ended June 30, 1997, Medicare supplement premiums were $14.0 million and
major medical premiums were $8.0 million, comprising 98% of premium revenues.

DISCUSSION OF CHANGES IN THE STATEMENT OF OPERATIONS FROM SIX MONTHS ENDED JUNE
30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996

Net Loss. The net loss was $2,419,000 for the six months ended June 30,
1997, or $1.35 per share, compared to a net loss for the comparable period of
1996 of $391,000, or $0.22 per share. The change resulted from the increase in
the loss ratio in the major medical product line as well as the write-off of
major medical DAC of $1,752,000, resulting from the entry into the agreement
with World for the transfer of the major medical product line.

Premium Income. Premium income for the six months ended June 30, 1997 was
$22,538,000, a decrease of $1,970,000 or approximately 8% from $24,508,000 for
the comparable period of 1996. The decrease in premiums in the major medical
product line caused this decrease. Major medical premiums declined $2.0 million,
while Medicare supplement and life premiums remained relatively flat. This
decline in major medical premiums was caused by the lack of emphasis placed on
this product line by management, driven by the poor financial results of this
product line in the last two years.

Net Investment Income. Net investment income decreased $39,000 or 2% to
$2,269,000 for the six months ended June 30, 1997 from $2,308,000 for the
comparable period of 1996. The annualized yield declined from 6.22% for the six
months ended June 30, 1996 to 6.15% for the six months ended June 30, 1997.
Assets which had matured or were sold during the first six months of 1997 were
left in cash and short-term investments in anticipation of the transfer of cash
to World in connection with the transfer of the major medical product line and
in anticipation of transferring the management of the entire portfolio to SMC.
This shift to cash and short-term investments caused the decline in annualized
yield during 1997.

135
<PAGE> 148

Other Revenues. Other revenues, which include fee income from the sale of
products of other companies, increased $169,000, from $535,000 for the six
months ended June 30, 1996 to $704,000 for the comparable period of 1997. The
revenues from the marketing and administration of the QualChoice product
generated this increase. This program began in the third quarter of 1996.

Increase (Decrease) in Future Policy Benefits. Future policy benefits
increased $325,000 for the six months ended June 30, 1997, compared with a
decrease of $657,000 for the comparable period of 1996. The 1996 decrease in
future policy benefits includes a decrease of $250,000 in the major medical
product line and a decrease of $400,000 in the Medicare supplement product line
in the first six months of 1996.

Claims Expenses. Claims expenses decreased $1,158,000, from $19,769,000 for
the six months ended June 30, 1996 to $18,611,000 for the comparable period of
1997. Medicare supplement claims decreased $157,000, major medical claims
decreased $1,010,000, and death claims increased $9,000. The decrease in
Medicare supplement claims expenses include an increase in claim reserves of
$450,000 for the six months ended June 30, 1996 and $202,000 for the comparable
period in 1997. The decrease in major medical claims expense was the result of
the decline in the size of this product line.

Interest Credited on Interest-Sensitive Annuities and Universal Life
Policies. Interest credited on interest-sensitive annuities and universal life
policies declined $85,000 from $1,325,000 for the six months ended June 30, 1996
to $1,240,000 for the comparable period of 1997. The decline in the annuity fund
balance from June 30, 1996 to June 30, 1997 caused this decrease, due to the
normal surrender activity of this product line.

Commission Expenses. Commission expenses declined $527,000 from $4,285,000
for the six months ended June 30, 1996 to $3,758,000 for the comparable period
of 1997. This decline was generated by the lower premium income for the six
months ended June 30, 1997 when compared with the same period of 1996.

General Expenses. General expenses declined from $1,523,000 for the six
months ended June 30, 1996 to $1,379,000 for the comparable period of 1997.
Salaries declined $136,000 for the six months ended June 30, 1997 when compared
with the same period of 1996. This decline was generated from the reduction in
administrative staff in the major medical product line.

Insurance Taxes, Licenses and Fees. Insurance taxes, licenses and fees
declined $22,000 to $691,000 for the six months ended June 30, 1997, from
$713,000 for the comparable period of 1996. This decline was caused by the
decline in premium revenues, thus reducing premium taxes.

Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased $1,352,000 to $2,658,000 for the six months ended
June 30, 1997 from $1,306,000 for the comparable period of 1996. Major medical
product line amortization increased $1,739,000 for the six months ended June 30,
1997 compared with the same period of 1996 as the DAC associated with this
product line was written off during 1997. Offsetting this increase was a
decrease in the Medicare supplement product line's amortization as all of the
deferred acquisition costs associated with the pre-standardized block were
amortized at December 31, 1996. For the six months ended June 30, 1996, this
amortization was approximately $434,000.

Federal Income Taxes. Federal income tax credit was $627,000 for the six
months ended June 30, 1996 compared to $360,000 for the comparable period of
1997. The larger credit in 1997 was generated from the pre-tax operating loss of
$3,046,000 recorded for the first six months of 1997 compared with a pre-tax
operating loss of $751,000 for the first six months of 1996. The primary reason
that the actual tax rate and the life insurance statutory tax rate of 34% are
different is the Small Life Insurance Company Deduction that Savers Life is
allowed to take.

DISCUSSION OF CHANGES IN THE STATEMENT OF OPERATIONS FROM YEAR ENDED DECEMBER
31, 1996 TO YEAR ENDED DECEMBER 31, 1995

Net Income (Loss). The net loss was $1,691,707 for the year ended December
31, 1996, or $0.94 per share, compared to net income for 1995 of $960,937, or
$0.53 per share. The change resulted primarily from the increase in benefits and
claims during 1996 in the Medicare supplement product line.

136
<PAGE> 149

Premium Income. Premium income for the year ended December 31, 1996 was
$47.9 million, a decrease of approximately $2,091,000 or approximately 4% from
$49.9 million for 1995. Major medical premiums declined approximately $2,914,000
while Medicare supplement premiums increased approximately $916,000. The
decrease in major medical premiums was due to the implementation of changes such
as introduction of a managed care program, joining a preferred provider
organization and requiring hospital precertification during 1996, coupled with
premium rate increases. These changes were in response to rising claims costs
and loss ratio in the major medical product line and led to an increase in the
lapse rate for this product partially easing the problems of surplus strain
experienced by Savers Life. The increase in Medicare supplement premiums was due
primarily to premium rate increases during 1996.

Net Investment Income. Net investment income decreased $282,000 or 5.8% to
$4,569,000 for the year ended December 31, 1996 from $4,851,000 for 1995. This
decrease was due to the lower cash and investable assets coupled with a lower
yield for 1996. The cash and investable assets declined 1.2%, from $75.6 million
at December 31, 1995 to $74.7 million at December 31, 1996 due to the higher
paid claims in 1996. The yield declined from 6.4% for 1995 to 6.1% for 1996. The
declining short-term interest rate environment caused this decrease.

Net Realized Gains. Net realized gains decreased approximately $217,000
from $387,000 for the year ended December 31, 1995 to $170,000 for 1996. This
decrease was the result of the sale of U.S. Treasury and U.S. Treasury Strip
Bonds in 1995 as opportunities arose during the year that were not duplicated in
1996.

Other Revenues. Other revenues, which include fee income from the sale of
products of other companies, declined approximately $624,000, from $1,665,000
for the year ended December 31, 1995 to $1,041,000 for 1996. This decline was
caused by the decline in sales activity of the Keyport annuities, thus
generating less fee income. The decline in Keyport activity reflects the
aggressive marketing campaign that Keyport had in place in 1995, but not in the
first six months of 1996.

Increase (Decrease) in Future Policy Benefits. Future policy benefits
decreased $700,000 for the year ended December 31, 1996. These future policy
benefits consist primarily of unearned premium reserves and additional benefit
reserves established for the major medical and Medicare supplement product lines
as well as policy reserves for the life product line. The decrease in future
policy benefits consists primarily of the release of $970,000 of unearned
premium reserves and benefit reserves established on the major medical and
Medicare supplement product lines. Benefit reserves of $819,000 were established
at December 31, 1995 to supplement the claim liabilities. These reserves were
released entirely in 1996. Partially offsetting this decrease was the increase
in the life and life annuity reserves of $270,000.

Claims Expenses. Claims expenses remained level at $38.7 million for both
the years ended December 31, 1996 and 1995. While Medicare supplement claims
expenses increased $3.5 million, major medical claims expense decreased $3.5
million. The increase in the Medicare supplement block of business coupled with
the underestimation of the claim liability at the end of 1995 caused this
increase in claims expenses in this product line. The major medical decrease was
generated from the decline in the size of the product line coupled with changes
made in the claims administration during 1996.

Interest Credited on Interest-Sensitive Annuities and Universal Life
Policies. Interest credited on interest-sensitive annuities and universal life
policies declined $244,000 from $2,787,000 for the year ended December 31, 1995
to $2,543,000 for 1996. The annuity net cash outflows for the year ended
December 31, 1996 caused this decrease.

Commission Expenses. Commission expenses declined approximately $810,000
from $9,058,000 for the year ended December 31, 1995 to $8,248,000 for 1996.
This decline in commission expense was due to the change made in May 1995 to
cease paying commission expense on the premium rate increases. As premium rate
increases have been implemented in both Medicare supplement and major medical,
no commissions have been paid on the rate increase portion.

General Expenses. General expenses declined approximately $132,000 from
$3,326,000 for the year ended December 31, 1995 to $3,194,000 for 1996. This
decline was caused by the decline in salaries during

137
<PAGE> 150

1996 as Savers Life had fewer employees in 1996 than it had in 1995. This lower
employee head count was the result of lower premium volumes in the major medical
product line.

Insurance Taxes, Licenses and Fees. Insurance taxes, licenses and fees
declined 7%, from $1,495,000 for the year ended December 31, 1995 to $1,391,000
for 1996. This decline was caused by the decline in premium revenues, thus
driving down premium taxes.

Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs ("DAC") increased $505,000 from $2,552,000 for the year ended
December 31, 1995 to $3,057,000 for the same period in 1996. The DAC on the
pre-standardized (pre-1992) closed block of Medicare supplement of approximately
$741,000 was amortized in 1996 compared with approximately $532,000 for 1995
causing the increase in this line. This additional amortization resulted from a
determination by Savers Life that this block of business was no longer
profitable. Due to the increase in lapses in the major medical product line,
amortization was increased $193,000 in 1996.

Federal Income Taxes. Federal income tax expense (credit) was $(1,166,000)
for the year ended December 31, 1996 compared to $116,000 for 1995. The credit
in 1996 was generated from the pre-tax operating loss of $2,858,000 recorded for
the year. Savers Life posted a pre-tax operating gain of $1,077,000 for 1995,
generating a tax expense for that year. The primary difference between the
actual tax rate experienced by Savers Life and the statutory 34% life insurance
tax rate is the Small Life Insurance Company Deduction, which is 60% of its
taxable gain from operations. This deduction generates a tax rate lower than the
34% life insurance rate.

DISCUSSION OF CHANGES IN THE STATEMENT OF OPERATIONS FROM YEAR ENDED DECEMBER
31, 1995 TO YEAR ENDED DECEMBER 31, 1994

Net Income. Net income was $960,937 for the year ended December 31, 1995,
or $0.53 per share, compared to net income for 1994 of $3,241,193 or $1.79 per
share. The change resulted primarily from the increase in benefits and claims
during 1995 in the major medical product line, resulting in operating losses for
this line in 1995. As the majority of this block of business matured and the
underwriting began to wear off, claims expenses rose at a higher rate than
premium rate increases.

Premium Income. Premium income for the year ended December 31, 1995 was
$49.9 million, an increase of approximately $4,403,000 or approximately 10% from
$45.5 million for 1994. Medicare supplement premiums increased approximately
$3,153,000 in 1995 when compared with 1994. Major medical premiums increased
approximately $1,341,000 in 1995 when compared with 1994. The increase in
premium income was caused by premium rate increases on the renewal blocks as
well as aggressive marketing of these two products made possible by the
attractive price of the products when compared with similar products in the
marketplace.

Net Investment Income. Net investment income increased approximately
$731,000 or 18% to $4,851,501 for the year ended December 31, 1995 from
$4,121,303 for 1994. This increase was due to the higher yield earned on the
investment portfolio in 1995 compared with 1994. The yield earned in 1995 was
6.4%, while the yield earned in 1994 was 5.6%. This higher yield was generated
by a change in the mix of investable assets, increasing construction loan
balances over 30% from December 31, 1994 to December 31, 1995, as Savers Life
actively pursued developers and builders in an effort to enhance the investment
portfolio yield.

Net Realized Gains. Net realized gains increased approximately $276,000
from $111,298 for the year ended December 31, 1994 to $387,295 for 1995. This
increase was the result of the sale of U.S. Treasury Bonds and U.S. Treasury
Strip Bonds during 1995 as opportunities arose during the year.

Other Revenues. Other revenues increased approximately $205,000 from
$1,460,000 for the year ended December 31, 1994 to $1,665,000 for 1995. This
increase was caused by the increase in the sales activity of the Keyport
annuities, thus generating more fee income. During the first half of 1995,
Keyport had an aggressive sales campaign in place.

138
<PAGE> 151

Increase (Decrease) in Future Policy Benefits. Future policy benefits
decreased $2,069,000 for the year ended December 31, 1995. This decrease was
caused by the release of $2.1 million in benefit and unearned premium reserves.
Benefit reserves of $2.5 million were established at December 31, 1994 to
supplement the claim liability. At December 31, 1995, benefit reserves were
$819,000, generating a release of $1.7 million. Unearned premium reserves
declined $393,000 for 1995, primarily in the major medical product line.

Claims Expenses. Claims expenses increased $10.4 million from $28.4 million
for the year December 31, 1994 to $38.7 million for 1995. Major medical claims
expenses increased $7.2 million and Medicare supplement claims increased $2.9
million. The increase in the major medical claims expenses was higher than
expected partly due to the underestimation at December 31, 1994 of the claim
liability of $1.9 million and caused a substantial decrease in the operating
income.

Interest Credited on Interest-Sensitive Annuities and Universal Life
Policies. Interest credited on interest-sensitive annuities and universal life
policies declined very slightly from $2,803,000 for the year ended December 31,
1994 to $2,787,000 for 1995. The annuity net cash outflows for the year ended
December 31, 1995 caused this decrease.

Commission Expenses. Commission expenses increased approximately $58,000
from $8,999,749 for the year ended December 31, 1994 to $9,057,738 for 1995.
This increase in commission expense was caused by the increase in premium
revenues, which increased commission expenses by $651,000. This increase was
partially offset by the change made in May 1995 to cease paying commission
expense on the premium rate increases, which decreased commission expenses by
$480,000, coupled with a decrease in the commission rate structure of the single
largest producing agency in the major medical product line. The contract between
Savers Life and AHU allowed amendments if the major medical product line failed
to meet projections. This contract adjustment decreased commission expenses
$115,000.

General Expenses. General expenses declined approximately $162,000 from
$3,488,517 for the year ended December 31, 1994 to $3,326,082 for 1995. This
decline was caused primarily by the decline in salaries during 1995.

Insurance Taxes, Licenses and Fees. Insurance taxes, licenses and fees
increased 10%, from $1,358,450 for the year ended December 31, 1994 to
$1,495,495 for 1995. This increase was caused by the increase in premium
revenues, thus driving up premium taxes.

Amortization of Deferred Acquisition Costs. Amortization of DAC increased
approximately $566,000 from $1,985,634 for the year ended December 31, 1994 to
$2,552,238 for 1995. The DAC previously capitalized during the buildup of the
major medical and Medicare supplement blocks was being amortized, causing an
increase in this expense line.

Federal Income Taxes. Federal income tax expense was $115,927 for the year
ended December 31, 1995 compared to $1,085,973 for 1994. The decrease in federal
income tax expense in 1995 was generated from the decrease in pre-tax operating
income recorded for the year when compared with 1994. Savers Life posted a
pre-tax operating gain of $4,327,166 for 1994 and a pre-tax operating gain of
$1,076,864 for 1995.

LIQUIDITY AND CAPITAL RESOURCES

Savers Life is an insurance company regulated by the states in which it is
licensed. As an insurance company domiciled in North Carolina, Savers Life may
pay dividends without prior approval of the North Carolina Department of
Insurance if the dividends and all other distributions within the past twelve
months do not exceed the lesser of statutory basis net gain from operations or
10% of statutory capital and surplus. Due to Savers Life's statutory loss in
1996, no dividends can be paid in 1997 without the prior approval of the North
Carolina Department of Insurance.

Savers Life generally pays its claims and operating expenses from premiums
collected and investment income received. In the event these collections are not
sufficient to meet cash outflow requirements, Savers Life has a substantial
portion of its assets in highly liquid investments.

139
<PAGE> 152

Savers Life does not currently have access to additional capital resources.
As a lone insurance company owned directly by its stockholders, there is
currently no parent company to infuse capital into Savers Life. Savers Life has
voluntarily discontinued new premium writings in Florida as a result of its
inability to satisfy that state's capital and surplus requirements. Florida
requires that annual premium writings be no greater than four times an insurer's
capital and surplus. Capital and surplus for Savers Life declined approximately
$1,165,000 for the year ended December 31, 1996 and $272,000 for the year ended
December 31, 1995. Capital and surplus at June 30, 1997 was $6,259,905, at
December 31, 1996 was $6,339,718 and at December 31, 1995 was $7,504,232.
Premium and annuity considerations on a statutory basis were $49.3 million and
$50.5 million for the years ended December 31, 1996 and 1995, respectively, and
were $23.1 million for the six months ended June 30, 1997. The recent decreases
in surplus caused by the poor performance of the health product lines has
generated concern from the management of Savers Life about the company's capital
and surplus level. The poor performance of the major medical product line and
the depletion of assets and surplus caused by this product line led management
to seek divestiture of this product line. Savers Life has entered into an
agreement for the complete transfer of its major medical block to World. Such a
transfer should have the result of decreasing pressure on premium writings. This
transfer also should eliminate the surplus strain and asset depletion which
Savers Life has experienced in recent years in this product line.

The decrease in surplus is the reason Savers Life began actively pursuing
either a capital investor, purchaser or merger candidate. Joining a larger
organization with greater access to capital is very attractive to Savers Life's
management in order to take advantage of premium revenue opportunities as they
arise, as well as alleviating the concerns of the various insurance departments.

Savers Life reported net cash used by operations of $1,746,000 and
$2,735,000 for the six months ended June 30, 1997 and 1996, respectively. The
net cash used by operations in the first six months of 1997 and 1996 was caused
primarily by the net cash outflows of the major medical product line.

Savers Life reported net cash used by operations of $771,000 and $202,000
for the years ended December 31, 1996 and 1995, respectively. For the year ended
December 31, 1994 operating activities provided cash flows of $4,563,000. The
decrease in cash flows from operating activities from 1994 to 1995 was caused by
the decrease in major medical operating cash flows during 1995. This decrease
was generated by the higher major medical claims expenses paid in 1995. The
decrease in cash flows from operating activities from 1995 to 1996 was caused by
the decrease in Medicare supplement cash flows during 1996. This decrease was
caused by the higher Medicare supplement claims expenses paid in 1996. Savers
Life implemented a premium rate increase in June 1997 in its Medicare supplement
product line in order to reduce its operating cash flow needs. When the major
medical transfer occurs, cash of $4.5 million will be transferred to World in
exchange for the liabilities that will be transferred. This cash is currently
available because Savers Life has been investing proceeds of assets matured or
sold in highly liquid assets.

At December 31, 1993, Savers Life had approximately $28.8 million in cash
and cash equivalents. During 1994, the majority of this cash was invested in
bonds, certificates of deposit and construction loans, generating the net cash
used by investing activities of $20,573,000. Net cash provided by investing
activities was $2,525,000 in 1995. This increase was generated by the sale of
bonds during 1996 as $20,119,000 was received in sales proceeds, and $17,170,000
was reinvested in bonds. In 1996, the net cash used by investing activities was
$7,550,000. This use of cash was generated by the increase in certificates of
deposit purchased during 1996. For the six months ended June 30, 1997, net cash
provided by investing activities was $2,469,000. For the six months ended June
30, 1996, net cash used by investing activities was $9,897,000. The majority of
this cash was used to purchase additional certificates of deposit in both
periods. In each of the years presented, Savers Life purchased and sold U.S.
Treasury Bonds and Notes in order to take advantage of short-term interest
gains. During 1995, $15.4 million in bonds were acquired and sold in the same
year. During 1996, $14.2 million in bonds were acquired and sold in the same
year. Certificates of deposit are typically short-term in nature, with
maturities of six months or less. This generated large volumes of transactions
in each of the years presented as these certificates matured and were
re-invested. Certificates of deposit have become a significant part of the
investment portfolio of Savers Life during the past three years. After the
Merger is

140
<PAGE> 153

completed, it is expected that Savers Life's holdings in certificates of deposit
will decrease significantly as higher yielding assets with longer maturities are
purchased.

Financing activities of Savers Life are insignificant to the cash flow and
financial position. Savers Life has no debt and only limited capital stock
transactions.

If the Merger is not completed, no significant liquidity requirements will
be generated. Growth of product lines will need to be monitored carefully to
assure that statutory surplus strain is avoided.

EXPERTS

The consolidated financial statements and schedules of SMC at December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing herein have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein which,
is based in part on the report of KPMG Audit, independent auditors. The
financial statements referred to above are included in reliance upon such report
given upon the authority of such firms as experts in accounting and auditing.

The financial statements of Savers Life at December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, appearing
herein have been audited by D. E. Gatewood and Company, independent auditors, as
set forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

LEGAL OPINIONS

The validity of the SMC Common Stock constituting the Common Stock Issuance
will be passed upon for SMC by Stephen M. Coons, Esq., general counsel to SMC,
9100 Keystone Crossing, Indianapolis, Indiana 46240. Mr. Coons owns 21,584
shares of SMC Common Stock and has outstanding options to purchase an additional
137,760 shares of SMC Common Stock as of the date hereof and is an Executive
Vice President and Director of SMC. Certain tax matters in connection with the
Merger will be passed upon by Womble Carlyle Sandridge & Rice, PLLC,
Winston-Salem, North Carolina.

STOCKHOLDER PROPOSALS

A stockholder of SMC may bring business before the SMC Annual Meeting. To
do so, such stockholder must give written notice thereof, containing the
information required by SMC's Bylaws, to the Secretary of SMC. Any such notice
must be received at the principal executive office of SMC not later than the
close of business on September 29, 1997.

In order to be considered for inclusion in SMC's Proxy Statement for its
Annual Meeting to be held in 1998, a stockholder's proposal must be received by
SMC on or prior to May 22, 1998. Such proposals may be included in next year's
Proxy Statement if they comply with certain rules and regulations promulgated by
the SEC.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires SMC's executive officers and
directors, and persons who own more than ten percent (10%) of the SMC Common
Stock ("Reporting Persons"), to file reports of ownership and changes in
ownership with the SEC. Reporting Persons are required by SEC regulations to
furnish SMC with copies of all Section 16(a) reports they file. Based solely on
its review of the copies of such forms received by it and written
representations from certain Reporting Persons, SMC believes that during fiscal
1996 its Reporting Persons complied with all filing requirements applicable to
them except that Mr. Borns filed one late report for one transaction.

141
<PAGE> 154

ANNUAL REPORT TO STOCKHOLDERS OF SMC

A COPY, WITHOUT EXHIBITS, OF SMC'S ANNUAL REPORT ON FORM 10-K/A NO. 2 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1996 WILL BE PROVIDED WITHOUT CHARGE TO ANY
SMC OR SAVERS LIFE STOCKHOLDER SUBMITTING A WRITTEN REQUEST FOR SUCH REPORT TO
KEVIN WEDMORE AT STANDARD MANAGEMENT CORPORATION, 9100 KEYSTONE CROSSING,
INDIANAPOLIS, INDIANA 46240.

OTHER MATTERS

The SMC Board knows of no other matters to be presented at the SMC Annual
Meeting, but if any other matters should properly come before the meeting, it is
intended that the persons named in the accompanying proxy card will vote on such
matters in accordance with their best judgment.

The Savers Life Board knows of no other matters to be presented at the
Savers Life Special Meeting, but if any other matters should properly come
before the meeting, it is intended that the persons named in the accompanying
proxy card will vote on such matters in accordance with their best judgment.

142
<PAGE> 155

GLOSSARY

The following Glossary includes definitions of certain general insurance
terms.

A.M. BEST COMPANY, INC. ("A.M.
BEST")...................... A rating organization reporting on the
financial condition of insurance companies.
A.M. Best's Ratings are assigned to virtually
every significant insurer operating in the
United States.

ANNUITY....................... A contract that pays a periodic income benefit
for the life of a person (the annuitant), the
lives of two or more persons or a specified
period of time.

ASSET VALUATION RESERVE
("AVR")....................... AVR is established under statutory accounting
practices as a liability on a life insurer's
statutory financial statements. AVR establishes
statutory reserves for mortgage loans, equity
real estate interests and joint ventures as
well as for those investments (fixed maturities
and common and preferred stock) formerly
subject to Mandatory Securities Valuation
Reserve ("MSVR"). AVR generally captures all
realized and unrealized gains and losses on
such assets, other than those resulting from
changes in interest rates. AVR has no effect on
financial statements prepared in conformity
with GAAP.

ASSUMPTION REINSURANCE........ A form of reinsurance under which the
contractual relationship with the insured, as
well as all liabilities and policy
administration responsibilities, is intended to
pass to the reinsurer. In some jurisdictions,
approval of the insured is required in order to
effect the change in insurers.

CEDING........................ The transfer of all or a portion of a risk from
one insurer to another.

CLOSED BLOCK.................. A group of in force life insurance policies or
annuity contracts that SMC has issued or
assumed but no longer markets.

COINSURANCE INDEMNITY
REINSURANCE................... Coinsurance is a form of indemnity reinsurance
in which the ceding company and reinsurer share
agreed upon percentages of the premiums,
claims, surrenders and other benefits related
to the underlying policies.

COLLATERALIZED MORTGAGE
OBLIGATIONS ("CMOS").......... Debt obligations issued by a special purpose
entity that are collateralized by and payments
linked to a pool of mortgages or mortgage
backed securities. The CMOs are priced based on
their own maturity and rate of return rather
than those of the underlying mortgage.

CREDITING RATE................ The interest rate credited on a life insurance
policy or annuity contract. This credited
interest rate may be a guaranteed fixed rate, a
variable rate or some combination of both.

DEFERRED ANNUITY (SINGLE
PREMIUM DEFERRED ANNUITY
("SPDA")/FLEXIBLE PREMIUM
DEFERRED ANNUITY
("FPDA"))................... An annuity that (i) can be paid either with a
single premium (SPDA) or an initial premium and
additional optional premiums (FPDA) and (ii)
includes a schedule of periodic income benefits
to commence after an accumulation period.

143
<PAGE> 156

DEFERRED POLICY ACQUISITION
COSTS ("DAC")................. Commissions and other selling expenses which
vary with and are directly related to the
production of business. These acquisition costs
are deferred and amortized to achieve a
matching of revenues and expenses when reported
in financial statements prepared in conformity
with GAAP.

DEPOSITS...................... All payments and other consideration received
on certain contracts, principally annuities and
universal and investment-type contracts. These
amounts are not included in revenues under GAAP
but are included directly in policyholder
account balances.

INDEMNITY REINSURANCE......... The practice whereby the reinsurer, in
consideration of premiums received, agrees to
indemnify the ceding company or reinsured, for
all or a portion of the liability under a
policy or policies of insurance issued by the
ceding company, which is not discharged of the
liability.

INTEREST MAINTENANCE RESERVE
("IMR")..................... IMR is established under statutory accounting
practices as a liability on a life insurer's
statutory financial statements and applies to
all types of fixed income investments (bonds,
preferred stocks, mortgage-backed securities
and mortgage loans). IMR captures the net gains
from changes in the overall level of interest
rates which are realized upon the sale of
investments and amortizes these net gains into
income over the remaining life of each
investment sold. IMR has no effect on financial
statements prepared in conformity with GAAP.

LAPSE......................... Termination of a policy because of surrender,
failure to pay a premium or lack of sufficient
cash value to maintain in force status.

MODIFIED COINSURANCE INDEMNITY
REINSURANCE ("MODCO")....... Modco indemnity reinsurance contracts are
similar to coinsurance indemnity reinsurance,
with the exception that the ceding company
retains assets that are equal to the statutory
reserves on the underlying policies reinsured.
The ceding company is obligated to credit
interest on the outstanding amount of those
funds.

NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS
("NAIC").................... An association made up of the officials of each
state responsible for the administration of
that state's insurance laws.

PAYOUT ANNUITY................ An annuity for which benefits are being paid.

PERSISTENCY................... Measurement of life insurance or other
insurance policies remaining in force from year
to year.

PREMIUMS...................... Payments and considerations received during the
year on policies and contracts, other than
annuities and universal life and
investment-type contracts, issued or reinsured
(assumed less ceded) by an insurance company
and accounted for as revenues under GAAP.

RECAPTURE..................... Provision whereby a ceding company may reduce
or eliminate existing reinsurance.

144
<PAGE> 157

RESERVES...................... Liabilities established by insurers to reflect
the estimated discounted present value of cost
of claims payments or contract liabilities and
the related expenses that the insurer will
ultimately be required to pay in respect of
insurance or annuities it has written.

RISK BASED CAPITAL ("RBC").... A method of measuring the minimum amount of
capital appropriate for an insurance company to
support its overall business operation in
consideration of its size and risk profile. A
company's RBC is calculated by applying factors
to various asset, premium and reserve items.
RBC standards are used by regulators to set in
motion appropriate regulatory actions relating
to insurers that show indications of weak or
deteriorating conditions.

SEPARATE ACCOUNT.............. A segregation of assets (and related earnings)
for the exclusive benefit of a particular
policyholder.

STATUTORY ACCOUNTING.......... Those accounting practices prescribed or
permitted by an insurer's domiciliary state
insurance regulator for purposes of financial
reporting to regulators.

STATUTORY RESERVES............ Amounts established by state insurance law that
an insurer must have available to provide for
future obligations with respect to all
policies. Reserves are liabilities on the
balance sheet prepared in conformity with
statutory accounting practices.

STATUTORY SURPLUS............. The excess of statutory admitted assets over
statutory liabilities.

SURPLUS STRAIN................ For any policy, the excess of first year
statutory reserves and policy acquisition costs
over first year premiums.

SURRENDERS AND WITHDRAWALS.... Surrenders of life insurance polices and
annuity contracts for their entire net cash
surrender values and withdrawals of a portion
of such values.

TERM LIFE INSURANCE........... Life insurance protection during a certain
number of years, but expiring without policy
cash value if the insured survives the stated
period.

UNDERWRITING.................. Process of examining, accepting or rejecting
insurance risks, and classifying those
accepted, in order to charge an appropriate
premium for each risk.

UNIT LINKED PRODUCTS.......... An investment product that includes a provision
for benefit payments to vary according to the
investment experience of the separate account
in which the amounts paid to provide this
policy are allocated; similar to U.S. produced
variable life products.

UNIVERSAL LIFE INSURANCE...... Life insurance under which (i) premiums are
generally flexible, (ii) the level of death
benefits may be adjusted and (iii) expenses and
other charges are specifically disclosed to a
purchaser. This policy is sometimes referred to
as unbundled life insurance because its three
basic elements (investment earnings, cost of
protection and expense charges) are separately
identified both in the policy and in an annual
report to the policyholder.

WHOLE LIFE INSURANCE.......... Permanent life insurance offering guaranteed
death benefits and guaranteed cash values.

145
<PAGE> 158

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- June 30, 1997 (Unaudited) and
December 31, 1996 (Audited)............................... F-2
Consolidated Statements of Operations -- For the Three
Months and Six Months Ended June 30, 1997 and 1996
(Unaudited)............................................... F-3
Consolidated Statements of Shareholders' Equity -- For the
Six Months Ended June 30, 1997 and 1996 (Unaudited)....... F-4
Consolidated Statements of Cash Flows -- For the Six Months
Ended June 30, 1997 and 1996 (Unaudited).................. F-5
Notes to Consolidated Financial Statements (Unaudited)...... F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors.............................. F-10
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-12
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-13
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.............. F-14
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-15
Notes to Consolidated Financial Statements.................. F-16
FINANCIAL STATEMENT SCHEDULES:
The following consolidated financial statement schedules are
included herein and should be read in conjunction with the
Audited Consolidated Financial Statements.
Schedule II -- Condensed Financial Information of Registrant
(Parent Company) for the Years Ended December 31, 1996,
1995 and 1994............................................. F-42
Schedule IV -- Reinsurance for the Years Ended December 31,
1996, 1995 and 1994....................................... F-47
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 Notes thereto.
</TABLE>

F-1
<PAGE> 159

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Investments:
Securities available for sale:
Fixed maturity securities, at fair value (amortized
cost: $352,642 in 1997 and $349,151 in 1996)........... $350,513 $347,310
Equity securities, at fair value (cost: $55 in 1997 and
$58 in 1996)........................................... 63 62
Mortgage loans, at unpaid principal balances.............. 2,297 3,035
Policy loans, at unpaid principal balances................ 9,258 9,903
Real estate, at depreciated cost.......................... 537 546
Other invested assets..................................... 1,113 865
Short-term investments, at cost, which approximates fair
value................................................... 18,381 8,417
-------- --------
Total investments..................................... 382,162 370,138
Cash........................................................ 9,823 5,113
Accrued investment income................................... 6,524 6,198
Amounts due and recoverable from reinsurers................. 69,157 68,811
Deferred policy acquisition costs........................... 21,274 18,078
Present value of future profits, less accumulated
amortization of $4,399 in 1997 and $3,520 in 1996......... 22,738 23,806
Excess of acquisition cost over net assets acquired, less
accumulated amortization of $369 in 1997 and $314 in
1996...................................................... 2,205 2,260
Other assets................................................ 4,957 5,463
Assets held in separate accounts............................ 134,808 128,546
-------- --------
Total assets.......................................... $653,648 $628,413
======== ========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits:
Interest-sensitive annuities and other financial
products............................................... $346,662 $333,633
Traditional life insurance.............................. 87,566 87,106
-------- --------
Total future policy benefits.......................... 434,228 420,739
Policy claims and other policyholders' benefits and
funds................................................... 4,740 4,585
-------- --------
438,968 425,324
Accounts payable and accrued expenses..................... 5,716 6,189
Obligations under capital lease........................... 395 637
Notes payable............................................. 26,180 20,060
Deferred federal income taxes............................. 3,427 3,206
Excess of net assets acquired over acquisition cost, less
accumulated amortization of $4,532 in 1997 and $3,839 in
1996.................................................... 2,081 2,775
Liabilities related to separate accounts.................. 134,808 128,546
-------- --------
Total liabilities..................................... 611,575 586,737
Class S Cumulative Convertible Redeemable Preferred Stock,
par value $10 per share:
Authorized 300,000 shares; issued and outstanding 158,239
shares in 1997 and 159,889 shares in 1996, redemption
value of $10 per share plus accumulated and unpaid
dividends............................................... 1,825 1,757
Shareholders' Equity:
Preferred Stock, no par value:
Authorized 700,000 shares; none issued and
outstanding............................................ -- --
Common Stock, no par value:
Authorized 20,000,000 shares; issued 5,752,499 shares... 40,481 40,481
Treasury stock, at cost, 752,356 shares in 1997 and
728,229 shares in 1996 (deduction)...................... (3,660) (3,528)
Unrealized loss on securities available for sale.......... (835) (746)
Foreign currency translation adjustment................... (1) 691
Retained earnings......................................... 4,263 3,021
-------- --------
Total shareholders' equity............................ 40,248 39,919
-------- --------
Total liabilities, redeemable securities and
shareholders' equity................................. $653,648 $628,413
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE> 160

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premium income................................... $ 1,665 $ 5,630 $ 3,562 $ 7,129
Net investment income............................ 7,147 4,731 14,346 9,391
Net realized investment gains.................... 32 218 206 456
Gain on disposal of subsidiaries................. -- -- -- 886
Policy charges................................... 1,344 690 2,783 1,214
Amortization of excess of net assets acquired
over acquisition cost.......................... 347 347 694 694
Management fees and similar income from separate
accounts....................................... 367 452 838 836
Other income..................................... 390 597 881 915
--------- --------- --------- ---------
Total revenues................................. 11,292 12,665 23,310 21,521
Benefits and expenses:
Benefits and claims.............................. 1,979 6,396 4,368 7,223
Interest credited on interest-sensitive annuities
and
other financial products....................... 4,172 2,358 8,166 5,004
Salaries and wages............................... 1,453 1,255 2,904 2,463
Amortization..................................... 752 712 1,577 1,159
Other operating expenses......................... 1,441 1,795 3,317 3,910
Interest expense and financing costs............. 548 154 1,078 277
--------- --------- --------- ---------
Total benefits and expenses.................... 10,345 12,670 21,410 20,036
Income (loss) before federal income taxes,
extraordinary gain on early redemption of
redeemable preferred stock and preferred stock
dividends........................................ 947 (5) 1,900 1,485
Federal income tax expense (credit)................ 265 57 575 (1,118)
--------- --------- --------- ---------
Income (loss) before extraordinary gain on early
redemption of redeemable preferred stock and
preferred stock dividends........................ 682 (62) 1,325 2,603
Extraordinary gain on early redemption of
redeemable preferred stock, net of $ -- federal
income tax....................................... -- 166 -- 267
--------- --------- --------- ---------
NET INCOME......................................... 682 104 1,325 2,870
Preferred stock dividends.......................... 41 66 83 112
--------- --------- --------- ---------
Earnings available to common shareholders.......... $ 641 $ 38 $ 1,242 $ 2,758
========= ========= ========= =========
Earnings per share:
Income (loss) before extraordinary gain on early
redemption of redeemable preferred stock and
preferred stock dividends...................... $ .13 $ (.01) $ .25 $ .50
Extraordinary gain on early redemption of
redeemable preferred stock..................... -- .03 -- .05
--------- --------- --------- ---------
NET INCOME....................................... .13 .02 .25 .55
Preferred stock dividends........................ .01 .01 .01 .01
--------- --------- --------- ---------
Earnings available to common shareholders........ $ .12 $ .01 $ .24 $ .54
========= ========= ========= =========
Weighted average number of shares outstanding:
Common shares.................................... 5,014,099 4,760,656 5,019,136 4,866,850
Common equivalent shares......................... 243,794 126,815 267,570 612,358
--------- --------- --------- ---------
5,257,893 4,887,471 5,286,706 5,479,208
========= ========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 161

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
AMOUNTS SHARES
----------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Stock:
Balance, beginning of period....................... $40,481 $39,808 5,752,499 5,459,573
Issuance of common stock........................ -- 100 -- 20,000
5% common stock dividend........................ -- 850 -- 272,926
------- ------- --------- ---------
Balance, end of period............................. 40,481 40,758 5,752,499 5,752,499
------- ------- --------- ---------
Treasury stock (at cost):
Balance, beginning of period....................... (3,528) (2,621) (728,229) (502,025)
Treasury stock acquired......................... (136) (2,104) (25,000) (426,026)
5% common stock dividend........................ -- -- -- (46,402)
Reissuance of treasury stock in connection with
exercise of stock options..................... 4 2 873 349
------- ------- --------- ---------
Balance, end of period............................. (3,660) (4,723) (752,356) (974,104)
------- ------- --------- ---------
Unrealized gain (loss) on securities:
Balance, beginning of period....................... (746) 2,582
Change in unrealized gain (loss) on securities
available for sale, net....................... (89) (4,595)
------- -------
Balance, end of period............................. (835) (2,013)
------- -------
Foreign currency translation adjustments:
Balance, beginning of period....................... 691 1,159
Translation adjustments for the period.......... (692) (222)
------- -------
Balance, end of period............................. (1) 937
------- -------
Retained earnings (deficit):
Balance, beginning of period....................... 3,021 (686)
Net income...................................... 1,325 2,870
5% common stock dividend, plus cash in lieu of
fractional shares............................. -- (850)
Preferred stock dividend........................ (83) (112)
------- -------
Balance, end of period............................. 4,263 1,222
------- -------
Total shareholders' equity and common shares
outstanding........................................ $40,248 $36,181 5,000,143 4,778,395
======= ======= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 162

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,325 $ 2,870
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs......... 469 575
Policy acquisition costs deferred......................... (3,598) (2,506)
Deferred federal income taxes............................. 270 (244)
Depreciation and amortization............................. 728 200
Future policy benefits and reinsurance recoverable........ 5,334 658
Policy claims and other policyholders' benefits and
funds.................................................. 205 (405)
Net realized investment gains............................. (206) (456)
Accrued investment income................................. (327) (535)
Extraordinary gain on early redemption of redeemable
preferred stock........................................ -- (267)
Other..................................................... 190 1,744
-------- ---------
Net cash provided by operating activities.............. 4,390 1,634
FINANCING ACTIVITIES
Borrowings.................................................. 5,628 2,600
Repayments on long term debt and capital lease obligation... (265) (239)
Premiums received on interest-sensitive annuities and other
financial products credited to policyholder account
balances, net of premiums ceded........................... 25,127 18,796
Return of policyholder account balances on
interest-sensitive annuities and other financial products,
net of premiums ceded..................................... (17,317) (9,403)
Redemption of redeemable preferred stock.................... (15) (442)
Reissuance of treasury stock in connection with exercise of
stock options............................................. 4 --
Proceeds from common and treasury stock sales............... -- 102
Purchase of Common Stock for treasury....................... (136) (2,104)
-------- ---------
Net cash provided by financing activities.............. 13,026 9,310
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
Purchases................................................. (90,762) (107,403)
Sales..................................................... 70,702 77,578
Maturities................................................ 16,241 3,562
Short-term investments, net................................. (9,965) 5,423
Other investments, net...................................... 1,078 (3,218)
Proceeds from sale of First International Life Insurance
Company, less cash transferred to seller of $265.......... -- 11,228
-------- ---------
Net cash provided (used) by investing activities....... (12,706) (12,830)
-------- ---------
Net increase (decrease) in cash............................. 4,710 (1,886)
Cash at beginning of period................................. 5,113 5,762
-------- ---------
Cash at end of period....................................... $ 9,823 $ 3,876
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 163

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the interim periods shown in this report are not
necessarily indicative of the results that may be expected for the fiscal year.
This is particularly true in the life insurance industry, where mortality
results in interim periods can vary substantially from such results over a
longer period. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such adjustments are of
a normal recurring nature. Certain amounts in the 1996 Consolidated Financial
Statements and Notes have been reclassified to conform with the 1997
presentation.

The nature of the insurance business of Standard Management Corporation and
its consolidated subsidiaries ("SMC" or "the Company") requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. For example, the
Company uses significant estimates and assumptions in calculating deferred
policy acquisition costs, present value of future profits, goodwill, future
policy benefits and deferred federal income taxes. Such estimates and
assumptions could change in the future as more information becomes known, which
could impact the amounts reported and disclosed herein.

The consolidated financial statements as of and for the three months and
six months ended June 30, 1997 include the assets and liabilities and results of
operations of Shelby Life Insurance Company ("Shelby Life") which was acquired
and merged into Standard Life Insurance Company of Indiana ("Standard Life"), a
wholly-owned subsidiary of Standard Management Corporation ("Standard
Management"), the parent company, effective November 1, 1996.

For further information, refer to the consolidated financial statements and
footnotes thereto included in the Annual Report on Form 10-K of Standard
Management for the year ended December 31, 1996.

NOTE 2 -- COMMON STOCK

Standard Management declared a 5% stock dividend on shares of its SMC
Common Stock for shareholders of record on May 17, 1996 which was distributed on
June 21, 1996. All applicable number of shares and per share amounts included in
the consolidated financial statements and notes have been retroactively adjusted
to reflect this stock dividend for all periods presented.

NOTE 3 -- NOTE PAYABLE

In connection with the acquisition of Shelby Life, Standard Management
borrowed $4,000 from an insurance company pursuant to a subordinated convertible
debt agreement which was due in December 2003 and required interest payments in
cash at 12% per annum, or, if Standard Management chose, in non-cash additional
subordinated convertible debt notes at 14% per annum until December 31, 2000. At
June 30, 1997, this subordinated convertible debt agreement was amended at the
principal amount of $4,372 which is due July 2004 unless previously converted,
and requires interest payments in cash on January 1 and July 1 of each year at
10% per annum. At June 30, 1997, SMC borrowed an additional $5,628 from an
insurance company pursuant to another subordinated convertible debt agreement
(collectively, the "Notes") which is due July 2004 unless previously converted,
and requires interest payments in cash on January 1 and July 1 of each year at
10% per annum. Proceeds from the additional borrowings were used for
contributions to surplus of insurance subsidiaries of $2,400, redemption of
Class S Cumulative Convertible Redeemable Preferred Stock

F-6
<PAGE> 164

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3 -- NOTE PAYABLE (CONTINUED)
("Class S Preferred Stock") of approximately $1,840, and the balance for other
general corporate purposes. The Notes are convertible into SMC Common Stock at
the rate of $5.747 per share.

The Notes may be prepaid in whole or in part at the option of Standard
Management commencing on July 1, 2000 at redemption prices equal to 105% of the
principal amount (plus accrued interest) and declining to 102% of the principal
amount (plus accrued interest). The Notes may be prepaid prior to July 1, 2000
under certain limited circumstances. The Notes are subject to certain
restrictions and covenants including, among other things, certain minimum
financial ratios, minimum consolidated equity requirements for Standard
Management, positive net income, minimum statutory surplus requirements for the
Company's insurance subsidiaries and certain limitations on acquisitions,
additional indebtedness, investments, mergers, consolidations and sales of
assets.

NOTE 4 -- REDEEMABLE PREFERRED STOCK

In connection with the class action lawsuit settlement in March 1995,
300,000 shares designated as Class S Preferred Stock, $10.00 per share par
value, were issued February 8, 1996. The Class S Preferred Stock is redeemable
in February 2003, has an 11% annual cumulative dividend payable in February
2003, and is convertible into SMC Common Stock at $7.62 per share until February
1998 and $10.00 per share thereafter, subject to adjustment under a formula
intended to protect against dilution.

Standard Management may voluntarily redeem the Class S Preferred Stock
prior to February 2003 at par value plus accumulated and unpaid dividends. In
February 1996, Standard Management instituted a program to repurchase from time
to time up to 300,000 shares of its Class S Preferred Stock in the open market
or private negotiated transactions. As of June 30, 1997, Standard Management has
repurchased and retired 141,761 shares of Class S Preferred Stock on the open
market at a cost of $964. These repurchases resulted in an extraordinary gain on
early redemption of redeemable preferred stock of $166 and $267 for the three
and six month periods ended June 30, 1996. Effective as of August 1, 1997,
Standard Management redeemed all of its issued and outstanding Class S Preferred
Stock at $10.00 per share plus accumulated and unpaid dividends.

NOTE 5 -- NET UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE

The components of the balance sheet caption "Unrealized loss on securities
available for sale" in shareholders' equity are summarized as follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Fair value of securities available for sale................. $350,576 $347,372
Amortized cost of securities available for sale............. 352,697 349,209
-------- --------
Gross unrealized loss on securities available for
sale.................................................. (2,121) (1,837)
Adjustments for:
Deferred policy acquisition costs......................... 858 696
Present value of future profits........................... 4 20
Deferred federal income tax recoverable................... 424 375
-------- --------
Net unrealized loss on securities available for sale... $ (835) $ (746)
======== ========
</TABLE>

F-7
<PAGE> 165

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 6 -- INCOME TAXES

The effective consolidated federal income tax expense (credit) rate for the
Company was 28% and 30% for the three and six months ended June 30, 1997,
compared to (11)% and (75)% for the three and six months ended June 30, 1996.
The effective rates in 1997 are less than the statutory rates primarily because
the amortization of excess of net assets acquired over acquisition cost
resulting from the acquisition of Standard Management International is not
subject to U.S. income tax. The large credit for the six months ended June 30,
1996 is primarily due to tax benefits of $1,420 related to the sale of First
International Life Insurance Company ("First International") (see Note 7).

NOTE 7 -- DISPOSAL OF SUBSIDIARIES

On March 18, 1996, Standard Life completed the sale of a duplicate charter
associated with its wholly-owned subsidiary, First International, to Guardian
Insurance and Annuity Co., Inc. ("GIAC"), a subsidiary of The Guardian Group,
New York, New York. Standard Life received proceeds of $10,393, including $1,500
for the charter and licenses associated with First International. Standard Life
realized a net pretax gain of $1,042 and a tax benefit of $1,420 on this sale or
$2,462 ($.45 per share) for the six months ended June 30, 1996. In addition,
First International, Standard Life and GIAC have entered into a series of other
agreements that include provisions for Standard Life to continue to administer
First International policies in force at the date of sale and for Standard Life
to continue to receive the profit stream from the majority of First
International's in force business at the date of sale.

In an unrelated matter, the Company decided in February 1996 to terminate
the reinsurance agreement between Standard Reinsurance of North America Ltd.
("Standard Reinsurance") and Salamandra Joint-Stock Insurance Company in Ukraine
("Salamandra"), and not to renew the Barbados license of Standard Reinsurance
due to an insignificant amount of reinsurance premium volume. This resulted in
the termination of Standard Reinsurance operations and the write-off of the
Company's investment in Standard Reinsurance and certain intangible assets of
Standard Reinsurance amounting to $156 ($.03 per share) for the six months ended
June 30, 1996.

The combined effect of the gain on sale of First International and related
contracts, and the Standard Reinsurance write-offs, was an increase in revenues
of $886 and a tax benefit of $1,420, for net income effect of approximately
$2,306 or $.42 per share for the six months ended June 30, 1996.

NOTE 8 -- PENDING ACQUISITION

The Company has entered into an Agreement and Plan of Merger dated as of
December 19, 1996, as amended, with Savers Life Insurance Company ("Savers
Life"). Savers Life offers retirement products and Medicare supplement insurance
through 5,000 independent brokers, primarily in North Carolina, South Carolina
and Virginia. The Company will pay approximately $14,200 plus acquisition costs
for the approximately $80,000 asset company, with shareholders of Savers Life
initially receiving $8.00 for each share of Savers Life Common Stock, consisting
of SMC Common Stock and an election of up to $1.50 per share in cash. The
proposed acquisition is subject to normal closing conditions including Standard
Management and Savers Life shareholder approval and approval by applicable
regulatory authorities. The acquisition is expected to close during 1997.

F-8
<PAGE> 166

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 9 -- RECENTLY ISSUED ACCOUNTING STANDARD

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
per Share." SFAS No. 128 is required to be adopted on December 31, 1997. At that
time, the Company will be required to change the method currently used to
compute earnings per share and to restate prior periods. SFAS No. 128 will
eliminate the presentation of primary earnings per share and replace it with
basic earnings per share. Basic earnings per share differs from primary earnings
per share because common stock equivalents are not considered in computing basic
earnings per share. Fully diluted earnings per share will be replaced with
diluted earnings per share. Diluted earnings per share is similar to fully
diluted earnings per share, except in determining the number of dilutive shares
outstanding for options and warrants, the proceeds that would be received upon
the conversion of all dilutive options and warrants are assumed to be used to
repurchase the Company's common shares at the average market price of such stock
during the period. For fully diluted earnings per share, the higher of the
average market price or ending market price is used. The impact is expected to
result in an increase in primary earnings per share for the quarter ended June
30, 1997 of $.01 per share and the six months ended June 30, 1997 and 1996 of
$.01 and $.04 per share, respectively. There will be no change in the primary
earnings per share for the quarter ended June 30, 1996. The impact of SFAS No.
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.

NOTE 10 -- RESTATEMENT

The Company has restated the previously issued June 30, 1996 consolidated
financial statements for recognition of administration fee income. Effective May
31, 1996, Standard Life terminated by recapture a reinsurance agreement with
National Mutual Life Insurance Company ("National Mutual"). In connection with
this transaction, the Company recorded the collection of administration fees of
$375 from National Mutual for services provided in prior years as a reduction to
present value of future profits. Previously the administration fees were
recorded as revenues. The following summarizes the net effect of the
restatement:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
--------------------------- ---------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Income before federal income taxes,
extraordinary gain on early redemption of
redeemable preferred stock and preferred stock $
dividends..................................... $370 (5) $1,860 $1,485
Net income...................................... 351 104 3,117 2,870
Net income per share............................ .07 .02 .59 .55
</TABLE>

F-9
<PAGE> 167

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management Corporation

We have audited the accompanying consolidated balance sheets of Standard
Management Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedules listed in the Index. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. We did not audit the consolidated balance sheets
at September 30, 1996 and 1995 or the consolidated statements of operations,
shareholder's equity and cash flows for the three years ended September 30, 1996
of Standard Management International S.A. and subsidiaries, a wholly owned
subsidiary group, which financial statements reflect assets totaling
approximately 23% and 28% of the Company's consolidated assets at December 31,
1996 and 1995 and revenues totaling approximately 9%, 12% and 14% of
consolidated revenues for each of the three years in the period ended December
31, 1996. Those financial statements, which as explained in Note 1 are included
in the Company's consolidated balance sheets at December 31, 1996 and 1995, and
the Company's consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996,
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the data included for Standard Management
International S.A., is based solely on the report of other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Standard Management Corporation at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

Ernst & Young LLP

Indianapolis, Indiana
March 18, 1997, except for Note 20,
as to which the date is August 21, 1997

F-10
<PAGE> 168

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management International S.A.

We have audited the consolidated balance sheets of Standard Management
International S.A. and subsidiaries as at September 30, 1996 and 1995 and the
related consolidated statements of operations, shareholder's equity and cash
flows for each of the three years in the period ended September 30, 1996 (none
of which aforementioned financial statements are separately presented herein).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 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 financial statements referred to above present fairly,
in all material aspects, the consolidated financial position of Standard
Management International S.A. and subsidiaries as at September 30, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1996 in conformity
with generally accepted accounting principles in the United States of America.

Luxembourg City, Luxembourg

March 12, 1997
KPMG Audit

F-11
<PAGE> 169

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments:
Securities available for sale:
Fixed maturity securities, at fair value
(amortized cost: $349,151 in 1996 and $225,643 in
1995).................................................. $347,310 $232,092
Equity securities, at fair value (cost: $58 in 1996 and
$52 in 1995)........................................... 62 52
Mortgage loans on real estate, at unpaid principal
balances................................................ 3,035 2,963
Policy loans, at unpaid principal balances................ 9,903 8,509
Real estate, at cost less accumulated depreciation of $91
in 1996 and $81 in 1995................................. 546 556
Other invested assets..................................... 865 1,367
Short-term investments, at cost, which approximates fair
value................................................... 8,417 35,058
-------- --------
Total investments..................................... 370,138 280,597
Cash........................................................ 5,113 5,762
Accrued investment income................................... 6,198 4,637
Amounts due and recoverable from reinsurers................. 68,811 33,419
Deferred policy acquisition costs........................... 18,078 10,054
Present value of future profits, less accumulated
amortization of $3,520 in 1996 and
$2,803 in 1995............................................ 23,806 15,246
Excess of acquisition cost over net assets acquired, less
accumulated amortization of
$314 in 1996 and $393 in 1995............................. 2,260 3,175
Other assets................................................ 5,463 4,003
Assets held in separate accounts............................ 128,546 122,705
-------- --------
Total assets.......................................... $628,413 $479,598
======== ========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits:
Interest-sensitive annuities and other financial
products............................................... $333,633 $212,500
Traditional life insurance.............................. 87,106 82,762
-------- --------
Total future policy benefits.......................... 420,739 295,262
Policy claims and other policyholders' benefits and
funds................................................... 4,585 2,572
-------- --------
425,324 297,834
Accounts payable and accrued expenses..................... 6,189 4,880
Class action litigation and settlement liability.......... -- 3,000
Obligations under capital lease........................... 637 1,084
Notes payable............................................. 20,060 3,107
Deferred federal income taxes............................. 3,206 2,583
Excess of net assets acquired over acquisition cost, less
accumulated amortization of
$3,839 in 1996 and $2,451 in 1995....................... 2,775 4,163
Liabilities related to separate accounts.................. 128,546 122,705
-------- --------
Total liabilities..................................... 586,737 439,356
Class S Cumulative Convertible Redeemable Preferred Stock,
par value $10 per share:
Authorized 300,000 shares; issued and outstanding
159,889 shares......................................... 1,757 --
Shareholders' Equity:
Preferred Stock, no par value:
Authorized 700,000 shares; none issued and
outstanding............................................. -- --
Common Stock, no par value:
Authorized 20,000,000 shares
Issued 5,752,499 shares in 1996 and 5,459,573 in 1995... 40,481 39,808
Treasury stock, at cost, 728,229 shares in 1996 and
502,025 shares in 1995 (deduction)...................... (3,528) (2,621)
Unrealized gain (loss) on securities available for sale... (746) 2,582
Foreign currency translation adjustment................... 691 1,159
Retained earnings (deficit)............................... 3,021 (686)
-------- --------
Total shareholders' equity............................ 39,919 40,242
-------- --------
Total liabilities, redeemable securities and
shareholders' equity................................. $628,413 $479,598
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE> 170

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Premium income............................................ $10,468 $ 5,504 $ 4,565
Net investment income..................................... 20,871 18,517 16,057
Net realized investment gains............................. 1,302 688 558
Gain on disposal of subsidiaries.......................... 886 -- --
Policy charges............................................ 2,551 2,467 2,031
Amortization of excess of net assets acquired over
acquisition cost....................................... 1,388 1,388 1,063
Management fees and similar income from separate
accounts............................................... 1,564 1,294 1,888
Other income.............................................. 1,277 380 356
--------- --------- ---------
Total revenues....................................... 40,307 30,238 26,518
Benefits and expenses:
Benefits and claims....................................... 9,919 5,791 5,603
Interest credited on interest-sensitive annuities and
other
financial products..................................... 11,281 10,009 8,676
Salaries and wages........................................ 5,053 4,701 3,910
Amortization.............................................. 2,592 2,044 1,215
Other operating expenses.................................. 7,122 6,333 6,563
Interest expense and financing costs...................... 805 118 47
Class action litigation and settlement costs (credit)..... -- (314) 4,018
--------- --------- ---------
Total benefits and expenses.......................... 36,772 28,682 30,032
--------- --------- ---------
Income (loss) before federal income taxes, extraordinary
gain on early redemption of redeemable preferred stock and
preferred stock dividends................................. 3,535 1,556 (3,514)
Federal income tax expense (credit)......................... (730) 243 (78)
--------- --------- ---------
Income (loss) before extraordinary gain on early redemption
of redeemable preferred stock and preferred stock
dividends................................................. 4,265 1,313 (3,436)
Extraordinary gain on early redemption of redeemable
preferred stock, net of $-- federal income tax............ 502 -- --
--------- --------- ---------
NET INCOME (LOSS)........................................... 4,767 1,313 (3,436)
Preferred stock dividends................................... 208 -- --
--------- --------- ---------
Earnings available to common shareholders................... $ 4,559 $ 1,313 $(3,436)
========= ========= =========
Earnings per share:
Income (loss) before extraordinary gain on early
redemption of redeemable preferred stock and preferred
stock dividends........................................ $.84 $.25 $(.62)
Extraordinary gain........................................ .09 -- --
--------- --------- ---------
NET INCOME (LOSS)......................................... .93 .25 (.62)
Preferred stock dividends................................. .03 -- --
--------- --------- ---------
Earnings available to common shareholders................. $.90 $.25 $(.62)
========= ========= =========
Weighted average number of common and common equivalent
shares outstanding........................................ 5,250,094 5,345,937 5,504,039
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-13
<PAGE> 171

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
AMOUNTS NUMBER OF SHARES
---------------------------- ---------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance, beginning of year.............. $39,808 $39,695 $ 36,348 5,459,573 5,457,906 4,820,739
Issuance of common stock.............. 100 -- -- 20,000 -- --
5% common stock dividend.............. 850 -- -- 272,926 -- --
Issuance of common stock warrants..... 285 107 -- -- -- --
Repurchase of common stock warrants... (600) -- -- -- -- --
Gain on reissuance of treasury stock
in connection with purchase of
Shelby Life........................ 38 -- -- -- -- --
Issuance of common stock in connection
with exercise of stock options..... -- 6 -- -- 1,667 --
Issued in connection with the offshore
offering at an average per share
price of $5.85 in 1994 less $382 in
1994 in related issuance costs..... -- -- 3,347 -- -- 637,167
------- ------- -------- --------- --------- ---------
Balance, end of year.................... 40,481 39,808 39,695 5,752,499 5,459,573 5,457,906
------- ------- -------- --------- --------- ---------
Treasury stock (at cost):
Balance, beginning of year.............. (2,621) (2,221) (867) (502,025) (418,425) (102,000)
Treasury stock acquired............... (2,126) (400) (1,354) (431,026) (83,600) (316,425)
5% common stock dividend.............. -- -- -- (46,402) -- --
Reissuance of treasury stock in
connection with exercise of stock
options............................ 6 -- -- 1,224 -- --
Reissuance of treasury stock in
connection with purchase of Shelby
Life............................... 1,213 -- -- 250,000 -- --
------- ------- -------- --------- --------- ---------
Balance, end of year.................... (3,528) (2,621) (2,221) (728,229) (502,025) (418,425)
------- ------- -------- --------- --------- ---------
Unrealized gain (loss) on securities:
Balance, beginning of year.............. 2,582 (13,411) (4)
Change in unrealized gain (loss) on
securities available for sale,
net................................ (3,328) 15,993 (14,538)
Cumulative effect of adoption of SFAS
No. 115 as of January 1, 1994 (net
of deferred federal income taxes of
$583).............................. -- -- 1,131
------- ------- --------
Balance, end of year.................... (746) 2,582 (13,411)
------- ------- --------
Foreign currency translation adjustments:
Balance, beginning of year.............. 1,159 546 --
Translation adjustments for the
year............................... (468) 613 546
------- ------- --------
Balance, end of year.................... 691 1,159 546
------- ------- --------
Retained earnings (deficit):
Balance, beginning of year.............. (686) (1,999) 1,437
Net income (loss)..................... 4,767 1,313 (3,436)
5% common stock dividend, plus cash in
lieu of fractional shares.......... (850) -- --
Loss on reissuance of treasury
stock.............................. (2) -- --
Preferred stock dividend.............. (208) -- --
------- ------- --------
Balance, end of year.................... 3,021 (686) (1,999)
------- ------- --------
Total shareholders' equity and common
shares outstanding...................... $39,919 $40,242 $ 22,610 5,024,270 4,957,548 5,039,481
======= ======= ======== ========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-14
<PAGE> 172

STANDARD MANAGEMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 4,767 $ 1,313 $ (3,436)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Amortization of deferred policy acquisition costs......... 1,221 1,142 262
Policy acquisition costs deferred......................... (6,169) (1,863) (5,462)
Class action litigation and settlement liability.......... -- (655) 3,655
Deferred federal income taxes............................. 158 353 (80)
Depreciation and amortization............................. 544 78 513
Future policy benefits and reinsurance recoverable........ 4,143 6,533 2,490
Policy claims and other policyholders' benefits and
funds................................................... 642 (260) (33)
Net realized investment gains............................. (1,302) (688) (558)
Accrued investment income................................. (770) 347 (1,226)
Extraordinary gain on early redemption of redeemable
preferred stock......................................... (502) -- --
Other..................................................... (1,006) 31 1,097
--------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES...... 1,726 6,331 (2,778)
FINANCING ACTIVITIES
Issuance of Common Stock, net............................... -- 6 3,347
Borrowings, net of debt issuance costs of $208 in 1996 and
$81 and 1995.............................................. 16,792 2,923 --
Repayments on long-term debt and capital lease obligation... (491) (353) --
Short-term borrowings, net.................................. -- (550) 550
Premiums received on interest-sensitive annuities and other
financial products credited to policyholder account
balances, net of premiums ceded........................... 42,347 17,524 53,490
Return of policyholder account balances on
interest-sensitive annuities and other financial products,
net of premiums ceded..................................... (17,356) (17,852) (10,922)
Redemption of redeemable preferred stock.................... (949) -- --
Repurchase of Common Stock warrants......................... (600) -- --
Proceeds from common and treasury stock sales............... 100 -- --
Purchase of Common Stock for treasury....................... (2,126) (400) (1,353)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 37,717 1,298 45,112
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
Purchases................................................. (249,638) (183,183) (307,358)
Sales..................................................... 194,244 191,477 253,773
Maturities................................................ 10,254 7,812 3,768
Purchase of Shelby Life Insurance Company, less cash
acquired of $32........................................... (14,618) -- --
Dividends paid by Shelby Life Insurance Company to former
parent.................................................... (3,000) -- --
Purchase of Dixie National Life Insurance Company, less cash
acquired of $4,626........................................ -- (3,393) --
Purchase of Standard Management International, less cash
acquired of $314.......................................... -- -- (67)
Short-term investments, net................................. 11,890 (21,662) 2,104
Other investments, net...................................... (551) 4,082 763
Proceeds from sale of property and equipment under capital
lease..................................................... -- 1,396 --
Proceeds from sale of First International Life Insurance
Company, less cash transferred to seller of $265.......... 11,327 -- --
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES................. (40,092) (3,471) (47,017)
--------- --------- ---------
Net increase (decrease) in cash............................. (649) 4,158 (4,683)
Cash at beginning of year................................... 5,762 1,604 6,287
--------- --------- ---------
CASH AT END OF YEAR......................................... $ 5,113 $ 5,762 $ 1,604
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-15
<PAGE> 173

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Standard Management Corporation ("SMC") is an international insurance
holding company, which directly and through its subsidiaries acquires and
manages in force life insurance and annuity business and distributes life
insurance and annuity products issued by its subsidiaries and a select group of
unaffiliated insurers.

SMC's active subsidiaries at December 31, 1996 include: (i) Standard Life
Insurance Company of Indiana ("Standard Life") and its subsidiary, Dixie
National Life Insurance Company ("Dixie National Life"), (ii) Standard
Management International S.A. ("Standard Management International") and its
subsidiaries, Premier Life (Luxembourg) S.A. ("Premier Life (Luxembourg)") and
Premier Life (Bermuda) Ltd. ("Premier Life (Bermuda)"), and (iii) Standard
Marketing Corporation ("Standard Marketing").

Basis of Presentation

The accompanying consolidated financial statements of SMC and its
subsidiaries (the "Company") have been prepared in conformity with generally
accepted accounting principles ("GAAP") and include the accounts of SMC and its
majority-owned subsidiaries since acquisition or organization. Subsidiaries that
are not majority-owned are reported on the equity method. All significant
intercompany balances and transactions have been eliminated.

The fiscal year end for Standard Management International is September 30.
To facilitate reporting on the consolidated level, the fiscal year end for
Standard Management International was not changed and the consolidated balance
sheets and statements of operations for Standard Management International at
September 30, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, are included in the Company's consolidated balance sheets at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996.

Use of Estimates

The nature of the Company's insurance businesses requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known, which
could impact the amounts reported and disclosed herein.

Investments

The Company classifies its fixed maturity and equity securities as
available-for-sale and, accordingly such securities are carried at fair value.
Fixed maturity securities include bonds and redeemable preferred stocks. Changes
in fair values of securities available for sale, after adjustment for deferred
policy acquisition costs, present value of future profits and deferred income
taxes, are reported as unrealized gains or losses directly in shareholders'
equity and, accordingly, have no effect on net income. The deferred policy
acquisition costs and present value of future profits adjustments to the
unrealized gains or losses represent valuation adjustments or reinstatements of
these assets that would have been required as a charge or credit to operations
had such unrealized amounts been realized.

F-16
<PAGE> 174

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of fixed maturity securities is adjusted for amortization of
premiums and discounts. The amortization is provided on a constant effective
yield method over the life of the securities and is included in net investment
income.

Mortgage-backed and other collateralized securities, classified as fixed
maturity securities in the balance sheet, are comprised principally of
obligations backed by an agency of the United States government (although
generally not by the full faith and credit of the United States government). The
Company has reduced the risk normally associated with these investments by
primarily investing in highly rated securities and in those that provide more
predictable prepayment patterns. The income from these securities is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the income recognized is adjusted
currently to match that which would have been recorded had the effective yield
been applied since the acquisition of the security. This adjustment is included
in net investment income.

Mortgage loans on real estate and policy loans are carried at unpaid
principal balances and are generally collateralized. Real estate investments,
which the Company has the intent to hold for the production of income, are
carried at cost, less accumulated depreciation. Short-term investments are
carried at amortized cost.

Net Realized Investment Gains or Losses

Net realized investment gains and losses are calculated using the specific
identification method and included in the consolidated statements of operations.
If the values of investments decline below their amortized cost and this decline
is considered to be other than temporary, the amortized cost of these
investments is reduced to net realizable value and the reduction is recorded as
a realized loss.

Future Policy Benefits

Liabilities for future policy benefits for deferred annuities and universal
life policies are equal to full account value that accrues to the policyholder
(cumulative premiums less certain charges, plus interest credited with rates
ranging from 4.5% to 9% in 1996 and 4% to 9.75% in 1995). The average credited
rate for deferred annuities and universal life policies is 5.35% at December 31,
1996. Liabilities for future policy benefits for immediate annuities are based
on the 1983 Basic Annuity Mortality Table with interest rates ranging from 6.5%
to 7.5%. Group annuities in payout status are recorded at discounted future cash
flows with interest rates ranging from 5.5% to 6.15% in 1996 and 5.5% to 6.5% in
1995.

Future policy benefits for traditional life insurance contracts are
computed using the net level premium method on the basis of assumed investment
yields, mortality and withdrawals which were appropriate at the time the
policies were issued. Assumed investment yields are based on interest rates
ranging from 6.5% to 7.5%. Mortality is based upon various actuarial tables,
principally the 1965-1970 Select and Ultimate Table. Withdrawals are based upon
Company experience and range from 5% to 20% per year.

Recognition of Insurance Policy Revenue and Related Benefits and Expenses

Revenue for interest-sensitive annuity contracts consists of policy charges
for surrenders and investment income earned. Premiums received for these annuity
contracts are reflected as premium deposits and are not recorded as revenues.
Expenses related to these annuities include interest credited to policyholder
account balances. Revenue for universal life insurance policies consists of
policy charges for the cost of insurance, policy administration charges,
surrender charges and investment income earned during the period. Expenses
related to universal life policies include interest credited to policyholder
account balances and death benefits incurred during the period in excess of
policyholder account balances.

F-17
<PAGE> 175

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Traditional life insurance and immediate annuity premiums are recognized as
premium revenue when due over the premium paying period of the policies.
Benefits are charged to expense in the period when claims are incurred and are
associated with related premiums through changes in reserves for future policy
benefits which results in the recognition of profit over the premium paying
period of the policies.

Reinsurance

Premiums, annuity policy charges, benefits and claims, interest credited
and amortization expense are reported net of reinsurance ceded. Reinsurance
premiums, annuity policy charges, benefits and claims, interest credited and
amortization expense are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts.

Assets Held in Separate Accounts/Liabilities Related to Separate Accounts

Separate account assets and liabilities are maintained primarily for
universal-life contracts written by Standard Management International of which
the majority represent unit-linked business where benefits on surrender and
maturity are not guaranteed; also there are investment contracts under which
fixed benefits are paid to the policyholder and the terms of which are such that
there is little or no mortality risk. Separate account assets and liabilities
also generally represent funds maintained in accounts to meet specific
investment objectives of policyholders who bear the investment risk. Investment
income and investment gains and losses accrue directly to such policyholders.
The assets of each account are segregated and are not subject to claims that
arise out of any other business of the Company. Deposits, net investment income
and realized gains and losses on separate accounts assets are not reflected in
the consolidated statements of operations. Management fees received by Standard
Management International for administrative and policyholder maintenance
services performed for these separate accounts are included in management fees
and similar income from separate accounts in the consolidated statements of
operations.

Foreign Currency Translation

The Company's foreign subsidiaries' balance sheets and statements of
operations are translated at the year end exchange rates and average exchange
rates for the year, respectively. The resulting unrealized gain or loss
adjustment from the translation to U.S. dollars is recorded in the foreign
currency translation adjustment as a separate component of shareholders' equity.
Other translation adjustments for foreign exchange gains or losses have been
reflected in the consolidated statements of operations. Foreign exchange gains
or losses relating to policyholders' funds in separate accounts are allocated to
the relevant separate account.

Income Taxes

Deferred 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
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period in which the change is
enacted.

Standard Life and Dixie National Life file separate federal income tax
returns and are taxed as separate life insurance companies. SMC, Standard
Marketing and other U.S. non-insurance subsidiaries are taxed as regular
corporations and file a consolidated return. SMC and its U.S. non-insurance
subsidiaries were able to consolidate with Standard Life for income tax purposes
beginning in 1996, but do not currently plan to do so.

F-18
<PAGE> 176

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Standard Management International is incorporated as a holding company in
the Grand Duchy of Luxembourg and, accordingly, is not currently subject to
taxation on income or capital gains. Standard Management International is
subject to an annual capital tax which is calculated on the nominal value of the
statutory shareholder's equity at an annual rate of .20%. Premier Life
(Luxembourg) is a normal commercial taxable company and is subject to income tax
at regular corporate rates (statutory corporate rate of 39.39%), and annual
capital taxes amounting to approximately 1% of its net equity. Premier Life
(Bermuda) is exempt from taxation on income until March 2016 pursuant to a
decree from the Minister of Finance in Bermuda. To the extent that such income
is taxable under U.S. law, such income will be included in SMC's consolidated
return.

Present Value of Future Profits

Present value of future profits is recorded in connection with acquisitions
of insurance companies or a block of policies. The initial value is based on the
actuarially determined present value of the projected future gross profits from
the in-force business acquired. In selecting the interest rate to calculate the
discounted present value of the projected future gross profits, the Company uses
the risk rate of return believed to best reflect the characteristics of the
purchased policies, taking into account the relative risks of such policies, the
cost of funds to acquire the business and other factors. The value of insurance
in force purchased is amortized on a constant yield basis over the estimated
life of the insurance in force at the date of acquisition in proportion to the
emergence of profits over a period of approximately 20 years. For acquisitions
the Company made on or before November 19, 1992, the Company amortizes the asset
with interest at the same discount rate used to determine the present value of
future profits at date of purchase. For acquisitions after November 19, 1992,
including the acquisitions of Dixie National Life and Shelby Life, the Company
amortizes the asset using the interest rate credited to the underlying policies.

Deferred Policy Acquisition Costs

Costs relating to the acquisition of universal life insurance,
interest-sensitive annuities, and traditional life insurance (primarily
commissions and certain costs of marketing, policy issuance and underwriting)
which vary with and are directly related to the production of new business are
deferred and included in the deferred policy acquisition cost asset to the
extent that such costs are recoverable from future related policy revenues. For
interest-sensitive annuities and other financial products, deferred policy
acquisition costs, with interest, are amortized over the lives of the policies
and products in a constant relationship to the present value of estimated future
gross profits, discounted using the interest rate credited to the policy.
Traditional life insurance deferred policy acquisition costs are being amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves.

The Company periodically reviews the carrying value of the deferred policy
acquisition costs. For interest-sensitive annuities and other financial
products, the Company considers estimated future gross profits in determining
whether the carrying value is appropriate; for other insurance products, the
Company considers estimated future premiums. In all cases, the Company considers
expected mortality, interest earned and crediting rates, persistency and
expenses. Amortization is adjusted retrospectively for interest-sensitive
annuities and other financial products when estimates of future gross profits to
be realized are revised.

Excess of Acquisition Cost Over Net Assets Acquired

The excess of the cost to acquire purchased companies over the fair value
of net assets acquired is being amortized on a straight-line basis over periods
that generally correspond with the benefits expected to be derived from the
acquisitions, usually 20 to 40 years. The Company continually monitors the value
of excess of

F-19
<PAGE> 177

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acquisition cost over net assets acquired ("goodwill") based on estimates of
future earnings. If it determines that goodwill has been impaired, the carrying
value is reduced with a corresponding charge to expense.

Excess of Net Assets Acquired Over Acquisition Cost

The excess of the net assets acquired over the cost to acquire purchased
companies ("negative goodwill"), after reducing the basis in property and
equipment and other noncurrent assets to zero, is being amortized into earnings
on a straight-line basis over a five year period.

Stock Options

The Company recognizes compensation expense for its stock option plan using
the intrinsic value method of accounting. Under the terms of the intrinsic value
method, compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date, or other measurement date, over the amount an
employee must pay to acquire the stock. Under the Company's stock option plans,
no expense is recognized since the exercise price equals or exceeds the market
price at the measurement date.

Earnings Per Share

Earnings per share is computed by dividing earnings available to common
shareholders by the weighted average number of common and common equivalent
shares outstanding for the applicable period. The weighted average number of
common equivalent shares outstanding is determined by calculating the number of
shares issuable on exercise of common stock options and warrants, reduced by the
number of shares assumed to have been repurchased (at the average market price
per share of Common Stock) with the proceeds from their exercise; these shares
are then added to the number of average common shares outstanding during the
period.

Reclassifications

Certain amounts in the 1995 and 1994 consolidated financial statements and
notes have been reclassified to conform with the 1996 presentation. These
reclassifications had no effect on previously reported shareholders' equity or
net income during the periods involved.

2. CHANGES IN ACCOUNTING PRINCIPLES

In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." The Company
adopted the provisions of SFAS No. 115 as of January 1, 1994. Under SFAS No.
115, securities are classified as available for sale, held-to-maturity, or
trading. The Company recognizes that there may be circumstances where it may be
appropriate to sell a security prior to maturity in response to unforeseen
changes in circumstances. The Company classified all of its fixed maturity
portfolio as of January 1, 1994 as available for sale. Securities classified as
available for sale are carried at fair value and unrealized gains and losses on
such securities are reported as a separate component of shareholders' equity.

With the adoption of SFAS No. 115, the January 1, 1994 balance of
shareholders' equity was increased by $1,131 (net of deferred taxes of $583 that
would have been recorded if such securities had been sold at their fair value on
January 1, 1994) to reflect the net unrealized gains on securities classified as
available for sale that were previously carried at lower of amortized cost or
market.

F-20
<PAGE> 178

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSALS

On November 8, 1996, Standard Life acquired through merger Shelby Life
Insurance Company ("Shelby Life") from Delta Life and Annuity Corporation
("DLAC"), a life insurance company located in Memphis, Tennessee (the "Shelby
Merger"). The purchase price was approximately $14,650, including $13,000 in
cash, 250,000 shares of restricted Common Stock (valued at $1,250) and
acquisition costs of $400 associated with the purchase of Shelby Life. Financing
for the Shelby Merger was provided by senior debt of $10,000 and $4,000 in
subordinated convertible debt.

The acquisition of Shelby Life was accounted for using the purchase method
of accounting and the consolidated financial statements will include the results
of Shelby Life from November 1, 1996, the effective date of acquisition. Under
purchase accounting, Standard Life allocated the total purchase price of Shelby
Life to the assets and liabilities acquired, based on a preliminary
determination of their fair values and recorded the excess of acquisition cost
over net assets acquired as goodwill. Standard Life recorded goodwill of $9
which will be amortized on a straight-line basis over 20 years. Standard Life
may adjust this allocation when a final determination of such values is made.

On October 2, 1995, Standard Life completed its acquisition of 99.3% of
Dixie National Life from Dixie National Corporation ("DNC"), a life insurance
holding company located in Jackson, Mississippi. Dixie National Life markets a
variety of life insurance products throughout the Mid-South offering primarily
"burial expense" policies. The purchase price was $8,019, including costs
associated with acquiring Dixie National Life of $684, the forgiveness of a
$3,689 DNC note payable to Standard Life and a $1,720 repayment of a DNC note
payable. The remaining purchase price of $1,926 was paid in cash from internally
generated funds.

The acquisition was accounted for using the purchase method of accounting
and the consolidated financial statements include the results of Dixie National
Life from the date of acquisition. Under purchase accounting, Standard Life
allocated the total purchase price of Dixie National Life to the assets and
liabilities acquired, based on a determination of their fair values. Standard
Life recorded goodwill of $1,589 which will be amortized on a straight-line
basis over 40 years.

F-21
<PAGE> 179

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSALS (CONTINUED)
The following schedule summarizes the assets acquired and the liabilities
assumed with the Shelby Life and Dixie National Life acquisitions described
above:

<TABLE>
<CAPTION>
DIXIE
SHELBY NATIONAL
LIFE LIFE
------ --------
<S> <C> <C>
Assets acquired:
Fixed maturity securities............................... $ 93,376 $17,804
Policy loans............................................ 2,430 3,042
Guaranteed government student loans..................... -- 5,158
Short term investments.................................. 4,725 567
Cash.................................................... 32 4,626
Present value of future profits......................... 9,372 7,901
Other assets............................................ 2,880 1,599
-------- -------
Total assets acquired..................................... 112,815 40,697
Liabilities assumed:
Policy reserves......................................... 91,221 30,981
Policy claims and policyholder funds.................... 1,101 2,030
Deferred federal income taxes........................... 1,750 450
Other liabilities....................................... 1,102 761
Dividends payable to DLAC............................... 3,000 --
Minority interest....................................... -- 45
-------- -------
Total liabilities assumed................................. 98,174 34,267
-------- -------
Net assets acquired....................................... 14,641 6,430
Excess of acquisition cost over net assets acquired....... 9 1,589
-------- -------
Total purchase price...................................... $ 14,650 $ 8,019
======== =======
</TABLE>

The following are supplemental unaudited pro forma consolidated results of
operations of the Company as if the acquisitions for Shelby Life and Dixie
National Life had occurred at the beginning of the period presented at the same
purchase price, based on estimates and assumptions considered appropriate.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Revenues................................................... $49,344 $45,097
Income (loss) before extraordinary gain.................... 4,695 (90)
Net income (loss).......................................... 5,197 (61)
Income (loss) per common share and common equivalent share
before extraordinary gain................................ .85 (.01)
Net income (loss) per common share......................... $ .94 $ (.01)
</TABLE>

The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable and do not reflect any benefit from savings
which might be achieved from combined operations. The unaudited pro forma
results do not necessarily represent results which would have occurred if the
acquisitions had taken place on the basis assumed above, nor are they indicative
of the results of future combined operations.

On March 18, 1996, Standard Life completed the sale of a duplicate charter
associated with First International Life Insurance Company ("First
International") to The Guardian Insurance and Annuity

F-22
<PAGE> 180

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSALS (CONTINUED)
Company, Inc. ("GIAC"), a subsidiary of The Guardian Group, New York, NY.
Standard Life received proceeds of approximately $10,393, including $1,500 for
the charter and licenses associated with First International. Standard Life
realized a net pretax gain of $1,042 and a tax benefit of $1,420 on this sale,
or $2,462 ($.47 per share). In addition, First International, Standard Life and
GIAC have entered into a series of reinsurance and other agreements that include
provisions for Standard Life to administer First International policies in force
at the date of sale, and for Standard Life to continue to receive the profit
stream from the majority of First International's in force business at the date
of sale (See Note 10).

SMC decided in February 1996 to terminate the reinsurance agreement between
Standard Reinsurance of North America Ltd. ("Standard Reinsurance") and
Salamandra Joint-Stock Insurance Company in Ukraine ("Salamandra"), and to not
renew the Barbados license of Standard Reinsurance. This resulted in the
termination of Standard Reinsurance operations and the write-off of SMC's
investment in Standard Reinsurance and certain intangible assets of Standard
Reinsurance amounting to $156 ($.03 per share).

4. INVESTMENTS

The amortized cost, gross unrealized gain (loss) and estimated fair value
of securities available for sale are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities available for sale:
Fixed maturity securities:
United States Treasury securities and
obligations of United States government
agencies..................................... $ 20,753 $ 51 $ 420 $ 20,384
Obligations of states and political
subdivisions................................. 3,588 106 -- 3,694
Foreign government securities.................. 10,042 51 166 9,927
Utilities...................................... 31,000 295 675 30,620
Corporate bonds................................ 210,977 3,086 3,539 210,524
Mortgaged-backed securities.................... 72,264 247 919 71,592
Redeemable preferred stock..................... 527 42 -- 569
-------- ------ ------ --------
Total fixed maturity securities........... 349,151 3,878 5,719 347,310
Equity securities................................. 58 4 -- 62
-------- ------ ------ --------
Total securities available for sale............ $349,209 $3,882 $5,719 $347,372
======== ====== ====== ========
</TABLE>

F-23
<PAGE> 181

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities available for sale:
Fixed maturity securities:
United States Treasury securities and
obligations of United States government
agencies..................................... $ 19,331 $ 452 $ 19 $ 19,764
Obligations of states and political
subdivisions................................. 60 -- -- 60
Foreign government securities.................. 5,056 118 3 5,171
Utilities...................................... 23,916 462 186 24,192
Corporate bonds................................ 132,119 7,281 1,657 137,743
Mortgaged-backed securities.................... 45,161 417 416 45,162
-------- ------ ------ --------
Total fixed maturity securities........... 225,643 8,730 2,281 232,092
Equity securities................................. 52 -- -- 52
-------- ------ ------ --------
Total securities available for sale............ $225,695 $8,730 $2,281 $232,144
======== ====== ====== ========
</TABLE>

The estimated fair values for fixed maturity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent pricing
services, or by discounting expected future cash flows using a current market
rate applicable to the coupon rate, credit, and maturity of the investments.

The change in net unrealized gains (losses) of securities available for
sale before effects of deferred acquisition costs, present value of future
profits and deferred federal income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities......................... $(8,290) $27,142 $(22,407)
Equity securities................................. 4 --..... --
------- ------- --------
$(8,286) $27,142 $(22,407)
======= ======= ========
</TABLE>

The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1996 by contractual maturity are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties and
because most mortgage-backed securities provide for periodic payments throughout
their lives.

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
Due in one year or less.................................. $ 7,418 $ 7,435
Due after one year through five years.................... 24,818 24,970
Due after five years through ten years................... 123,503 123,075
Due after ten years...................................... 120,621 119,669
-------- --------
Subtotal............................................ 276,360 275,149
Redeemable preferred stock............................... 527 569
Mortgage-backed securities............................... 72,264 71,592
-------- --------
Total fixed maturity securities..................... $349,151 $347,310
======== ========
</TABLE>

F-24
<PAGE> 182

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS (CONTINUED)
The Company maintains a highly-diversified investment portfolio with
limited concentration of financial instruments in any given region, industry or
economic characteristic. Investments in any entity in excess of 10% of
shareholders' equity at December 31, 1996, other than asset-backed securities
and investments issued or guaranteed by the U.S. government or a U.S. government
agency, all of which were classified as fixed maturity securities available for
sale and are investment-grade securities, were as follows:

<TABLE>
<CAPTION>
AMORTIZED FAIR
INVESTMENT COST VALUE
---------- --------- -----
<S> <C> <C>
Republic of Indonesia....................................... $5,676 $5,566
AMERCO...................................................... 5,080 5,161
Eastern Energy Limited...................................... 4,974 4,932
Delta Airlines.............................................. 4,590 4,767
Torchmark Corporation....................................... 4,362 4,259
</TABLE>

Net investment income was attributable to the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities.......................... $19,865 $17,457 $15,350
Mortgage loans on real estate...................... 309 152 121
Policy loans....................................... 447 305 331
Real estate........................................ 65 120 290
Short-term investments and other................... 602 990 801
------- ------- -------
Gross investment income....................... 21,288 19,024 16,893
Investment expenses................................ 417 507 836
------- ------- -------
Net investment income......................... $20,871 $18,517 $16,057
======= ======= =======
</TABLE>

The Company had no investments in fixed maturity securities available for
sale, mortgage loans or real estate that were non-income producing for the year
ended December 31, 1996.

Net realized investment gains arose from the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Fixed maturity securities available for sale:
Gross realized gains................................ $2,012 $2,115 $1,933
Gross realized losses............................... 911 1,662 1,240
------ ------ ------
Net.............................................. 1,101 453 693
Real estate........................................... -- 124 (504)
Other................................................. 201 111 204
Change in allowance for losses........................ -- -- 165
------ ------ ------
Net realized investment gains.................... $1,302 $ 688 $ 558
====== ====== ======
</TABLE>

Life insurance companies are required to maintain certain amounts of assets
with state or other regulatory authorities. At December 31, 1996 fixed maturity
securities carried at $15,326 and short-term investments carried at $691 were
held on deposit by various state regulatory authorities in compliance with
statutory regulations. Additionally, fixed maturity securities carried at $2,539
and short-term investments carried at $5,211 of Standard Management
International were held by a custodian bank approved by the Luxembourg
regulatory authorities to comply with local insurance laws.

F-25
<PAGE> 183

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS

The activity related to the deferred policy acquisition costs of business
produced is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year....................... $10,054 $12,206 $ 6,513
Deferrals during the year........................ 6,169 1,863 5,462
Amortization during the year..................... (1,221) (1,142) (262)
Adjustment relating to net unrealized (gain) loss
on fixed maturity securities available for
sale.......................................... 3,076 (2,873) 493
------- ------- -------
Balance at end of year............................. $18,078 $10,054 $12,206
======= ======= =======
</TABLE>

The activity related to the present value of future profits of the business
acquired for the Company is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year....................... $15,246 $ 8,299 $ 9,144
Additions during the year from acquisitions...... 10,348 7,901 --
Deletions during the year from disposal of
subsidiaries.................................. (733) -- --
Interest accreted on unamortized balance......... 2,563 1,566 1,461
Amortization during the year..................... (3,812) (2,346) (2,306)
Adjustments relating to net unrealized (gain)
loss on fixed maturities available for sale... 194 (174) --
------- ------- -------
Balance at end of year............................. $23,806 $15,246 $ 8,299
======= ======= =======
</TABLE>

The percentages of future expected net amortization of the beginning
balance of the present value of future profits before the effect of net
unrealized gains and losses, based on the present value of future profits at
December 31, 1996 and current assumptions as to future events on all policies in
force, will be between 6% and 8% in each of the years 1997 through 2001.

The discount rate used to calculate the present value of future profits
reflected in the Company's consolidated balance sheet at December 31, 1996,
ranged from 7.5% to 18%. The Company used a 15% discount rate to calculate the
present value of future profits on the Shelby Life and Dixie National Life
acquisitions.

6. NOTES PAYABLE

F-26
<PAGE> 184

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. NOTES PAYABLE (CONTINUED)
borrowings under the Amended Credit Agreement is determined, at the option of
SMC, to be: (i) a fluctuating rate of interest to the corporate base rate
announced by the bank from time to time plus 1% per annum, or (ii) a rate at
LIBOR plus 3.25%. Annual principal repayments of $2,667 begin in November 1998
and conclude in November 2003. Indebtedness incurred under the Amended Credit
Agreement is subject to certain restrictions and covenants including, among
other things, certain minimum financial ratios, minimum consolidated equity
requirements for SMC, positive net income, minimum statutory surplus
requirements for the Company's insurance subsidiaries and certain limitations on
acquisitions, additional indebtedness, investments, mergers, consolidations and
sales of assets. At December 31, 1996, SMC had borrowed $16,000 under this
Amended Credit Agreement at a weighted average interest rate of 8.849%.

In connection with the acquisition of Shelby Life, SMC borrowed $4,000 from
an insurance company pursuant to a subordinated convertible debt agreement which
is due in December 2003 and requires interest payments in cash at 12% per annum,
or, if SMC chooses, in non-cash additional subordinated convertible debt notes
at 14% per annum until December 31, 2000. The subordinated convertible notes are
convertible into Common Stock at the rate of $6.00 per share through November
1997, and $5.75 per share thereafter. SMC may prepay the subordinated
convertible debt with not less than thirty days notice at any time. The
subordinated convertible debt agreement contains terms and financial covenants
substantially similar to those in the Amended Credit Agreement.

Standard Management International has an unused line of credit of $1,583
which was renewed in February 1997. There were no borrowings in connection with
this line of credit in 1996.

Interest expense during 1996, 1995 and 1994 was $773, $116 and $47,
respectively. Cash paid for interest was $356, $100 and $105 in 1996, 1995 and
1994, respectively.

7. INCOME TAXES

The components of the federal income tax expense (credit), applicable to
earnings before extraordinary gains, was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax provision (benefit).................... $(888) $(110) $ 2
Deferred tax provision (benefit)................... 158 353 (80)
----- ----- ----
$(730) $ 243 $(78)
===== ===== ====
</TABLE>

F-27
<PAGE> 185

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
The effective tax rate on pre-tax income before extraordinary gain is lower
than the statutory corporate federal income tax rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate.................. 34% 34% 34%
======= ===== =======
Federal income tax expense (credit) at statutory
rates............................................ $ 1,202 $ 529 $(1,195)
Amortization of excess of acquisition cost over net
assets acquired.................................. 41 37 33
Small insurance company deduction.................. -- (128) (290)
Non recognition of losses in SMC consolidated
return and in foreign subsidiaries............... 543 372 290
Class action litigation and settlement costs....... -- (107) 1,366
Amortization of excess of net assets acquired over
acquisition cost................................. (472) (472) (361)
Tax benefit from disposal of subsidiary............ (1,420) -- --
Release of reserve for tax adjustments............. (325) -- --
Other items, net................................... (299) 12 79
------- ----- -------
Federal income tax expense (credit).............. $ (730) $ 243 $ (78)
======= ===== =======
Effective tax rate............................... (21)% 16% 2%
======= ===== =======
</TABLE>

The Company recovered $130, $280 and $684 in federal income taxes in 1996,
1995 and 1994, respectively and paid federal income taxes of $900 in 1996.

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. Significant temporary
differences included in the Company's deferred tax assets (liabilities) are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Unrealized loss on securities available for sale........ $ 355 $ --
Future policy benefits.................................. 8,267 6,902
Capital and net operating loss carryforwards............ 7,719 7,230
Other-net............................................... 1,385 864
------- -------
Gross deferred tax assets............................ 17,726 14,996
Valuation allowance for deferred tax assets............. (8,750) (8,680)
------- -------
Deferred income tax assets, net of valuation
allowance.......................................... 8,976 6,316
Deferred income tax liabilities:
Unrealized gain on securities available for sale........ -- (1,961)
Present value of future profits......................... (8,093) (5,184)
Deferred policy acquisition costs....................... (4,089) (1,754)
------- -------
Total deferred income tax liabilities................ (12,182) (8,899)
------- -------
Net deferred income tax assets (liabilities)............ $(3,206) $(2,583)
======= =======
</TABLE>

The Company is required to establish a "valuation allowance" for any
portion of its deferred tax assets which are unlikely to be realized. The
valuation allowance for deferred tax assets includes $2,308 at

F-28
<PAGE> 186

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
December 31, 1996 with respect to corporate income tax loss carryforwards of
Standard Management International which, if recognized in the future, will
result in an addition to negative goodwill and be amortized into income over its
remaining life. The valuation allowance for deferred tax assets includes $2,745
at December 31, 1996 with respect to deferred tax assets at the date of
acquisition and net tax operating loss carryforwards of Dixie National Life and
Shelby Life which, if recognized in the future, will result in a reduction in
goodwill and be amortized into income over its remaining life by reducing
goodwill amortization expense.

As of December 31, 1996, SMC and its noninsurance subsidiaries had
consolidated net operating loss carryforwards of approximately $8,600 for tax
return purposes which expire from 2005 through 2011. At December 31, 1996,
Standard Life had tax return net operating loss carryforwards of approximately
$1,400 which expire in 2004 and 2005. As a result of changes in ownership of SMC
and Standard Life, use of the loss carryforwards of Standard Life are subject to
annual limitations. The maximum tax return operating loss carryforwards
available for use by Standard Life in any one year are approximately $300. At
December 31, 1996, Dixie National Life had tax return net operating loss
carryforwards of approximately $5,800 which expire in 2010 and 2011. These
carryforwards will only be available to reduce the respective taxable income of
SMC, Standard Life and Dixie National Life. At December 31, 1996, Premier Life
(Luxembourg) had accumulated corporate income tax loss carryforwards of
approximately $5,900, all of which may be carried forward indefinitely.

The Internal Revenue Service has completed its examination of the Company
for years through 1993 in 1996. All adjustments to taxable income determined by
completed examinations, which were not material, have reduced the net operating
loss carryforwards. Upon completion of the examination, a tax reserve for
adjustments of $325 was released and recorded in income in 1996.

8. SHAREHOLDERS' EQUITY

Redeemable Preferred Stock

Shareholders have authorized 1,000,000 shares of Preferred Stock. Other
terms, including preferences, voting and conversion rights, may be established
by the Board of Directors. In connection with the class action lawsuit
settlement in March 1995, 300,000 of these shares designated as Class S
Preferred Stock, $10.00 per share par value, were issued February 8, 1996. The
Class S Preferred Stock is redeemable in February 2003, has an 11% annual
cumulative dividend payable in February 2003, and is convertible into SMC Common
Stock at $7.62 per share until February 1998 and $10.00 per share thereafter,
subject to adjustment under a formula intended to protect against dilution.

SMC may voluntarily redeem the Class S Preferred Stock prior to February
2003 at par value plus accumulated and unpaid dividends. In February 1996, SMC
instituted a program to repurchase from time to time up to 300,000 shares of its
Class S Preferred Stock in the open market or privately negotiated transactions.
As of December 31, 1996, SMC had repurchased and retired 140,111 shares of its
Class S Preferred Stock for $949, primarily paid through additional borrowings
under the Amended Credit Agreement. This repurchase resulted in an extraordinary
gain on early redemption of redeemable preferred stock of $502 for the year
ended December 31, 1996.

Common Stock

SMC declared a 5% stock dividend on shares of its Common Stock for
shareholders of record on May 17, 1996 which was distributed on June 21, 1996.
All applicable number of shares and per share amounts included in the
accompanying consolidated financial statements and notes have been retroactively
adjusted to reflect this stock dividend for all periods presented.

F-29
<PAGE> 187

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. SHAREHOLDERS' EQUITY (CONTINUED)
The Company commenced an offshore offering of newly issued Common Stock
exclusively to foreign investors in December 1993. During December 1993 and
January 1994 the Company sold 1,666,667 shares of common stock at an average
offering price of $5.87 per share. Certain costs amounting to $852 and related
to the offering, including legal and underwriting fees, have been charged to
common stock and deducted from the proceeds of the offering. The Company
received total consideration of $9,783 from the offering, of which 637,167
shares with net proceeds of $3,347 were received during January 1994. A portion
of the proceeds was used to complete the acquisition of Standard Management
International, with the additional proceeds used to infuse capital into Standard
Life and provide working capital to SMC.

The Company has a stock repurchase program and repurchases its Common Stock
from time to time for the purpose of enhancing shareholder value. The Company
repurchased 431,026, 83,600 and 316,425, shares of Common Stock for $2,126, $400
and $1,354 in 1996, 1995 and 1994, respectively. At December 31, 1996, the
Company is authorized to purchase an additional 771,771 shares under this
program. The Company implemented a policy to issue shares for the exercise of
stock options from treasury stock. The Company reissued 1,224 shares at a cost
of $6 in 1996 under this program.

The following table represents the Company's warrants outstanding to
purchase Common Stock as of December 31, 1996:

<TABLE>
<CAPTION>
ISSUE DATE EXPIRATION DATE EXERCISE PRICE WARRANTS OUTSTANDING
---------- --------------- -------------- --------------------
<S> <C> <C> <C>
June 1989..................................... December 1999 $3.5216 236,858
July 1992..................................... June 1998 3.5296 175,800
January 1994.................................. January 1998 7.8571 42,000
September 1995................................ September 1998 5.2381 4,200
November 1995................................. November 2002 4.5238 31,500
July 1996..................................... July 2003 4.375 30,000
August 1996................................... August 1998 4.3125 100,000
September 1996................................ September 1998 5.00 25,000
September 1996................................ September 1999 5.50 17,000
-------
662,358
=======
</TABLE>

Unrealized Gain (Loss) on Securities

The components of the balance sheet caption "Unrealized gain (loss) on
securities available for sale" in shareholders' equity are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Fair value of securities available for sale.............. $347,372 $232,144
Amortized cost of securities available for sale.......... 349,209 225,695
-------- --------
Gross unrealized gain (loss) on securities available
for sale.......................................... (1,837) 6,449
Adjustments for:
Deferred policy acquisition costs...................... 696 (2,380)
Present value of future profits........................ 20 (174)
Deferred federal income tax recoverable (liability).... 375 (1,311)
Minority interest...................................... -- (2)
-------- --------
Net unrealized gain (loss) on securities available
for sale.......................................... $ (746) $ 2,582
======== ========
</TABLE>

F-30
<PAGE> 188

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTION PLAN

SMC has a Non-qualified Stock Option Plan (the "Plan") under which
1,500,000 shares of Common Stock are reserved for grants of stock options to
employees and directors. The purchase price per share specified in any Plan
option must be at least equal to the fair market value of common stock at the
grant date. Options generally become exercisable over a three-year period and
have a term of 10 years. The Plan is administered by the Board of Directors and
officers of SMC. The terms of the options, including the number of shares and
the exercise price, are subject to the sole discretion of the Board of
Directors.

Statement of Financial Accounting Standard No. 123 entitled "Accounting for
Stock-Based Compensation" ("SFAS 123") issued in October 1995, was adopted by
the Company as of December 31, 1996. The provisions of SFAS 123 allow companies
to either expense the estimated fair value of stock options or to continue their
current practice but 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 for its
Plan using the intrinsic value based method of accounting and to provide the
required pro forma information for stock options granted after December 31,
1994.

Had compensation cost for the Plan been determined based on the fair value
at the grant date for awards in 1995 and 1996 consistent with the provisions of
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
<S> <C> <C>
Net income -- as reported................................... $4,767 $1,313
Net income -- pro forma..................................... 3,847 685
Earnings per share -- as reported........................... .93 .25
Earnings per share -- pro forma............................. $ .73 $ .13
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: expected volatility
of .3882% and .4980%; risk-free interest rate of 6.62% and 5.88%; and expected
lives of 7 years.

Information regarding the Plan for 1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- --------------- ---------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE SHARES SHARES
------ --------- ------ ------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year............................... 1,164,720 $6.464 520,294 523,194
Exercised............................ (1,224) $3.571 (1,667) --
Granted.............................. 769,122 $6.140 655,008 2,600
Expired or forfeited................. (486,449) $7.564 (8,915) (5,500)
--------------- ------ --------------- ---------------
Options outstanding, end of year..... 1,446,169 $5.984 1,164,720 520,294
=============== =============== ===============
Option price range at end of year.... $3.571 - $9.405 $3.571 - $9.405 $4.286 - $9.405
Option price range for exercised
shares............................. $ 3.571 $ 3.571 --
Options available for grant at end of
year............................... 50,939 333,613 979,706
=============== =============== ===============
Weighted-average fair value of
options granted during the year.... $ 3.623 $ 2.906
=============== ===============
</TABLE>

F-31
<PAGE> 189

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTION PLAN (CONTINUED)
Shares under options that were exercisable at year-end are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994
------------ ---- ---- ----
<S> <C> <C> <C>
Options exercisable......................................... 1,097,028 762,374 363,179
</TABLE>

Information with respect to stock options outstanding at December 31, 1996 is as
follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------- ----------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES DEC. 31, 1996 LIFE (YEARS) PRICE DEC. 31, 1996 PRICE
-------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$3 - $5............... 337,224 8 Years $4.25 145,775 $4.20
$5 - $7............... 517,975 8 Years $5.27 360,283 $5.29
$7 - $9............... 571,282 9 Years $7.38 571,282 $7.38
$9 - $11.............. 19,688 6 Years $9.41 19,688 $9.41
--------- ---------
1,446,169 1,097,028
========= =========
</TABLE>

Effective May 1, 1996, the Board of Directors cancelled 480,480 options
that had previously been granted to certain executive officers with exercise
prices ranging from $8.00 to $13.00 per share (representing the market price of
the Common Stock on the date such options were initially granted), and granted
an identical number of new options with identical terms and vesting periods (the
"Replacement Options") to these persons with an exercise price of $7.60, the
book value per share of Common Stock on September 30, 1995. On May 1, 1996, the
last reported sale price per share of the Common Stock was $4.375. The per share
exercise price relating to each Replacement Option was reduced to $7.238 in
connection with the 5% stock dividend effected on June 21, 1996 for holders of
record of Common Stock on May 17, 1996.

10. REINSURANCE

The Company's insurance subsidiaries have entered into reinsurance
agreements with non-affiliated companies to limit the net loss arising from
large risks, maintain their exposure to loss within capital resources, provide
additional capacity for future growth, and effect sharing arrangements. The
maximum amount of life insurance retained on any one life ranges from $30 to
$150. Amounts of standard risk in excess of that limit are reinsured.

Reinsurance premiums ceded to other insurers were $2,152, $4,312 and $5,534
in 1996, 1995 and 1994, respectively. Reinsurance ceded has reduced benefits and
claims incurred by $6,201, $1,369 and $4,664 in 1996, 1995 and 1994,
respectively. A contingent liability exists to the extent any of the reinsuring
companies are unable to meet their obligations under reinsurance agreements. To
minimize its exposure to significant losses from reinsurance insolvencies, the
Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers. The Company believes
the assuming companies are able to honor all contractual commitments under the
reinsurance agreements, based on its periodic reviews of these companies.

The Company's largest annuity reinsurer at December 31, 1996 represented
$26,138, or 38% of total reinsurance recoverable, $8,907 of premium deposits
ceded in 1996 and is rated "A" (Excellent) by A.M. Best. From January 1, 1995 to
August 31, 1995, approximately 70% of Standard Life's annuity business pursuant
to the terms of the agreement produced after December 31, 1994 was ceded.
Standard Life decreased the quota-share portion of business ceded pursuant to
this agreement to 50% at September 1, 1995,

F-32
<PAGE> 190

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. REINSURANCE (CONTINUED)
and further reduced it to 25% effective April 1, 1996. This agreement limits
dividends and other transfers by Standard Life to SMC or affiliated companies in
certain circumstances.

All the inforce business of First International effective January 1, 1996
was ceded to GIAC through a coinsurance indemnity reinsurance agreement. Under
the terms of the agreement, approximately $18,841 of First International's
reserves and the related assets were ceded to GIAC as of January 1, 1996. The
inforce business related to this automatic coinsurance indemnity reinsurance
agreement is comprised of the following two blocks; ("Block I") - ordinary life
policies (issued in New York and New Jersey), universal life, immediate and
deferred annuities (issued in New York, New Jersey and Vermont), supplemental
contracts and group waivers, and ("Block II") - ordinary life policies (not
issued in New York and New Jersey) issued prior to 1989, and term life policies
(issued in New York, New Jersey and Vermont) issued after 1988.

Effective at January 1, 1996, GIAC entered into a modified coinsurance
indemnity reinsurance agreement with Standard Life with respect to Blocks I and
II. Under the terms of the agreement, approximately $18,841 of Standard Life's
reserves were assumed from GIAC as of January 1, 1996. Standard Life incurs
experience rating refunds to GIAC on Block I. There is no experience rating
refund on Block II.

Standard Life received an administration fee of $316 for the year ended
December 31, 1996 from First International for the administration of the Block I
and Block II policies that were in force at the time of the sale of First
International.

In June 1988, Standard Life ceded a block of business to National Mutual
Life Insurance Company ("National Mutual"). Effective May 31, 1996, Standard
Life terminated by recapture the reinsurance agreement with National Mutual. As
a result of this recapture, Standard Life received assets of $4,826 and
liabilities of $4,826, primarily ordinary life policies. In connection with this
transaction, Standard Life agreed to pay National Mutual a recapture fee of
$1,200 and Standard Life collected administration fees of $375 related to
services provided in prior years that had not been recorded previously due to
uncertainty as to collection. The net proceeds of $825 were recorded as the
present value of the future profits on this block of business, which is being
amortized in proportion to the emergence of profits over 20 years (see Note 20).
The premium income, and corresponding increase in reserves, of $4,234 recorded
in connection with the recapture will not recur in the future.

11. RELATED PARTY TRANSACTIONS

The Company paid legal fees of $23 and $114 in 1995 and 1994, respectively,
to a law firm of which a partner is a director and officer of SMC. This director
and officer resigned from the law firm effective January 1, 1996. In April 1994,
the Company made a loan to this director and officer in the amount of $70, due
May 1, 1995, at an annual interest rate of 7%. This loan was renewed in May 1995
and was due in two installments of $40 on May 1, 1996 and $30 on August 1, 1997.
This loan was collateralized by 10,000 shares of Common Stock owned by the
director and officer. The outstanding principal balance at December 31, 1995 was
$70. This note was repaid in 1996, with SMC becoming a guarantor supporting a
$70 loan to this director

F-33
<PAGE> 191

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. RELATED PARTY TRANSACTIONS (CONTINUED)
and officer on June 25, 1996. The guaranty will be effective until the earlier
of repayment of the loan or June 25, 1999.

A director and officer of SMC was the sole owner of an independent
insurance marketing organization. On April 1, 1994, the assets of this marketing
organization were sold to Standard Marketing for $174 payable on an installment
basis over a four year period. The outstanding principal balance due on this
installment note was $60 and $104 on December 31, 1996 and 1995, respectively.
Until the consummation of this transaction, this marketing organization was a
master general agent for Standard Marketing and received commissions from
Standard Life for sales made on its behalf. These commissions, which amounted to
approximately $128 in 1994, were paid at rates comparable to commissions
received by non-affiliated master general agents. As a result of the purchase of
the marketing organization assets, Standard Marketing receives those commissions
previously received by the marketing organization.

In December 1994, SMC consolidated two loans to an officer and director of
SMC, in the amount of $325 with an annual interest rate of 6.5%, repayable at $2
per month (principal and interest) with a final payment due on December 31,
1996. This loan was refinanced December 29, 1995, and again at December 31,
1996, at an annual interest rate of 5%, payable at $1 per month, with additional
annual payments ranging from $50 to $84 through December 31, 2001. The
outstanding principal balance was $338 and $333 at December 31, 1996 and 1995,
respectively.

A director of SMC received $197 in fees for services rendered in connection
with the offshore offering of common stock in December 1993 and January 1994.

In December 1993, the Company entered into a consulting agreement with a
director. The consulting agreement was effective December 1, 1993 and expired on
November 30, 1996. Under the terms of the agreement the Company agreed to pay
the director $30, $35 and $40 during the first, second and third year of the
agreement, respectively. In July 1994, SMC made two loans to this director of
SMC in the amounts of $100 and $80. Both notes were at an annual interest rate
of prime plus 1%, require quarterly principal repayments and were due in 1996.
The outstanding principal balances on these notes were $127 at December 31,
1995. Both notes were repaid in 1996.

SMC entered into a covenant not to compete agreement with a former officer
and director in February 1997, effective July 1, 1996, the date his employment
agreement terminated. In accordance with the covenant not to compete agreement,
the officer and director received a lump sum payment of $150 in February 1997,
and will receive $125 in each of July 1997 and 1998, and $100 in July 1999.

12. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company rents office and storage space under noncancellable operating
leases. The Company incurred rent expense for operating leases of $1,037, $1,092
and $916 in 1996, 1995 and 1994, respectively. Pursuant to the terms of a lease
agreement effective June 1, 1991, Standard Life has agreed to lease office space
for a ten year period. After the initial ten year lease period, Standard Life
may continue to lease the premises on a month to month basis at a rental of 125%
of the prevailing market rate for the leased premises in effect at that time.

In April 1995, SMC sold its equipment and leased it back under a capital
lease. SMC has the option to renew or purchase the equipment at the end of the
lease term in April 1998. The cost and accumulated depreciation of the equipment
was $1,396 and $814, respectively at December 31, 1996.

F-34
<PAGE> 192

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future required minimum rental payments, by year and in the aggregate,
under noncancellable capital leases and operating leases as of December 31,
1996, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $539 $ 958
1998........................................................ 144 717
1999........................................................ -- 558
2000........................................................ -- 558
2001........................................................ -- 232
Thereafter.................................................. -- --
---- ------
Total minimum lease payments................................ 683 $3,023
======
Less amounts representing interest.......................... 46
----
Present value of net minimum lease payments under capital
lease..................................................... $637
====
</TABLE>

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 of control of the Company. The commitment under
these agreements is approximately three times their current annual salaries.
Additionally, following termination from the Company following a change in
control, each executive is 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 1,081,080
shares at December 31, 1996.

In the first quarter of 1997, the chief financial officer gave notice that
he will be terminating his employment at the Company. The Company is currently
discussing benefits that may or may not be due to the officer. The amount of
such benefits can not be determined at this time.

13. EMPLOYEE BENEFIT PLAN

The Company has an employee savings plan, available to substantially all
salaried employees, containing a matched savings provision that permits both
pretax and after-tax employee contributions pursuant to Section 401(k) of the
Internal Revenue Code. Participants can contribute from 1% to 15% of their
annual compensation and receive a matching employer contribution not to exceed
4% of their annual compensation. The matching contribution is at the discretion
of the Company pursuant to the savings plan contract. The contributions may be
invested in several investment funds including Common Stock. The Company's total
expense for the plan was $104, $43 and $38 in 1996, 1995 and 1994, respectively.

14. LITIGATION

SMC and certain of its officers, directors and underwriters were named as
defendants in a class action lawsuit originally filed in March 1993 related to
allegations surrounding SMC's initial public offering ("IPO") of 2.3 million
shares of Common Stock in February 1993.

On November 9, 1994, SMC signed a Stipulation of Settlement in the class
action suit. The settlement was approved by the United States District Court on
March 2, 1995 after notice and hearing. On April 28, 1995, SMC signed a
Settlement Agreement with the 22 persons who previously excluded themselves from
the

F-35
<PAGE> 193

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. LITIGATION (CONTINUED)
class of plaintiffs in the November 9, 1994 settlement. The settlement was
approved by the United States District Court on April 28, 1995.

Although SMC firmly believes the lawsuit was without merit, management
decided it was in the best interest of shareholders and policyholders to settle
the suit, thereby decreasing legal costs and enhancing the Company's ability to
make acquisitions and obtain related financing. SMC charged the estimated future
costs of the settlement of $3,700 to earnings in 1994. The $3,700 charge
includes $3,000 of Class S Preferred Stock (see Note 8), $263 in cash which was
distributed to the class participants, and $437 of estimated future legal and
other costs to settle the lawsuit and register the Class S Preferred Stock. The
$263 cash settlement was part of a $650 cash settlement fund, the remainder of
which was paid by the underwriters of the IPO. When aggregated with the class
action lawsuit litigation costs already incurred prior to the settlement, the
total class action lawsuit litigation and settlement costs were $4,018 ($.73 per
share) for 1994.

With the signing of the Settlement Agreement with the 22 persons who
previously excluded themselves from the class and a reevaluation of the
estimated future legal and other costs to settle the lawsuit, SMC recorded a
reduction in the estimated future costs to settle the lawsuit and list the Class
S Preferred Stock of $314 in 1995. The Class S Preferred Stock was issued on
February 8, 1996.

In addition, 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 the Company. The outcomes of these
legal proceedings are not expected to have a material adverse effect on the
consolidated financial position, liquidity, or future results of operations of
the Company based on the Company's current understanding of the relevant facts
and law.

15. STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES

The Company's domestic insurance subsidiaries maintain their records in
conformity with statutory accounting practices prescribed or permitted by state
insurance regulatory authorities. Statutory accounting practices differ in
certain respects from GAAP. In consolidation, adjustments have been made to
conform the Company's domestic subsidiaries' accounts with GAAP.

The Company's U.S. life insurance subsidiaries had consolidated statutory
capital and surplus of $22,970 and $12,877 at December 31, 1996 and 1995,
respectively, after appropriate eliminations of intercompany accounts among such
subsidiaries. Consolidated net income (loss) of the Company's life insurance
subsidiaries on a statutory basis, after appropriate eliminations of
intercompany accounts among such subsidiaries, was $3,291, $(1,339) and $68 for
the years ended December 31, 1996, 1995 and 1994, respectively. Minimum capital
and surplus required by the Indiana Insurance Code as of December 31, 1996 was
$450 on a statutory basis.

"Prescribed" statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations, and general administrative rules. "Permitted"
statutory accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, may differ from
company to company within a state, and may change in the future. The NAIC
currently is in the process of codifying statutory accounting practices, the
result of which is expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that project, which is expected to
be completed in 1998, will likely change, to some extent, prescribed statutory
accounting practices, and may result in changes to the accounting practices that
insurance enterprises use to prepare their statutory financial statements.

Policy reserves for Dixie National Life's fixed premium universal life
policies were calculated according to the Commissioners' Reserve Valuation
Method ("CRVM") for traditional whole life policies. This differs

F-36
<PAGE> 194

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES (CONTINUED)
from prescribed statutory accounting practices. Effective October 2, 1995, Dixie
National Life received permission from the Mississippi Insurance Department to
strengthen the reserves for these policies by using the CRVM methodology as
modified by the Universal Life Model Regulation. This reserve strengthening will
be recorded quarterly through September 30, 1998. This permitted accounting
practice increased statutory surplus as of December 31, 1996 by $1,053.

From the funds borrowed by SMC pursuant to the Amended Credit Agreement and
the subordinated convertible debt agreement, $13,000 was loaned to Standard Life
pursuant to an Unsecured Surplus Debenture Agreement ("Surplus Debenture") which
requires Standard Life to make quarterly interest payments to SMC at a variable
corporate base rate plus 2% per annum, and annual principal payments of $1,000
per year beginning in 2007 and concluding in 2019. As required by state
regulatory authorities, the balance of the surplus debenture at December 31,
1996 of $13,000 is classified as a part of capital and surplus of Standard Life.
The interest and principal payments are subject to quarterly approval by the
Indiana Department of Insurance, depending upon satisfaction of certain
financial tests relating to levels of Standard Life's capital and surplus and
general approval of the Commissioner of the Indiana Department of Insurance.

SMC's ability to pay operating expenses and meet debt service obligations
is partially dependent upon the amount of dividends received from Standard Life.
Standard Life's ability to pay cash dividends to SMC is, in turn, restricted by
law or subject to approval by the insurance regulatory authorities of Indiana.
Dividends are permitted based on, among other things, the level of preceding
year statutory surplus and net income. In 1994 and 1995, Standard Life paid no
dividends to SMC. In 1996, Standard Life paid a dividend of $1,000 to SMC.
During 1997, Standard Life can pay dividends of $2,297 without regulatory
approval; Standard Life must notify the Indiana regulatory authorities of the
intent to pay dividends at least thirty days prior to payment.

State insurance regulatory authorities impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of risk-based capital ("RBC") specify
various weighting factors that are applied to financial balances or various
levels of activity based on the perceived degree of investment and insurance
risks. Regulatory compliance is determined by a ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by the NAIC. Enterprises below specific
trigger points or ratios are classified within certain levels, each of which
requires specified corrective action. Each of the Company's insurance
subsidiaries has a Ratio that is at least 400% of the minimum RBC requirements;
accordingly, the subsidiaries meet the RBC requirements.

The statutory capital and surplus for Premier Life (Luxembourg) was $8,243
and $6,857 at fiscal years ended 1996 and 1995, respectively, and minimum
capital and surplus under local insurance regulations was $3,295 and $2,736 at
fiscal years ended 1996 and 1995, respectively. The statutory capital and
surplus for Premier Life (Bermuda) was $1,307 and $1,245 at fiscal years ended
1996 and 1995, respectively, and minimum capital and surplus under local
insurance regulations was $250 at fiscal years ended 1996 and 1995. Standard
Management International dividends are limited to its accumulated earnings
without regulatory approval. Standard Management International and Premier Life
(Luxembourg) were not permitted to pay dividends under Luxembourg law in 1996
and 1995 due to accumulated losses.

16. OPERATIONS BY GEOGRAPHIC AREA

The Company operates exclusively in one business segment -- the sale and
administration of life insurance business (principally annuities and other
financial products).

F-37
<PAGE> 195

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. OPERATIONS BY GEOGRAPHIC AREA (CONTINUED)
The revenues, pre-tax income and assets by geographic area for 1994 through
1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States................................. $36,524 $26,851 $22,514
Europe........................................ 3,783 3,379 3,911
Caribbean..................................... -- 8 93
------- ------- -------
Total.................................... $40,307 $30,238 $26,518
======= ======= =======
Income (loss) before federal income taxes,
extraordinary gain on early redemption of
redeemable preferred stock and preferred stock
dividends: YEAR ENDED DECEMBER 31,
-------------------------------
United States................................. $ 2,313 $ 1,224 $(4,710)
Europe........................................ 1,243 411 1,259
Caribbean..................................... (21) (79) (63)
------- ------- -------
Total.................................... $ 3,535 $ 1,556 $(3,514)
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Assets:
United States................................. $486,576 $343,040 $264,906
Europe........................................ 141,837 136,318 108,237
Caribbean..................................... -- 240 381
-------- -------- --------
Total.................................... $628,413 $479,598 $373,524
======== ======== ========
</TABLE>

The states in the U.S. with the largest share of U.S. premiums collected in
1996 were Indiana (18%), Ohio (16%), Florida (14%), California (11%) and
Michigan (6%). No other state accounted for more than 4% of total collected
premiums.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following discussion outlines the methods and assumptions used by the
Company in estimating its fair value disclosures for its financial instrument
assets and liabilities as of December 31, 1996 and 1995. Because fair values for
all balance sheet items are not required to be disclosed pursuant to SFAS No.
107, "Disclosures about Fair Values of Financial Instruments", the aggregate
fair value amounts presented herein do not necessarily represent the underlying
value of the Company; likewise, care should be exercised in deriving conclusions
about the Company's business or financial condition based on the fair value
information presented herein.

Fixed maturity securities: Fair values for fixed maturity securities are
based on quoted market prices from broker-dealers, where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services, or, in the case of private
placements, are estimated by discounting the expected future cash flows using
current market rates applicable to the coupon rate, credit, and maturity of the
investments.

Equity securities: The fair values for equity securities are based on the
quoted market prices.

Mortgage loans and policy loans: The estimated fair values for mortgage
loans and policy loans are estimated using discounted cash flow analyses and
interest rates currently being offered for similar loans to borrowers with
similar credit ratings.

F-38
<PAGE> 196

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Assets and liabilities held in separate accounts: Fair values for the
assets held in separate accounts are determined from broker-dealer market
makers, or valuations supplied by internationally recognized statistical rating
organizations. The separate account liability represents the Company's
obligations to policyholders and approximates fair value.

Insurance liabilities for investment contracts: Fair values for the
Company's liabilities under investment-type insurance contracts are estimated
using discounted cash flow calculations, based on interest rates currently being
offered for similar contracts with maturities consistent with those remaining
contracts being valued. The estimated fair value of the liabilities for
investment contracts was approximately equal to its carrying value at December
31, 1996 and 1995, as credited rates on the vast majority of account balances
approximate current rates paid on similar investments and because these rates
are generally not guaranteed beyond one year.

Insurance liabilities for non-investment contracts: Fair value disclosures
for the Company's reserves for insurance contracts other than investment-type
contracts are not required and have not been determined by the Company. However,
the Company closely monitors the level of its insurance liabilities and the fair
value of reserves under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk.

Notes payable: The Company believes the fair value of its variable rate
long-term debt was equal to its carrying value at December 31, 1996 and 1995.
The Company negotiated the terms of its Amended Credit Agreement with its
lenders in November 1996. Those negotiations were based on the financial
condition of the Company and market conditions at that time. The financial
condition of the Company has not changed significantly since the negotiations
and although market conditions have changed, the Company pays a variable rate of
interest on the debt which reflects the changed market conditions.

The carrying amount for all other financial instruments approximates their
fair values.

The fair value of the Company's financial instruments is shown below using
a summarized version of the Company's assets and liabilities at December 31,
1996 and 1995. Refer to Note 4 for additional information relating to the fair
value for investments.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
----- -------- ----- --------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available for sale:
Fixed maturity securities.................... $347,310 $347,310 $232,092 $232,092
Equity securities............................ 62 62 52 52
Mortgage loans on real estate.................. 3,041 3,035 2,990 2,963
Policy loans................................... 7,767 9,903 6,674 8,509
Other invested assets.......................... 888 865 1,401 1,367
Short-term investments......................... 8,417 8,417 35,058 35,058
Assets held in separate accounts............... 128,546 128,546 122,705 122,705
Liabilities:
Insurance liabilities for investment
contracts.................................... 333,633 333,633 212,500 212,500
Class action litigation and settlement
liability.................................... -- -- 3,000 3,000
Capital lease obligation....................... 637 637 1,084 1,084
Notes payable.................................. 20,060 20,060 3,107 3,107
Liabilities related to separate accounts....... 128,546 128,546 122,705 122,705
</TABLE>

F-39
<PAGE> 197

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. PENDING ACQUISITION

SMC has entered into an Agreement and Plan of Merger dated as of December
19, 1996, as amended, with Savers Life Insurance Company ("Savers Life"). Savers
Life offers retirement products, major medical insurance and Medicare supplement
insurance through 5,000 independent brokers, primarily in North Carolina, South
Carolina and Virginia. SMC will pay approximately $14,200 plus acquisition costs
for the approximately $80,000 asset company, with shareholders of Savers Life
initially receiving $8.00 for each share of Savers Life Common Stock, consisting
of Common Stock and an election of up to $1.50 per share in cash. The proposed
acquisition is subject to normal closing conditions including SMC and Savers
Life shareholder approval and approval by applicable regulatory authorities. The
acquisition is expected to close during 1997.

19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Earnings per common and common equivalent share for each quarter are
computed independently of earnings 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 during the year, the sum
of the quarterly earnings per share may not equal the earnings per share for the
year. All applicable per share amounts have been retroactively adjusted to
reflect the 5% stock dividend.

<TABLE>
<CAPTION>
1996 QUARTERS
--------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenues............................................ $8,856 $12,665 $7,969 $10,817
====== ======= ====== =======
Components of net income:
Operating income (loss)................................. $ 214 $ (187) $ 342 $ 804
Net realized investment gains........................... 145 125 129 387
Gain on disposal of subsidiaries........................ 2,306 -- -- --
Extraordinary gain on early redemption of redeemable
preferred stock...................................... 101 166 233 2
------ ------- ------ -------
Net income.............................................. $2,766 $ 104 $ 704 $ 1,193
====== ======= ====== =======
Net income per common and common equivalent share......... $ .48 $ .02 $ .14 $ .24
====== ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
1995 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenues.............................................. $7,379 $6,910 $7,104 $8,846
====== ====== ====== ======
Components of net income:
Operating income (loss)................................... $ 250 $ (279) $ 323 $ 167
Net realized investment gains............................. 36 213 122 167
Class action litigation and settlement credit............. -- 314 -- --
------ ------ ------ ------
Net income................................................ $ 286 $ 248 $ 445 $ 334
====== ====== ====== ======
Net income per common and common equivalent share........... $ .05 $ .05 $ .08 $ .06
====== ====== ====== ======
</TABLE>

Reporting the results of insurance operations on a quarterly basis requires
the use of numerous estimates throughout the year, primarily in the computation
of reserves and the effective rate for federal income taxes. It is the Company's
practice to review estimates at the end of each quarter and, if necessary, make
appropriate adjustments, with the effect of such adjustments being reported in
current operations. Only at year-end is the Company able to assess the accuracy
of its previous quarterly estimates. The Company's fourth quarter results
include the effect of the difference between previous estimates and actual
year-end results. Therefore, the results of an interim period may not be
indicative of the results of the entire year.

F-40
<PAGE> 198

STANDARD MANAGEMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. RESTATEMENT

The Company has restated the previously issued 1996 consolidated financial
statements for recognition of administration fee income. As discussed in Note 10
to the consolidated financial statements, the Company recorded the collection of
administration fees of $375 from National Mutual as a reduction to present value
of future profits. Previously the administration fees were recorded as revenues.
The following summarizes the net effect of the restatement:

<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Income before federal income taxes, extraordinary gain on
early redemption of redeemable preferred stock and
preferred stock dividends................................. $ 3,910 $ 3,535
Net income.................................................. 5,014 4,767
Net income per share........................................ .98 .93
Present value of future profits............................. 24,181 23,806
Retained earnings........................................... 3,268 3,021
</TABLE>

F-41
<PAGE> 199

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STANDARD MANAGEMENT CORPORATION
(PARENT COMPANY)

CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments:
Investment in subsidiaries................................ $46,422 $44,452
Surplus debenture due from Standard Life.................. 13,000 --
Equity securities available for sale, at fair value
(amortized cost: $8)................................... 12 --
Real estate, at cost less accumulated depreciation of $23
in 1996 and $15 in 1995................................ 139 147
Investment in joint venture............................... 320 --
Notes receivable from officers and directors.............. 338 534
Short-term investments, at cost, which approximates fair
value.................................................. 124 714
------- -------
60,355 45,847
Cash........................................................ 900 254
Property and equipment, less accumulated depreciation of
$989 in 1996 and $399 in 1995............................. 1,087 1,431
Note receivable from affiliate.............................. 2,858 2,858
Amounts receivable from subsidiaries........................ 638 505
Other assets................................................ 829 484
------- -------
Total assets......................................... $66,667 $51,379
======= =======
LIABILITIES, REDEEMABLE SECURITIES
AND SHAREHOLDERS' EQUITY
Liabilities:
Obligations under capital lease............................. 637 1,084
Class action litigation and settlement liability............ -- 3,000
Notes payable............................................... 20,000 3,000
Note payable to affiliate................................... 2,858 2,858
Amounts due to subsidiaries................................. 473 677
Other liabilities........................................... 1,023 518
------- -------
Total liabilities.................................... 24,991 11,137
Class S Cumulative Convertible Redeemable Preferred Stock,
par value $10 per share:
Authorized 300,000 shares; issued and outstanding 159,889
shares................................................. 1,757 --
Shareholders' Equity:
Preferred Stock, no par value:
Authorized 700,000 shares; none issued and outstanding.... -- --
Common Stock, no par value:
Authorized 20,000,000 shares
Issued 5,752,499 shares in 1996 and 5,459,573 in 1995..... 40,481 39,808
Treasury stock, at cost, 728,229 shares in 1996 and 502,025
shares in 1995 (deduction)................................ (3,528) (2,621)
Unrealized gain (loss) on securities available for sale of
subsidiaries.............................................. (746) 2,582
Foreign currency translation adjustment of subsidiaries..... 691 1,159
Retained earnings (deficit)................................. 3,021 (686)
------- -------
Total shareholders' equity........................... 39,919 40,242
------- -------
Total liabilities, redeemable securities and
shareholders' equity................................ $66,667 $51,379
======= =======
</TABLE>

See accompanying notes to condensed financial statements.

F-42
<PAGE> 200

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STANDARD MANAGEMENT CORPORATION
(PARENT COMPANY)

CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income..................................... $ 32 $ 112 $ 130
Interest income from subsidiaries......................... 357 172 90
Net realized investment gains (losses).................... -- 23 (276)
Loss on disposal of subsidiary............................ (156) -- --
Other income.............................................. 135 28 --
Rental income from subsidiaries........................... 853 715 525
Management fees from subsidiaries......................... 1,905 1,930 1,630
------- ------ -------
Total revenues......................................... 3,126 2,980 2,099
Expenses:
Other operating expenses.................................. 3,470 2,793 2,772
Interest expense and financing costs...................... 799 110 38
Interest expense on note payable to affiliate............. 161 172 90
Class action litigation and settlement costs (credit)..... -- (314) 4,018
------- ------ -------
Total expenses......................................... 4,430 2,761 6,918
------- ------ -------
Income (loss) before federal income taxes, equity in
earnings of consolidated subsidiaries, extraordinary gain
on early redemption of redeemable preferred stock and
preferred stock dividends................................. (1,304) 219 (4,819)
Federal income tax expense (credit)......................... -- (57) (67)
------- ------ -------
Income (loss) before equity in earnings of consolidated
subsidiaries, extraordinary gain on early redemption of
redeemable preferred stock and preferred stock
dividends................................................. (1,304) 276 (4,752)
Equity in earnings of consolidated subsidiaries............. 5,569 1,037 1,316
------- ------ -------
Income (loss) before extraordinary gain on early redemption
of redeemable preferred stock and preferred stock
dividends................................................. 4,265 1,313 (3,436)
Extraordinary gain on early redemption of redeemable
preferred stock, net of $-- federal income tax............ 502 -- --
------- ------ -------
NET INCOME (LOSS)........................................... 4,767 1,313 (3,436)
Preferred stock dividends................................... 208 -- --
------- ------ -------
Earnings available to common shareholders................... $ 4,559 $1,313 $(3,436)
======= ====== =======
</TABLE>

See accompanying notes to condensed financial statements.

F-43
<PAGE> 201

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STANDARD MANAGEMENT CORPORATION
(PARENT COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 4,767 $ 1,313 $(3,436)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on early redemption of redeemable
preferred stock........................................ (502) -- --
Amortization of deferred debt issuance costs.............. 32 2 --
Class action litigation and settlement liability.......... -- (655) 3,655
Depreciation and amortization............................. 564 562 470
Equity in earnings of subsidiaries........................ (5,569) (1,037) (1,316)
Accrued interest payable.................................. 320 -- --
Other liabilities......................................... 192 480 495
Net realized investment gain (loss)....................... -- (23) 276
Dividend from Standard Life............................... 1,000 -- --
Other..................................................... 165 (250) 179
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 969 392 323
FINANCING ACTIVITIES
Issuance of Common Stock, net............................... -- 6 3,347
Borrowings, net of debt issuance costs of $208 in 1996 and
$81 in 1995............................................... 16,792 2,923 --
Repayments on long-term debt and capital lease obligation... (491) (312) --
Short-term borrowings, net.................................. -- (550) 550
Redemption of redeemable preferred stock.................... (949) -- --
Repurchase of stock warrants................................ (600) -- --
Proceeds from common and treasury stock sales............... 100 -- --
Purchase of Common Stock for treasury....................... (2,126) (822) (931)
-------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 12,726 1,245 2,966
INVESTING ACTIVITIES
Investments, net............................................ 197 653 (1,309)
Surplus debenture contributed to Standard Life.............. (13,000) -- --
Capital contribution to Standard Life....................... -- (3,000) (1,225)
Capital contribution to Standard Management International... -- (170) (90)
Capital contribution to Standard Advertising, Inc........... -- (173) --
Capital contribution to Standard Reinsurance................ -- (6) --
Purchase of Standard Management International............... -- -- (67)
Proceeds from sale of property and equipment under sales
leaseback................................................. -- 1,396 --
Purchase of property and equipment, net..................... (246) (475) (1,448)
-------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES.................. (13,049) (1,775) (4,139)
-------- ------- -------
Net increase (decrease) in cash............................. 646 (138) (850)
Cash at beginning of year................................... 254 392 1,242
-------- ------- -------
Cash at end of year......................................... $ 900 $ 254 $ 392
======== ======= =======
</TABLE>

See accompanying notes to condensed financial statements.

F-44
<PAGE> 202

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STANDARD MANAGEMENT CORPORATION
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1996

1. BASIS OF PRESENTATION

For purposes of these condensed financial statements Standard Management
Corporation ("SMC") carries its investments in subsidiaries at cost plus equity
in undistributed earnings of subsidiaries since date of acquisition. Net income
of its subsidiaries is included in income using the equity method. These
condensed financial statements should be read in conjunction with SMC's
consolidated financial statements included elsewhere in this document.

2. DIVIDENDS FROM SUBSIDIARIES

SMC received a cash dividend from subsidiaries of $1,000 in 1996. There
were no cash dividends paid to SMC from its subsidiaries in 1995 and 1994.

3. NOTES PAYABLE

SMC has outstanding borrowings at December 31, 1996 pursuant to an Amended
Revolving Line of Credit Agreement with a bank (the "Amended Credit Agreement")
that provides for it to borrow up to $16,000 in the form of a seven-year
reducing revolving loan arrangement. SMC has agreed to pay a non-use fee of .50%
per annum on the unused portion of the commitment. In connection with the
original and Amended Credit Agreement, SMC issued warrants to the bank to
purchase 60,000 shares of Common Stock. Borrowings under the Amended Credit
Agreement may be used for contributions to surplus of insurance subsidiaries,
acquisition financing, and repurchases of Class S Cumulative Convertible
Redeemable Preferred Stock ("Class S Preferred Stock") and Common Stock. The
debt is secured by a Pledge Agreement of all of the issued and outstanding
shares of common stock of Standard Life and Standard Marketing. Interest on the
borrowings under the Amended Credit Agreement is determined, at the option of
SMC, to be: (i) a fluctuating rate of interest to the corporate base rate
announced by the bank from time to time plus 1% per annum, or (ii) a rate at
LIBOR plus 3.25%. Annual principal repayments of $2,667 begin in November 1998
and conclude in November 2003. Indebtedness incurred under the Amended Credit
Agreement is subject to certain restrictions and covenants including, among
other things, certain minimum financial ratios, minimum consolidated equity
requirements for SMC, positive net income, minimum statutory surplus
requirements for the Company's insurance subsidiaries and certain limitations on
acquisitions, additional indebtedness, investments, mergers, consolidations and
sales of assets. At December 31, 1996, SMC had borrowed $16,000 under this
Amended Credit Agreement at a weighted average interest rate of 8.849%.

4. SURPLUS DEBENTURE

F-45
<PAGE> 203

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STANDARD MANAGEMENT CORPORATION
(PARENT COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. SURPLUS DEBENTURE (CONTINUED)
payments to SMC at a variable corporate base rate plus 2% per annum, and annual
principal payments of $1,000 per year beginning in 2007 and concluding in 2019.
As required by state regulatory authorities, the balance of the surplus
debenture at December 31, 1996 of $13,000 is classified as a part of capital and
surplus of Standard Life. The interest and principal payments are subject to
quarterly approval by the Indiana Department of Insurance, depending upon
satisfaction of certain financial tests relating to levels of Standard Life's
capital and surplus and general approval of the Commissioner of the Indiana
Department of Insurance.

5. REDEEMABLE PREFERRED STOCK

In connection with the class action lawsuit settlement in March 1995,
300,000 of these shares designated as Class S Preferred Stock, $10.00 per share
par value, were issued February 8, 1996. The Class S Preferred Stock is
redeemable in February 2003, has an 11% annual cumulative dividend payable in
February 2003, and is convertible into Common Stock at $7.62 per share until
February 1998 and $10.00 per share thereafter, subject to adjustment under a
formula intended to protect against dilution.

6. STOCK DIVIDEND

SMC declared a 5% stock dividend on shares of its common stock for
shareholders of record on May 17, 1996 which was distributed on June 21, 1996.
All applicable number of shares and per share amounts included in the
accompanying condensed financial statements and notes have been retroactively
adjusted to reflect this stock dividend for all periods presented.

F-46
<PAGE> 204

SCHEDULE IV -- REINSURANCE

STANDARD MANAGEMENT CORPORATION

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Life insurance in force............... $3,000,763 $1,633,340 $252 $1,367,675 .02%
========== ========== ==== ========== ===
Premiums
Life insurance and annuities........ $ 11,862 $ 2,152 $ -- $ 9,710
Accident and health insurance....... 21 -- -- 21
Supplementary contract and other
funds on deposit................. 737 -- -- 737
---------- ---------- ---- ----------
Total premiums................... $ 12,620 $ 2,152 $ -- $ 10,468
========== ========== ==== ==========
YEAR ENDED DECEMBER 31, 1995:
Life insurance in force............... $2,316,826 $1,490,812 $282 $ 826,296 .03%
========== ========== ==== ========== ===
Premiums
Life insurance and annuities........ $ 9,574 $ 4,312 $ -- $ 5,262
Accident and health insurance....... 22 -- -- 22
Supplementary contract and other
funds on deposit................. 220 -- -- 220
---------- ---------- ---- ----------
Total premiums................... $ 9,816 $ 4,312 $ -- $ 5,504
========== ========== ==== ==========
YEAR ENDED DECEMBER 31, 1994:
Life insurance in force............... $2,561,412 $1,774,308 $310 $ 787,414 .04%
========== ========== ==== ========== ===
Premiums
Life insurance and annuities........ $ 9,670 $ 5,534 $ -- $ 4,136
Accident and health insurance....... 27 -- -- 27
Supplementary contracts and other
funds on deposit................. 402 -- -- 402
---------- ---------- ---- ----------
Total premiums................... $ 10,099 $ 5,534 $ -- $ 4,565
========== ========== ==== ==========
</TABLE>

F-47
<PAGE> 205

SAVERS LIFE INSURANCE COMPANY

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS
Balance Sheets -- June 30, 1997 (Unaudited) and December 31,
1996 (Audited)............................................ F-49
Statements of Stockholders' Equity -- For the Six Months
Ended June 30, 1997 and 1996 (Unaudited).................. F-50
Statements of Income -- For the Six Months Ended June 30,
1997 and 1996 (Unaudited)................................. F-51
Statements of Cash Flows -- For the Six Months Ended June
30, 1997 and 1996 (Unaudited)............................. F-52
Notes to Financial Statements (Unaudited)................... F-53
AUDITED FINANCIAL STATEMENTS
Independent Auditor's Report................................ F-55
Balance Sheets.............................................. F-56
Statements of Stockholders' Equity.......................... F-57
Statements of Income........................................ F-58
Statements of Cash Flows.................................... F-59
Notes to Financial Statements............................... F-61
</TABLE>

F-48
<PAGE> 206

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Investments:
Certificates of deposit................................... $28,838 $30,495
Debt securities, held for investment, at amortized cost
(fair value $14,880 and $16,050)....................... 16,439 17,442
Debt securities, available for sale, at fair value
(amortized cost $8,826 and $7,992)..................... 8,450 7,585
Preferred stocks, market (Cost: $133; $133)............... 50 50
Common stocks, market (Cost: $2,444; $2,737).............. 3,433 3,241
Mortgage loans -- secured................................. 6,326 6,760
Real estate (less accumulated depreciation of $64 and
$52)................................................... 2,415 2,414
------- -------
Total investments...................................... 65,951 67,987
Cash and cash equivalents................................... 7,426 6,702
Accrued investment income................................... 760 721
Accounts receivable......................................... 69 55
Refundable income taxes..................................... 0 298
Deferred income taxes....................................... 1,550 1,088
Reinsurance receivables..................................... 218 296
Equipment, at cost, less accumulated depreciation of $408
and $407.................................................. 86 115
Deferred acquisition cost, net of amortization.............. 1,444 3,962
Other assets................................................ 24 5
------- -------
Total Assets........................................... $77,528 $81,229
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy Liabilities:
Future policy benefits -- annuities....................... $46,100 $47,342
Future policy benefits -- life............................ 3,056 3,267
Unearned premiums and health benefit reserves............. 3,999 3,808
Claim liability (Note 12)................................... 10,360 10,455
Accrued expenses............................................ 497 779
Current taxes payable....................................... 48 --
------- -------
Total Liabilities...................................... 64,060 65,651
------- -------
Stockholders' Equity:
Capital stock -- no par value -- stated value -- $1 per
share: 20,000,000 shares authorized; issued and
outstanding: 1,779,908 at June 30, 1997 and December
31, 1996............................................... 1,780 1,780
Additional paid-in capital................................ 1,823 1,823
Retained earnings:
Appropriated........................................... 1,510 1,365
Unappropriated......................................... 8,033 10,597
Net unrealized investment gains............................. 322 13
------- -------
Total Stockholders' Equity................................ 13,468 15,578
------- -------
Total Liabilities and Stockholders' Equity................ $77,528 $81,229
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-49
<PAGE> 207

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Common stock:
Balance, beginning and end of period...................... $ 1,780 $ 3,552
======= =======
Additional paid-in capital:
Balance, beginning and end of period...................... $ 1,823 $ 33
======= =======
Unrealized gain (loss) on securities:
Balance, beginning of period.............................. $ 13 $ 12
Change in unrealized gain (loss) on securities
available for sale.................................... 159 (505)
Change in unrealized gain (loss) on trading account and
equity securities..................................... 150 220
------- -------
Balance, end of period.................................... $ 322 $ (273)
------- -------
Retained earnings:
Balance, beginning of period.............................. $11,962 $13,653
Net income (loss)......................................... (2,419) (391)
------- -------
Balance, end of period.................................... $ 9,543 $13,262
------- -------
Total Stockholders' Equity.................................. $13,468 $16,574
------- -------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-50
<PAGE> 208

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF INCOME
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Premium considerations --
Life and health................................... $11,193 $12,197 $22,538 $24,508
Policy charges.................................... 86 80 147 145
Investment income, net of expenses: (1997 -- $115;
1996 -- $116)..................................... 1,157 1,151 2,269 2,308
Fees from Keyport and other income................... 409 358 704 535
Realized investment gains............................ 19 55 35 94
------- ------- ------- -------
12,864 13,841 25,693 27,590
------- ------- ------- -------
BENEFITS AND EXPENSES:
Increase (decrease) in future policy benefits -- life
and health........................................ 347 (377) 325 (657)
Annuity benefits..................................... 39 39 77 77
Claims expenses...................................... 9,460 10,920 18,611 19,769
Interest credited on interest-sensitive annuities and
universal life policies........................... 610 631 1,240 1,325
Commission expenses.................................. 1,811 2,083 3,758 4,285
General expenses..................................... 702 846 1,379 1,523
Insurance taxes, licenses and fees excluding income
taxes............................................. 352 364 691 713
Amortization of deferred acquisition costs........... 1,861 665 2,658 1,306
------- ------- ------- -------
15,182 15,171 28,739 28,341
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES...................... (2,318) (1,330) (3,046) (751)
------- ------- ------- -------
INCOME TAXES:
Current.............................................. (91) (190) 43 (48)
Deferred............................................. (396) (150) (670) (312)
------- ------- ------- -------
(487) (340) (627) (360)
------- ------- ------- -------
NET INCOME (LOSS)...................................... $(1,831) $ (990) $(2,419) $ (391)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE:
Net income (loss).................................... $(1.02) $(0.55) $(1.35) $(0.22)
======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-51
<PAGE> 209

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ (2,419) $ (391)
-------- --------
Adjustments to reconcile net income to net cash provided
by operations:
Amortization of deferred acquisition costs and
depreciation........................................... 2,692 1,345
Deferred income taxes................................... (670) (312)
Gain on sale of fixed assets............................ 4 0
Gain on sale of investments............................. (35) (94)
Accrual of bond discount/amortization of premium........ 109 127
(Increase) decrease in assets:............................
Accrued investment income............................... (39) (128)
Income tax receivables.................................. 298 (260)
Reinsurance receivables................................. 78 0
Deferred acquisition costs.............................. (140) (176)
Other assets............................................ (19) (21)
Accounts receivable..................................... (14) 106
Increase (decrease) in liabilities:
Policy liabilities...................................... (1,453) (952)
Unearned premiums and health benefit reserves........... 191 (205)
Claims liability........................................ (95) (1,353)
Accrued expenses........................................ (282) (244)
Current income tax...................................... 48 (177)
-------- --------
Total adjustments......................................... 673 (2,344)
-------- --------
Net cash provided (used) by operating activities...... (1,746) (2,735)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (5) (58)
Sale of fixed assets...................................... 5 1
Proceeds from sales of investments:
Fixed maturities available for sale and equity
securities............................................. 2,668 15,021
Fixed maturities held-to-maturity....................... 1,000 0
Purchase of investment securities:
Fixed maturities available for sale and equity
securities............................................. (3,292) (19,733)
Purchase of certificates of deposit....................... (19,221) (24,224)
Proceeds from matured certificates of deposit............. 20,878 18,492
Mortgage loans disbursed.................................. (3,854) (3,362)
Principal collected on mortgage loans..................... 4,288 3,966
Proceeds from sale of real estate......................... 434 0
Real estate purchased..................................... (432) 0
-------- --------
Net cash provided (used) by investing activities...... 2,469 (9,897)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 723 (12,632)
Cash and cash equivalents at beginning of period............ 6,702 15,005
-------- --------
Cash and cash equivalents at end of period.................. $ 7,425 $ 2,373
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest................................................ $ 0 $ 2
-------- --------
Income taxes............................................ $ 25 $ 389
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-52
<PAGE> 210

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
The results of operations for the interim periods shown in this report are not
necessarily indicative of the results that may be expected for the fiscal year.
This is particularly true in the life insurance industry, where mortality and
morbidity results in interim periods can vary substantially from such results
over a longer period. In the opinion of management, the information contained
herein reflects all adjustments necessary to make the results of operations for
the interim periods a fair statement of such operations. All such adjustments
are of a normal recurring nature.

For the six months ended June 30, 1997 and June 30, 1996, net income per
common and common equivalent share is based on the weighted average number of
shares outstanding of 1,790,379 and 1,792,683, respectively, which include
dilutive stock options outstanding during each period. Primary and fully diluted
earnings per share are essentially the same.

The preparation of financial statements, in conformity with GAAP, requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from reported results using those estimates.

NOTE 2 -- NET UNREALIZED GAINS AND LOSSES ON SECURITIES

The changes during the six months ended June 30, 1997 in amounts affecting
net unrealized gains and losses included in the separate component of
stockholders' equity were as follows:

<TABLE>
<CAPTION>
NET UNREALIZED GAINS
(LOSSES)
------------------------
DEBT EQUITY TOTAL
---- ------ -----
<S> <C> <C> <C>
Net unrealized gains (losses) as of January 1, 1997......... $(408) $421 $ 13
Increase (decrease) in stated amount of securities.......... 31 486 517
----- ---- ----
Subtotal.................................................... (377) 907 530
Increase (decrease) in deferred income taxes................ (128) 336 208
----- ---- ----
Net unrealized gains (losses) as of June 30, 1997........... $(249) $571 $322
----- ---- ----
</TABLE>

NOTE 3 -- INCOME TAXES

The effective income tax rate for June 30, 1997 was approximately 20%. This
amount varies from that computed by applying the current federal income tax rate
of 34% to income before income taxes. The principal differences result from
special life insurance company tax deductions and the federal surtax exemption.

NOTE 4 -- REINSURANCE OF MAJOR MEDICAL PRODUCT LINE

Savers Life and World Insurance Company ("World") have agreed to the
transfer of the major medical product line of Savers Life to World through a
coinsurance agreement, under which World will assume, through coinsurance
effective July 1, 1997, 100% of the product line. Savers Life ceased writing any
new business in this product line on June 30, 1997. At the closing, presently
scheduled to occur on or about October 1, 1997, all of the policies in this
product line will be transferred to World as direct insurance policies of World.
Savers Life has agreed to share in the claims experience of this product line
for the period from

F-53
<PAGE> 211

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

July 1, 1997 through the end of 1997 to the extent that the loss ratio for such
period does not equal 75%. The loss ratio is calculated by dividing incurred
claims by earned premiums. If the loss ratio for the period is greater than 75%,
Savers Life will be required to reimburse World in cash for 50% of the amount by
which the actual loss ratio exceeds 75%. If the loss ratio for the period is
less than 75%, World will be required to reimburse Savers Life in cash for 50%
of the amount by which the actual loss ratio is less than 75%. Savers Life will
be paid $50 per month by World to administer this block of business between July
1, 1997 and the closing date. As a result of the agreement with World, Savers
Life wrote off all remaining deferred acquisition costs associated with the
major medical product line, resulting in a $1,752 charge against income in the
second quarter of 1997. At the closing date, Savers Life will transfer cash of
$4,547 and liabilities of $4,511 to World.

NOTE 5 -- PENDING MERGER

Savers Life is a party to an Agreement and Plan of Merger subject to
approval of Savers Life's stockholders, the stockholders of Standard Management
Corporation, the North Carolina Department of Insurance and other regulatory
authorities. Savers Life's stockholders will have the opportunity to consider
the Merger Agreement in a special meeting to be held in September, 1997. If the
Merger Agreement is approved and the merger becomes effective, each stock option
that is outstanding immediately prior to the effective time will be converted
into the right to receive cash in an amount equal to the number of shares of
Savers Life's stock subject to such stock option times the difference between
$8.00 per share and the per share exercise price for such stock option. At June
30, 1997, the amount of the payment would be $238.

F-54
<PAGE> 212

Board of Directors and Stockholders
Savers Life Insurance Company
Winston-Salem, North Carolina

INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying balance sheets of SAVERS LIFE INSURANCE
COMPANY as of December 31, 1996 and 1995, and the related statements of
stockholders' equity, income, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Savers Life Insurance
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

D.E. GATEWOOD AND COMPANY

CERTIFIED PUBLIC ACCOUNTANTS

WINSTON-SALEM, NORTH CAROLINA

MARCH 7, 1997

F-55
<PAGE> 213

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Investments: (Notes 1, 7, 10 and 13)
Certificates of deposit................................... $30,495 $23,681
Debt securities, held for investment, at amortized cost
(fair value $16,050 and $17,510)....................... 17,442 17,485
Debt securities, available for sale, at fair value
(amortized cost $7,992 and $7,270)..................... 7,585 7,377
Preferred stocks, market (Cost: $133; $133)............... 50 52
Common stocks, market (Cost: $2,737; $2,644).............. 3,241 2,636
Mortgage loans -- secured................................. 6,760 6,934
Real estate (less accumulated depreciation of $52 and
$29)................................................... 2,414 2,438
------- -------
Total Investments.................................... 67,987 60,603
Cash and cash equivalents................................... 6,702 15,005
Accrued investment income................................... 721 683
Accounts receivable......................................... 55 263
Refundable income taxes..................................... 298 0
Deferred income taxes....................................... 1,088 2
Reinsurance receivables..................................... 296 358
Equipment, at cost, less accumulated depreciation of $407;
(1995 -- $310)............................................ 115 105
Deferred acquisition cost, net of amortization (Note 1)..... 3,962 6,677
Other assets................................................ 5 4
------- -------
Total Assets......................................... $81,229 $83,700
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy Liabilities: (Note 2)
Future policy benefits -- annuities....................... $47,342 $47,569
Future policy benefits -- life............................ 3,267 3,089
Unearned premiums and health benefit reserves............. 3,808 4,672
Claim liability (Note 12)................................... 10,455 10,110
Accrued expenses............................................ 779 833
Current income taxes........................................ 0 177
------- -------
Total Liabilities.................................... 65,651 66,450
------- -------
Stockholders' Equity: (Notes 1, 4, 6 and 7)
Capital stock -- no par value -- stated value 1996 -- $1
per share; 1995 -- $2 per share: 20,000,000 shares
authorized; Issued and outstanding: 1996 -- 1,779,908
shares; 1995 -- 1,775,903 shares....................... 1,780 3,552
Additional paid-in capital................................ 1,823 33
Retained earnings:
Appropriated........................................... 1,365 823
Unappropriated......................................... 10,597 12,830
Net unrealized investment gains........................... 13 12
------- -------
Total Stockholders' Equity........................... $15,578 $17,250
------- -------
Total Liabilities and Stockholders' Equity........... $81,229 $83,700
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-56
<PAGE> 214

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Capital stock:
Balance at beginning of year.............................. $ 3,552 $ 3,572 $ 2,834
Change in stated value.................................... (1,776) 0 0
Capital stock purchased -- stated value................... 0 (45) (5)
Stated value of common stock issued (Notes 5 and 6)....... 4 25 743
------- ------- -------
Balance at end of year.................................... $ 1,780 $ 3,552 $ 3,572
======= ======= =======
Additional paid-in capital:
Balance at beginning of year.............................. $ 33 $ 0 $ 0
Change in stated value.................................... 1,776 0 0
Exercise of stock options................................. 14 33 0
------- ------- -------
$ 1,823 $ 33 $ 0
======= ======= =======
Retained earnings:
Appropriated:
Balance at beginning of year........................... $ 823 $ 325 $ 88
Change in asset valuation reserve...................... 542 498 237
------- ------- -------
Balance at end of year................................. $ 1,365 $ 823 $ 325
======= ======= =======
Unappropriated:
Balance at beginning of year........................... $12,830 $12,468 $ 9,474
Net income............................................. (1,692) 961 3,241
Dividends paid......................................... 0 0 (1)
Capital stock purchased in excess of stated value...... 0 (101) (9)
Transfer of asset valuation reserve.................... (541) (498) (237)
------- ------- -------
Balance at end of year................................. $10,597 $12,830 $12,468
======= ======= =======
Net unrealized investment gains (losses):
Balance at beginning of year.............................. $ 12 $ (584) $ (416)
Net changes in unrealized capital gains (losses).......... 1 596 (168)
------- ------- -------
Balance at end of year.................................... $ 13 $ 12 $ (584)
======= ======= =======
TOTAL STOCKHOLDERS' EQUITY.................................. $15,578 $17,250 $15,781
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-57
<PAGE> 215

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Premium considerations --
Life and health........................................ $47,855 $49,946 $45,543
Policy charges......................................... 275 295 280
Investment income, net of expenses:
(1996 -- $266; 1995 -- $221; 1994 -- $128)............. 4,569 4,851 4,121
Fees from Keyport and other income........................ 1,041 1,665 1,460
Realized investment gains................................. 170 387 111
------- ------- -------
$53,910 $57,144 $51,515
------- ------- -------
BENEFITS AND EXPENSES:
Increase (decrease) in future policy benefits -- life and
health................................................. $ (700) $(2,069) $ (166)
Annuity benefits.......................................... 287 170 348
Claims expenses........................................... 38,748 38,748 28,371
Interest credited on interest-sensitive annuities and
universal life policies................................ 2,543 2,787 2,803
Commissions expenses...................................... 8,248 9,058 9,000
General expenses.......................................... 3,194 3,326 3,488
Insurance taxes, licenses and fees excluding income
taxes.................................................. 1,391 1,495 1,358
Amortization of deferred acquisition costs................ 3,057 2,552 1,986
------- ------- -------
$56,768 $56,067 $47,188
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................... $(2,858) $ 1,077 $ 4,327
------- ------- -------
INCOME TAXES: (Note 3)
Current................................................... $ (86) $ 464 $ 395
Deferred.................................................. (1,080) (348) 691
------- ------- -------
$(1,166) $ 116 $ 1,086
------- ------- -------
NET INCOME (LOSS)........................................... $(1,692) $ 961 $ 3,241
======= ======= =======
NET INCOME (LOSS) PER SHARE: (Notes 1 and 6)
Net income (loss)......................................... $(.94) $.53 $1.79
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-58
<PAGE> 216

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,692) $ 961 $ 3,241
------- ------- -------
Adjustments to reconcile net income to net cash provided
by operations:
Amortization of deferred acquisition costs and
depreciation......................................... $ 3,131 $ 2,647 $ 2,045
Deferred income taxes.................................. (1,080) (348) 691
Gain on sale of fixed assets........................... (2) 0 0
Gain on sale of investments............................ (170) (387) (75)
Accrual of bond discount/amortization of premium....... 249 231 162
(Increase) decrease in assets:
Unincorporated joint venture........................... 0 9 0
Accrued investment income.............................. (38) 86 (166)
Income tax receivables................................. (298) 10 114
Reinsurance receivables................................ 62 (65) 0
Deferred acquisition costs............................. (342) (1,567) (5,008)
Other assets........................................... (1) 35 (29)
Accounts receivables................................... 208 339 498
Increase (decrease) in liabilities:
Policy liabilities..................................... (49) (1,737) (1,134)
Unearned premiums and health benefit reserves.......... (864) (2,208) (416)
Claims liability....................................... 345 2,114 4,042
Accrued expenses....................................... (53) (499) 598
Current income tax..................................... (177) 177 0
------- ------- -------
Total adjustments...................................... $ 921 $(1,163) $ 1,322
------- ------- -------
Net cash provided (used) by operating activities..... $ (771) $ (202) $ 4,563
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-59
<PAGE> 217

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. $ (61) $ (21) $ (4)
Sale of fixed assets...................................... 3 0 0
Proceeds from sales of investments:
Fixed maturities available for sale and equity
securities........................................... 18,575 20,119 17,740
Purchase of investment securities:
Fixed maturities available for sale and equity
securities........................................... (19,429) (17,170) (20,311)
Fixed maturities held-to-maturity...................... 0 0 (1,000)
Purchase of certificates of deposit....................... (47,033) (38,714) (37,136)
Proceeds from matured certificates of deposit............. 40,221 39,977 23,824
Mortgage loans disbursed.................................. (8,085) (7,951) (9,030)
Principal collected on mortgage loans..................... 8,259 6,327 6,694
Real estate purchased 0 (42) (1,350)
-------- -------- --------
Net cash provided (used) by investing
activities...................................... $ (7,550) $ 2,525 $(20,573)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options................... $ 18 $ 58 $ 41
Cash dividends paid....................................... 0 0 (1)
Capital stock purchased................................... 0 (146) (20)
-------- -------- --------
Net cash provided (used) by financing
activities...................................... $ 18 $ (88) $ 20
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ $ (8,303) $ 2,235 $(15,990)
Cash and cash equivalents at beginning of year.............. 15,005 12,770 28,760
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 6,702 $ 15,005 $ 12,770
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $9 $4 $5
======== ======== ========
Income taxes........................................... $389 $277 $283
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-60
<PAGE> 218

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS -- Savers Life Insurance Company provides life,
accident and health insurance services in North Carolina, South Carolina,
Virginia and Florida.

The accompanying financial statements are presented on the basis of
generally accepted accounting principles (GAAP) which vary in certain respects
from reporting practices prescribed or permitted by state insurance regulatory
authorities (Note 4) and include the following policies:

INVESTMENTS -- Cash on deposit in savings and loan associations and banks
(including certificates of deposit) is stated at cost, which is market value.
The Company classifies investments in debt securities in three categories: held
for investment, available for sale and trading. Debt securities which the
Company has the positive intent and ability to hold to maturity are classified
as held for investment and are carried at amortized cost, net of write-downs for
other than temporary declines in value. Debt securities which might be sold
prior to maturity are classified as available for sale and carried at fair
value.

Available for sale debt securities are written down (as realized losses) to
fair value as the new cost basis for other than temporary declines in value.
Unrealized gains and losses, related to available for sale debt securities, are
reflected in stockholders' equity. Unrealized gains and losses on common and
preferred stocks carried at market value are also reflected in stockholders'
equity. Provisions for impairments that are other than temporary are included in
net realized capital gains and losses. Common and preferred stocks are shown at
market value (Note 7). Realized investment gains and losses are determined by
specific identification and are presented as a separate component of net income.

Mortgage loans are shown at their unpaid balances, net of allowances for
uncollectible amounts, and are secured by deeds of trust on real estate.
Allowances for uncollectible loans are estimates based on management's judgment,
but there were no allowances for uncollectible amounts at December 31, 1996 and
1995. Mortgage loan interest rates are adjusted periodically based on the prime
lending rate. A mortgage loan with a carrying value of $432 is not being repaid
according to the terms of the loan. Foreclosure proceedings are being conducted,
and management has determined that foreclosure is probable. The net realizable
value of the underlying collateral is expected to be greater than the carrying
value, and no reserve for impairment has been recognized at December 31, 1996.
Interest income on impaired loans is recognized when received. Investment real
estate consisting of undeveloped land held for sale is carried at fair value
less estimated selling costs. A property held for the production of income and
also partially occupied by the Company is carried at depreciated cost plus
capital additions. The accumulated depreciation for real estate was $52 and $29
at December 31, 1996 and 1995, respectively. Depreciation is calculated using
the straight-line method based on a useful life of 39 years.

RECOGNITION OF INCOME AND RELATED COSTS -- Premiums on life insurance are
reported as revenue when due. Fees on annuities are reported as earned when due.
Expenses are reported in a manner which results in the recognition of profits
over the life of the contracts. Benefits and expenses are associated with
premiums by means of the provisions for future policy benefits, unearned
premiums and amortization of policy acquisition costs.

Investment income is accrued and recognized as earned.

EQUIPMENT -- Equipment is stated at cost; depreciation is calculated using
an accelerated method for assets acquired after 1980 and the straight-line
method for assets acquired prior to 1981. The depreciation provision is based on
the estimated useful lives of the assets (automobiles 5 years; office equipment
and furniture 5 to 10 years).

F-61
<PAGE> 219

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS -- Certain costs of acquiring insurance
business are deferred. These costs, all of which vary with and are primarily
related to the production of new business, consist principally of commissions,
certain expenses of underwriting and issuing contracts and certain agency
expenses. Deferred policy acquisition costs for traditional life business are
amortized over the premium-paying periods of the related policies in proportion
to the ratio of the annual premium revenue to the total anticipated premium
revenue. Deferred policy acquisition costs for other lines of business are
generally amortized over the life of the contract or at a constant rate based on
the estimated gross profits expected to be realized. These costs and the
amortization periods are the estimates of management based on the expected
period of benefit from the costs incurred.

Deferred policy acquisition costs would be written off to the extent that
it is determined that future policy premiums and investment income or gross
profits would not be adequate to cover related losses and expenses.

Due to the unprofitability of the major medical product line, no costs
associated with this line were deferred during 1996. Deferred policy acquisition
costs relating to the major medical product line remaining from prior years were
amortized over a two-year period. Deferred acquisition costs relating to
Medicare supplement policies of a type no longer offered by the Company were
written off in 1996.

INCOME TAXES -- Income tax provisions are based on earnings reported in the
financial statements. Deferred income taxes relate principally to the deferred
acquisition costs and the liability for future policy benefits.

CLAIMS PAYABLE -- The Company establishes provisions for claims in the
process of review and for claims incurred but not reported. These provisions are
estimates of the ultimate cost of incurred claims based on historical payment
patterns using actuarial techniques. Claims payable were $10,455 and $10,110 at
December 31, 1996 and 1995, respectively. (See Note 12)

NET INCOME PER SHARE -- In 1996, 1995 and 1994, net income per common and
common equivalent share is based on the weighted average number of shares
outstanding of 1,792,530, 1,797,436 and 1,813,370, respectively (Note 5), which
include dilutive stock options outstanding during each period. Primary and fully
diluted earnings per share are essentially the same.

APPROPRIATED RETAINED EARNINGS -- Appropriated retained earnings have been
computed according to a statutory formula specified by regulations to provide
for possible losses on securities.

CASH EQUIVALENTS -- For purposes of the statement of cash flows, cash
equivalents include all short-term investments (highly liquid debt instruments)
with original maturities of three months or less. Short-term investments were
$6,101, $12,608 and $11,500 at December 31, 1996, 1995 and 1994, respectively.

USE OF ESTIMATES -- The preparation of financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from reported
results using those estimates.

RECLASSIFICATION -- Certain 1995 and 1994 amounts have been reclassified to
conform with classifications in 1996. The reclassification had no effect on net
income. Reinsurance receivables and future policy benefits-life amounts for 1995
were reclassified to present future policy benefits without the effect of
reductions due to reinsurance. The effect of this reclassification increased
total assets and liabilities by $245 for 1995.

F-62
<PAGE> 220

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES

ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -- As of January 1, 1995,
the Company adopted Statement of Financial Accounting Standards SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosure. In
accordance with these standards, a loan is considered impaired when it is
probable that the Company will be unable to collect amounts due according to the
contractual terms of the loan agreement. For impaired loans, a specific
impairment reserve would be established for the difference between the recorded
investment in the mortgage loan and the fair value of the collateral. Adoption
of these standards had no impact on 1995 net income.

ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES --
Effective for the year ended December 31, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which requires the classification of
debt securities into three categories and equity securities into two categories.
The cumulative effect of this change increased the carrying value of bonds by
$11 at January 1, 1994, thus increasing stockholders' equity by $11.

NOTE 2: POLICY LIABILITIES

The Company markets life, accident and health, and single premium deferred
and immediate annuity policies. The single premium deferred annuity permits the
policyholder to make additional premium payments to Savers Life Insurance
Company. The amount of such additional premium payments may be varied at the
policyholder's discretion but may not be less than $0.5, and premiums may be
withdrawn upon request as provided in the annuity contract. The actual interest
rate guaranteed by the Company is determined by the Company's directors at the
beginning of each policy year. Savers Life Insurance Company guarantees that the
rate for future contract periods will not be less than as stated in the annuity
contract.

Liabilities for future policy benefits on life insurance are provided on
the net level premium valuation method based on estimated future investment
yield and mortality with interest rates ranging from 4.2% to 5.0%. Mortality
assumptions are drawn from the 1980 Commissioners Standard Ordinary Mortality
tables, and there are no withdrawal assumptions used in computing the future
policy benefits on life insurance. Since the reserves are based on estimates,
the ultimate liability may be more or less than such reserves. The effects of
changes in such estimated reserves are included in the results of operations in
the period in which the estimates are changed.

NOTE 3: INCOME TAXES

Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current taxes (benefits):
Income -- federal taxes................................... $ (115) $ 398 $ 376
Realized capital gains.................................... 29 66 19
------- ----- ------
$ (86) $ 464 $ 395
Deferred taxes (benefits):
Income -- federal taxes................................... (1,080) (348) 691
------- ----- ------
TOTAL..................................................... $(1,166) $ 116 $1,086
======= ===== ======
</TABLE>

F-63
<PAGE> 221

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3: INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Deferred tax assets:
Insurance reserves........................................ $ 0 $ 0
Net unrealized capital losses............................. 469 0
AMT tax credit carryovers................................. 411 349
Deferred policy acquisition costs......................... 1,567 248
------- -----
Total gross assets..................................... $ 2,447 $ 597
Less valuation allowance............................... 881 349
------- -----
Assets net of valuation........................... $ 1,566 $ 248
------- -----
Deferred tax liabilities:
Deferred policy acquisition costs......................... $ 0 $ 0
Insurance reserves........................................ 478 240
Net unrealized capital gains.............................. 0 6
------- -----
Total liabilities...................................... $ 478 $ 246
------- -----
Net deferred tax asset...................................... $ 1,088 $ 2
======= =====
</TABLE>

Net unrealized capital gains and losses are presented in stockholders'
equity net of deferred taxes. Due to the uncertainty of future capital gains,
valuation allowances were established of $469 and $0 at December 31, 1996 and
1995, respectively. Valuation allowances have also been established for AMT tax
credit carryovers in the amounts of $411 and $349 for the years ended December
31, 1996 and 1995, respectively. These allowances for the AMT tax credit
carryovers are estimates and have been established because management believes
it is uncertain that the AMT tax credits, which apply only against the Company's
regular tax liability, can be utilized in the future.

The effective income tax rate for 1996, 1995 and 1994 was approximately
20%. These amounts vary from those computed by applying the current federal
income tax rate of 34% to income before income taxes. The principal differences
result from special life insurance company tax deductions and the federal surtax
exemption.

For years beginning after December 31, 1983, the Tax Reform Act passed by
Congress changed the tax laws concerning life insurance companies. Under the new
law, certain timing differences relating to deferred taxes cease to exist.

As required by the Revenue Reconciliation Act of 1990, the Company changed
its method of reporting policy acquisition costs for federal income tax purposes
during 1990. The 1990 Act required that the deduction for policy acquisition
costs be determined based on prescribed percentages of annual net premiums, and
spreads the deduction over a five-year period.

Prior to January 1, 1984, life insurance companies were taxed on the lesser
of taxable investment income or gain from operations (as defined by the Internal
Revenue Code) plus one-half of any excess of the gain from operations over
taxable investment income. One-half of the excess of gain from operations over
taxable investment income, an amount which is not currently subject to taxation,
plus special deductions allowed in computing the gain from operations, was set
aside in a special memorandum tax account designated "policyholders' surplus
account."

F-64
<PAGE> 222

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3: INCOME TAXES (CONTINUED)
The accumulated amount of income subject to current taxation, less the tax
thereon, was set aside in another special memorandum tax account designated
"stockholders' surplus account." At December 31, 1996 and 1995, respectively,
the Company, on a tax basis, had balances of $17,845 and $17,872 in its
stockholders' surplus account and $72 in its policyholders' surplus account for
both years.

NOTE 4: STATUTORY ACCOUNTING RECONCILIATION

Following are reconciliations of net income and stockholders' equity on the
statutory basis to the generally accepted accounting principles (GAAP) basis:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (losses) -- statutory basis...................... $ (582) $ (639) $ (496)
Increase (decrease) in deferred acquisition costs........... (2,715) (985) 3,022
Adjustment to claim liabilities............................. (250) 0 0
Adjustment to health reserves............................... 717 2,125 1,416
Adjustment to health premiums............................... 19 (84) 0
Interest Maintenance Reserve................................ 39 196 (10)
Deferred income taxes....................................... 1,080 348 (691)
------- ------- -------
NET INCOME (LOSS) -- GAAP BASIS........................... $(1,692) $ 961 $ 3,241
======= ======= =======
Stockholders' equity -- statutory basis..................... $ 6,340 $ 6,934 $ 7,776
Additions (deductions):
Deferred acquisition costs................................ 3,962 6,677 7,661
Deferred income taxes..................................... 1,088 2 (339)
Non-admitted assets....................................... 69 51 134
Adjustment to health reserves............................. 1,716 1,249 (876)
Asset valuation reserve................................... 1,364 823 325
Interest Maintenance Reserve.............................. 1,446 1,406 1,210
Unrealized gains (losses) on marketable securities........ (407) 108 (110)
------- ------- -------
STOCKHOLDERS' EQUITY -- GAAP BASIS........................ $15,578 $17,250 $15,781
======= ======= =======
</TABLE>

Under applicable laws and regulations, cash dividends to stockholders are
limited to the extent of statutory operating profits and realized capital gains.

The Company files financial statements prepared in accordance with
statutory accounting practices prescribed or permitted by domestic insurance
regulatory authorities. The principal differences between statutory financial
statements and financial statements prepared in accordance with generally
accepted accounting principles (GAAP) are that statutory financial statements do
not reflect deferred policy acquisition costs and deferred income taxes, most
bonds are carried at amortized cost and reinsurance assets and liabilities are
presented net of reinsurance. The Company's use of permitted statutory
accounting practices does not have a significant impact on statutory surplus.

Statutory capital and surplus are subject to certain restrictions imposed
by state insurance departments as to minimum levels and payments of dividends.
The minimum levels of capital and surplus required by the North Carolina
Department of Insurance are $1,200 and $300, respectively. The Company may pay
dividends without prior approval of the North Carolina Department of Insurance
if the dividends and all other dividends and distributions within the past
twelve months do not exceed the lesser of statutory basis net gain from
operations or 10% of statutory capital and surplus. Due to the Company's
statutory net losses in 1996, 1995

F-65
<PAGE> 223

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4: STATUTORY ACCOUNTING RECONCILIATION (CONTINUED)
and 1994, no dividends are allowed to be paid without prior approval of the
North Carolina Department of Insurance.

NOTE 5: STOCKHOLDERS' EQUITY

The Company purchased 0, 22,457 and 2,621 shares of its own capital stock
in 1996, 1995 and 1994, respectively, reducing the outstanding shares. On August
26, 1996, the Board of Directors adopted a resolution changing the stated value
of the Company's stock from $2.00 per share to $1.00 per share. The resolution
resulted in the reduction of the capital stock account by $1,776 and the
increase of the gross paid-in surplus by $1,776.

NOTE 6: STOCK OPTIONS

On February 25, 1982, the Company's Board of Directors amended the 1980
employee incentive stock option plan to qualify as an incentive stock option
plan for all key employees, under which 189,000 shares of the Company's
authorized but unissued common stock were reserved for possible issuance. The
grant to any one individual could not exceed 20% of the shares covered by the
plan. The option price is the greater of $1.00 per share or the fair market
value on the date of grant, as determined by the Board of Directors. Options
expire ten years after the grant date. This plan expired January 21, 1990.

On April 25, 1984, the Company's stockholders approved an additional
incentive stock option plan under which 75,600 shares of the Company's common
stock were reserved for issuance to key employees. Options under this plan
expire ten years after the date the option is granted. This plan expired April
24, 1994. On May 22, 1995, the Company's stockholders approved an additional
stock option plan under which 50,000 shares of the Company's common stock were
reserved for issuance to key employees. Options under this plan expire ten years
after the date the option is granted. This plan expires March 5, 2005.

Under the plans as originally issued, options could be exercised over the
option period in the following amounts: none during the first year, twenty-five
percent of the total shares in the second year and twenty-five percent of the
total in each of the following three years, and in any year prior to expiration
an amount equal to options exercisable in prior years but unexercised. However,
the Company's Board of Directors adopted a resolution on December 22, 1996
whereby all outstanding options to purchase shares of the Company's common stock
were declared to be fully vested as of that date.

The option price is equal to the fair market value on the date of grant for
all plan options outstanding December 31, 1996 as follows:

<TABLE>
<CAPTION>
NUMBER OF
DATE OF GRANT SHARES PRICE TOTAL
------------- --------- ----- -----
<S> <C> <C> <C>
August 19, 1987.................................. 6,600 $5.33 $ 35
November 22, 1988................................ 12,600 $5.00 63
November 28, 1989................................ 9,375 $4.80 45
May 24, 1991..................................... 10,000 $5.20 52
March 15, 1993................................... 9,374 $5.60 53
August 18, 1995.................................. 16,350 $6.50 106
------ ----
64,299 $354
====== ====
</TABLE>

The Company applies APB Opinion 25 in accounting for its fixed stock
compensation plan. Accordingly, no compensation has been recognized for the
fixed plan for 1996, 1995 and 1994. Proforma disclosure of net

F-66
<PAGE> 224

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6: STOCK OPTIONS (CONTINUED)
income and net income per share recognizing compensation costs determined on the
basis of fair value pursuant to FASB Statement No. 123 are not presented because
the amounts are immaterial.

The following is a summary of the status of stock option plans for 1996,
1995 and 1994:

<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...... 73,066 $5.41 64,713 $4.96 84,223 $4.46
Granted............................... 0 $ 0 16,600 $6.50 0 $ 0
Exercised............................. (4,005) $4.58 (7,560) $3.97 (17,010) $2.43
Forfeited............................. (937) $5.53 (687) $5.17 (2,500) $5.60
Expired............................... (3,825) $4.58 0 $ 0 0 $ 0
------ ------ -------
Outstanding at end of year............ 64,299 $5.51 73,066 $5.41 64,713 $4.96
====== ====== =======
Options exercisable at end of year.... 64,299 51,625 54,715
====== ====== =======
Weighted average fair value of options
granted during year................. $ 0 $ 6.50 $ 0
====== ====== =======
</TABLE>

The following is a summary of plan options outstanding at December 31,
1996, all of which are exercisable:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------
WEIGHTED AVERAGE
REMAINING
EXERCISE PRICE NUMBER CONTRACTUAL LIFE
-------------- ------ ----------------
<S> <C> <C> <C>
$5.33 6,600 .63 years
$5.00 12,600 1.89 years
$4.80 9,375 2.91 years
$5.20 10,000 4.40 years
$5.60 9,374 6.20 years
$6.50 16,350 8.63 years
</TABLE>

In addition to the plan options, 37,500 nonqualified options were granted
to the owner of an insurance agency in 1992. At the end of 1996, 5,000 of these
options had been exercised, and 32,500 were exercisable at an option price of
$5.60 per share. The total option price was $182, and the fair market value was
$211.

The Company is a party to an Agreement and Plan of Merger subject to
approval of the Company's stockholders, the stockholders of Standard Management
Corporation, the North Carolina Department of Insurance and other regulatory
authorities. The Company's stockholders will have the opportunity to consider
the Merger Agreement at a special meeting to be held in June, 1997. If the
Merger Agreement is approved and the merger becomes effective, each stock option
that is outstanding immediately prior to the effective time will be converted
into the right to receive cash in an amount equal to the number of shares of the
Company's stock subject to such stock option times the difference between $8.00
per share and the per share exercise price for such stock option. At December
31, 1996, the amount of the payment would be $238.

F-67
<PAGE> 225

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: INVESTMENTS

Debt securities at December 31 were as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1996
Held for investment:
U.S. Treasury securities and obligations of U.S.
government agencies and corporations............. $17,442 $ 10 $1,402 $16,050
------- ---- ------ -------
Available for sale:
U.S. Treasury securities and obligations of U.S.
government agencies and corporations............. $ 7,388 $ 4 $ 422 $ 6,970
Other corporate securities.......................... 604 11 0 615
------- ---- ------ -------
Total available for sale............................ $ 7,992 $ 15 $ 422 $ 7,585
------- ---- ------ -------
TOTAL DEBT SECURITIES................................. $25,434 $ 25 $1,824 $23,635
======= ==== ====== =======
1995
Held for investment:
U.S. Treasury securities and obligations of U.S.
government agencies and corporations............. $17,485 $ 25 $ 0 $17,510
------- ---- ------ -------
Available for sale:
U.S. Treasury securities and obligations of U.S.
government agencies and corporations............. $ 6,271 $113 0 $ 6,384
Other corporate securities.......................... 999 0 6 993
------- ---- ------ -------
Total available for sale............................ $ 7,270 $113 $ 6 $ 7,377
------- ---- ------ -------
TOTAL DEBT SECURITIES................................. $24,755 $138 $ 6 $24,887
======= ==== ====== =======
</TABLE>

The amortized cost and estimated market value of debt securities, by
contractual maturity at December 31, 1996, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
--------- ------------
<S> <C> <C>
Due in one year or less..................................... $ 380 $ 379
Due after one year through five years....................... 946 934
Due after five years through ten years...................... 59 76
Due after ten years......................................... 24,049 22,246
------- -------
$25,434 $23,635
======= =======
</TABLE>

F-68
<PAGE> 226

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7: INVESTMENTS (CONTINUED)
Investments in "available for sale equity securities" were as follows:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ---------- ---------- -----
<S> <C> <C> <C> <C>
1996
Equity securities....................................... $2,870 $655 $234 $3,291
====== ==== ==== ======
1995
Equity securities....................................... $2,777 $227 $315 $2,689
====== ==== ==== ======
</TABLE>

The changes during 1996 in amounts affecting net unrealized gains and
losses included in the separate component of stockholders' equity are as
follows:

<TABLE>
<CAPTION>
NET UNREALIZED GAINS (LOSSES)
------------------------------
DEBT EQUITY TOTAL
---- ------ -----
<S> <C> <C> <C>
Net unrealized gains (losses) on securities available for
sale as of January 1, 1996................................ $ 70 $(58) $12
Increase (decrease) in stated amount of securities.......... (478) 479 1
----- ---- ---
Subtotal.................................................... $(408) $421 $13
----- ---- ---
Deferred federal income taxes............................... $ 0 $ 0 $ 0
----- ---- ---
Net unrealized gains (losses) on securities available for
sale as of December 31, 1996.............................. $(408) $421 $13
----- ---- ---
</TABLE>

NOTE 8: REINSURANCE

As part of its ongoing business, the Company seeks to limit its exposure to
losses by ceding reinsurance to other insurance enterprises under excess
coverage and coinsurance contracts. The Company retains a maximum of $20 of
coverage per individual life contract.

Amounts paid or deemed to have been paid for reinsurance contracts are
recorded as reinsurance receivables. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account for
the underlying policies.

Reinsurance contracts do not relieve the Company from its obligation to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurers' insolvencies.

The effect of reinsurance on premiums written and earned is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Direct premiums and amounts assessed against
policyholders............................................. $50,635 $52,125 $48,567
Reinsurance assumed......................................... 0 0 0
Reinsurance ceded........................................... 1,113 1,261 903
------- ------- -------
Net premiums and amounts earned............................. $49,522 $50,864 $47,664
======= ======= =======
</TABLE>

F-69
<PAGE> 227

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9: EMPLOYEE RETIREMENT PLAN

During 1988, the Company initiated a 401(k) Profit Sharing Plan for the
benefit of eligible employees and their beneficiaries. Employees who have
completed one year of service and have reached their 21st birthday are eligible
under the plan. Participants are entitled to 100% benefits upon retirement or
death. If participants are terminated, they are entitled to receive the vested
percentage of their account balance.

Participants may defer up to 15% of their compensation annually, subject to
dollar limits set by law. The Company matches the employees' salary reduction
100%. In applying the matching contribution, only salary reductions up to 5% of
base compensation are considered. The Company's funding policy is to contribute
annually no more than the maximum amount that can be deducted for federal income
tax purposes. The amount of expense for contributions to the 401(k) plan for the
years 1996, 1995 and 1994 was $39, $39 and $35, respectively. At December 31,
1996 (the most recent actuarial valuation date), the plan's accumulated benefit
obligation was $443 including vested benefits of $429, and the fair market value
of plan assets was $443.

NOTE 10: CONCENTRATIONS OF CREDIT RISK

The Company is required by SFAS No. 105, "Disclosure of Information About
Financial Instruments With Off-Balance-Sheet Risk and Financial Instruments With
Concentrations of Credit Risk", to disclose significant concentrations of credit
risk regardless of the degree of such risk. Financial instruments that
potentially subject the Company to concentration of credit risk consist
primarily of cash, cash equivalents and mortgage loans receivable. Since the
Company's inception, it has been management's policy to place its cash on
deposit and certificates of deposit with a diversified group of high credit
quality financial institutions. At December 31, 1996, the Company had accounts
with approximately 250 such institutions with a higher concentration of
institutions in North Carolina and South Carolina. Although, as of December 31,
1996, there were amounts in some of those financial institutions that exceed the
insured deposit coverage, management does not believe any significant credit
risk relating to cash deposits exists as of December 31, 1996.

Mortgage loans consist of long-term notes secured by real estate in North
Carolina and South Carolina and construction loans to several construction
companies located mainly in the Piedmont of North Carolina. The Company had
long-term notes of approximately $1,331 and $1,433 at December 31, 1996 and
1995, respectively. No individual long-term note exceeds 1% of total investments
as of December 31, 1996 and 1995. The Company had construction loans of
approximately $5,424 and $5,498 at December 31, 1996 and 1995, respectively.
Construction loans to one construction company totaled approximately $2,130 and
$2,854 at December 31, 1996 and 1995, respectively. To reduce credit risk, all
construction loans are monitored on a continuing basis, secured by the property
being built, and limited to a maximum percentage of the builders' price.

NOTE 11: OPERATING LEASES

The Company is the lessor of a portion of its home office building under
operating leases expiring in various years through 1999. The leased property
(including land) has a carrying value of $1,298 net of accumulated depreciation
of $52. These leases have been accounted for under the operating method, which
recognizes the lease revenue as earned over the life of the lease.

F-70
<PAGE> 228

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 11: OPERATING LEASES (CONTINUED)
Minimum future rentals to be received on non-cancellable leases as of
December 31, 1996 for each of the next five years and in the aggregate are:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
<S> <C>
1997...................................................... $ 67
1998...................................................... 33
1999...................................................... 7
2000...................................................... 0
2001...................................................... 0
Thereafter................................................ 0
----
TOTAL MINIMUM FUTURE RENTALS......................... $107
====
</TABLE>

NOTE 12: LIABILITY FOR UNPAID CLAIMS

Activity in the liability for unpaid claims is summarized as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning of year.................................. $10,110 $ 7,996 $ 3,923
Reinsurance recoverable............................ 99 30 0
------- ------- -------
$10,011 $ 7,966 $ 3,923
------- ------- -------
Claims incurred.................................... $43,204 $44,063 $34,442
Claims paid (net of reinsurance)................... 42,802 42,018 30,399
------- ------- -------
$ 402 $ 2,045 $ 4,043
------- ------- -------
Balance at December 31............................. $10,413 $10,011 $ 7,966
Plus reinsurance receivables....................... 42 99 30
------- ------- -------
$10,455 $10,110 $ 7,996
======= ======= =======
</TABLE>

During 1995, the Company changed its estimate of health claims liability.
This change in estimate was the result of management's underestimation of the
major medical claims backlog. The effect of this change was to decrease net
income before taxes for 1995 by $1,951 ($1.09 per share). During 1996, the
Company changed its estimate of health claims liability. This change in estimate
was the result of an accumulation of claims due to the pending change with
certain preferred provider organizations. The effect of this change was to
decrease net income before taxes for 1996 $1,197 ($.67 per share).

F-71
<PAGE> 229

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 13: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........................... $ 601 $ 601 $ 2,397 $ 2,397
Short-term investments (cash equivalents)........... $ 6,101 $ 6,101 $12,608 $12,608
Certificates of deposit............................. $30,496 $30,496 $23,681 $23,681
Debt securities..................................... $25,027 $23,634 $24,862 $24,887
Equity securities................................... $ 3,291 $ 3,291 $ 2,689 $ 2,689
Mortgage loans...................................... $ 6,760 $ 6,760 $ 6,934 $ 6,934
Liabilities:
Future policy benefits-annuities.................... $47,342 $47,466 $47,569 $47,712
</TABLE>

Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument, such
as estimates of timing and amount of expected future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized gains or
losses. In some cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument.

The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:

SHORT-TERM INSTRUMENTS -- Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, the carrying amounts reported in the balance sheets approximate fair
value. Short-term instruments have a maturity date of three months or less.

CERTIFICATES OF DEPOSIT -- Fair values are based on purchase price of
certificates and prevailing rates of interest. The certificates of deposit
typically have very short maturity periods (six months or less) or variable
interest rates. Fair values are approximated by carrying values due to the
short-term nature of the instruments.

DEBT AND EQUITY SECURITIES -- Fair values are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are estimated by using quoted market prices for similar
securities or discounted cash flow methods.

MORTGAGE LOANS -- Fair values are estimated by discounting expected
mortgage loan cash flows at market rates, which reflect the rates at which
similar loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans. The
loans have variable interest rates, which are linked to the prime rate.
Estimated fair values for mortgage loans are not materially different from
carrying value.

FUTURE POLICY BENEFITS-ANNUITIES -- The majority of these investment
contract liabilities are made up of deferred annuity policies with adjustable
interest rates. All deferred policies have guaranteed minimum rates of interest,
but the guaranteed rates are lower than current market rates. Because of the
short-term adjustability of the interest rates, fair value is approximated by
carrying value for deferred annuities. Other contract deposit funds, which make
up about 7% of these investment contract liabilities, are immediate

F-72
<PAGE> 230

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 13: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
annuities which pay a fixed monthly amount for a fixed period. Fair value of
these liabilities is estimated by discounting cash flows at interest rates
currently being offered by the Company for similar contracts.

NOTE 14: COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS -- Commitments to extend credit are legally binding agreements
to lend monies at a specified interest rate and within a specified time period.
Risk arises from the potential inability of counterparties to perform under the
terms of the contracts and from interest rate fluctuations. The Company's
exposure to credit risk is reduced by the existence of conditions within the
commitment agreements that release the Company from its obligations in the event
of a material adverse change in the counterparty's financial condition. At
December 31, 1996 and 1995, the Company had $7,491 and $8,138, respectively, in
total construction loan commitments to general contractors. At December 31, 1996
and 1995, the Company had outstanding loan commitments of approximately $2,067
and $2,640 respectively.

LITIGATION -- The Company is continuously involved in a number of lawsuits
arising, for the most part, in the ordinary course of its business operations.
At December 31, 1996, the Company was named as a defendant in several lawsuits.
The total amount of damages sought was $1,245, including $1,000 in punitive
damages. After consulting with counsel, the Company estimated that its liability
for these lawsuits was less than $100. Additionally, there are several cases
pending for which outside counsel cannot offer an opinion as to probable
outcome. Outside counsel believes the range of damages for these lawsuits is
between $0 and $50. While the ultimate outcome of any litigation cannot be
determined at this time, management believes it is remote that this litigation
will result in judgments for additional amounts material to the financial
condition of the Company. Counsel has further advised that an award of punitive
damages against the Company in any pending suit is highly unlikely. Materiality
was calculated as anything greater than 5% of pre-tax gain or loss.

NOTE 15: EXAMINATION BY NORTH CAROLINA DEPARTMENT OF INSURANCE

During the year 1995, the North Carolina Department of Insurance conducted
its triennial examination of the financial condition and affairs of the Company
for the years ended December 31, 1992, 1993 and 1994. The report concluded that
the Company was in compliance with the capital and surplus requirements of North
Carolina for the kinds of insurance which the Company is authorized to write.

NOTE 16: MERGER

The Company is a party to an Agreement and Plan of Merger, dated as of
December 19, 1996, as amended, pursuant to which, subject to approval by the
Company's stockholders, the stockholders of Standard Management Corporation, the
North Carolina Department of Insurance and other regulatory authorities, the
Company will become a wholly-owned subsidiary of Standard Management
Corporation, an Indiana insurance holding company. The Company's Board of
Directors has unanimously approved the Merger Agreement and has recommended that
the Company's stockholders approve it at a special meeting to be held in
September of 1997. If the Merger Agreement is approved and the merger becomes
effective, stockholders of the Company will be entitled to receive $1.50 cash
and $6.50 in value of Standard Management Corporation's Common Stock for each
share of the Company's Common Stock owned by them immediately prior to
effectiveness of the merger. Stockholders may elect to receive stock in lieu of
the cash portion of the merger consideration. In addition, holders of shares of
the Company's Common Stock outstanding immediately prior to effectiveness of the
merger will be eligible to receive a Performance Premium based on 1997 and 1998
earnings of the Company calculated on a statutory accounting basis, conditioned
upon the Company's earnings in those years exceeding certain minimum levels.

F-73
<PAGE> 231

SAVERS LIFE INSURANCE COMPANY
WINSTON-SALEM, NORTH CAROLINA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 17: INVESTMENT CONTRACT ACCOUNTING

The Company has changed to a generally accepted method of recording
premiums received on investment-type insurance contracts. Payments received by
the Company relating to investment-type contracts are now reported as
liabilities and accounted for in a manner consistent with the accounting for
interest-bearing or other financial instruments. The balances in premium
considerations, annuity policy charges, change in future policy benefits,
annuity benefits and interest expense were restated as a correction for all
years presented. There were no changes to net income or retained earnings as a
result of these restatements.

F-74
<PAGE> 232

STANDARD MANAGEMENT CORPORATION

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

The following unaudited pro forma combined statements of operations for the
six months ended June 30, 1997 and the year ended December 31, 1996, are
presented as if (i) the acquisition of Shelby Life from DLAC and its merger into
Standard Life, (ii) the transfer of the major medical product line from Savers
Life to World through a coinsurance agreement, under which World will assume,
through coinsurance effective July 1, 1997, 100% of the product line, and (iii)
the acquisition of Savers Life by SMC had occurred as of January 1, 1996. The
following unaudited pro forma combined balance sheet as of June 30, 1997, gives
effect to the transfer of the major medical product line from Savers Life to
World and the acquisition of Savers Life by SMC as if it had occurred as of the
balance sheet date.

The unaudited pro forma combined financial statements do not purport to
represent what SMC's balance sheet or results of operations actually would have
been had the merger of Shelby Life into Standard Life, the transfer of the major
medical product line from Savers Life to World through a coinsurance agreement,
under which World will assume, through coinsurance effective July 1, 1997, 100%
of the product line, and the acquisition of Savers Life by SMC in fact occurred
on the dates indicated, or to project SMC's balance sheet or results of
operations for any future date or period. The unaudited pro forma combined
financial statements should be read in conjunction with the accompanying notes
thereto and the separate historical consolidated financial statements of SMC and
Savers Life as of and for the six months ended June 30, 1997 and as of and for
the year ended December 31, 1996 which are contained elsewhere in this Proxy
Statement/Prospectus.

The pro forma adjustments and combined amounts are provided for
informational purposes only, and if the acquisition of Savers Life by SMC is
consummated, SMC's consolidated financial statements will reflect the effects of
the acquisition of Savers Life by SMC only from the date such transaction
occurs. The acquisition and merger of Shelby Life into Standard Life occurred on
November 8, 1996, with an effective date of November 1, 1996. Savers Life and
World have agreed to the transfer of the major medical product line of Savers
Life to World through a coinsurance agreement, under which World will assume,
through coinsurance effective July 1, 1997, 100% of the product line. Savers
Life ceased writing any new business in this product line on June 30, 1997. At
the closing, presently scheduled to occur on or about October 1, 1997, all of
the policies in this product line will be transferred to World as direct
insurance policies of World. The pro forma adjustments are applied to the
historical consolidated financial statements of SMC, Shelby Life and Savers Life
to account for the merger of Shelby Life into Standard Life and the acquisition
of Savers Life by SMC under the purchase method of accounting in accordance with
APB No. 16. Under this method of accounting, the total purchase cost has been
allocated to Shelby Life's and Savers Life's assets and liabilities based on
their estimated relative fair values. These allocations are subject to
valuations as of the date of the transaction based on appraisals and other
studies, which are not yet completed. Accordingly, the final allocations will be
different from the amounts reflected herein. Any purchase price adjustments will
be made within one year from the acquisition date and are not expected to be
material to the unaudited pro forma combined financial statements taken as a
whole. The unaudited pro forma combined financial statements, however, reflect
management's best estimate based on currently available information.

F-75
<PAGE> 233

STANDARD MANAGEMENT CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL
STATEMENTS PRO FORMA
----------------------------- ADJUSTMENTS
10 MONTHS RELATED TO
YEAR ENDED ENDED PRO FORMA TRANSFER OF
DEC. 31, 1996 OCT. 31, 1996 ADJUSTMENTS PRO FORMA MAJOR
------------- ------------- RELATING TO SMC BEFORE MEDICAL
STANDARD SHELBY THE SHELBY THE SAVERS HISTORICAL PRODUCT
MANAGEMENT LIFE LIFE MERGER LIFE ACQUISITION SAVERS LIFE LINE(5)
---------- ------ ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premium income............ $10,468 $1,288 $ -- $11,756 $47,855 $(18,910)
Net investment income..... 20,871 6,008 (556)(1) 26,323 4,569 (407)
Net realized investment
gains................... 1,302 147 -- 1,449 170 (15)
Gain on disposal of
subsidiaries............ 886 -- -- 886 -- --
Policy charges............ 2,551 1,715 -- 4,266 275 --
Amortization of excess of
net assets acquired over
acquisition cost........ 1,388 -- -- 1,388 -- --
Management fees and
similar income from
separate accounts....... 1,564 -- -- 1,564 -- --
Other income.............. 1,277 435 -- 1,712 1,041 --
--------- ------ ------- --------- --------- --------
Total revenues.......... 40,307 9,593 (556) 49,344 53,910 (19,332)
Benefits and expenses:
Benefits and claims....... 9,919 1,746 -- 11,665 38,335 (15,129)
Interest credited on
interest-sensitive
annuities and other
financial products...... 11,281 3,761 -- 15,042 2,543 --
Amortization.............. 2,592 251 (251)(1) 3,255 3,057 (1,753)
663(1)
Other operating
expenses................ 12,175 1,523 -- 13,698 12,833 (4,837)
Interest expense and
financing costs......... 805 -- 1,238(2) 2,043 -- --
--------- ------ ------- --------- --------- --------
Total benefits and
expenses.............. 36,772 7,281 1,650 45,703 56,768 (21,719)
--------- ------ ------- --------- --------- --------
Income (loss) before
federal income taxes,
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends................. 3,535 2,312 (2,206) 3,641 (2,858) 2,387
Federal income tax expense
(credit).................. (730) 879 (750)(3) (601) (1,166) 974
--------- ------ ------- --------- --------- --------
Income (loss) before
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends................. $ 4,265 $1,433 $(1,456) $ 4,242 $(1,692) $ 1,413
========= ====== ======= ========= ========= ========
Income (loss) before
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends per share....... $.84 $.80
============= =========
Weighted average number of
common and common
equivalent shares 5,250,094 230,000(4) 5,480,094
outstanding...............
========= ======= ========

SAVERS LIFE PRO FORMA
AFTER ADJUSTMENTS
TRANSFER OF RELATING TO
MAJOR MEDICAL THE SAVERS PRO FORMA
PRODUCT LINE LIFE ACQUISITION COMBINED
------------- ---------------- ---------
<S> <C> <C> <C>
Revenues:
Premium income............ $28,945 $ -- $40,701
Net investment income..... 4,162 42(11) 30,527
Net realized investment
gains................... 155 -- 1,604
Gain on disposal of
subsidiaries............ -- -- 886
Policy charges............ 275 -- 4,541
Amortization of excess of
net assets acquired over
acquisition cost........ -- -- 1,388
Management fees and
similar income from
separate accounts....... -- -- 1,564
Other income.............. 1,041 -- 2,753
------- --------- ---------
Total revenues.......... 34,578 42 83,964
Benefits and expenses:
Benefits and claims....... 23,206 -- 34,871
Interest credited on
interest-sensitive
annuities and other
financial products...... 2,543 -- 17,585
Amortization.............. 1,304 (1,304)(12) 4,041
786(12)
Other operating
expenses................ 7,996 -- 21,694
Interest expense and
financing costs......... -- 371(13) 2,414
------- --------- ---------
Total benefits and
expenses.............. 35,049 (147) 80,605
------- --------- ---------
Income (loss) before
federal income taxes,
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends................. (471) 189 3,359
Federal income tax expense
(credit).................. (192) 64(14) (729)
------- --------- ---------
Income (loss) before
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends................. $ (279) $ 125 $ 4,088
======= ========= =========
Income (loss) before
extraordinary gain on
early redemption of
redeemable preferred stock
and preferred stock
dividends per share....... $.59
=========
Weighted average number of
common and common
equivalent shares 1,652,772(15) 7,132,866
outstanding...............
======== =========
</TABLE>

F-76

See accompanying notes to unaudited pro forma combined financial statements.

F-77
<PAGE> 234

STANDARD MANAGEMENT CORPORATION

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
RELATED TO
HISTORICAL FINANCIAL TRANSFER OF SAVERS LIFE PRO FORMA
STATEMENTS MAJOR AFTER ADJUSTMENTS
----------------------------- MEDICAL TRANSFER OF RELATING TO
STANDARD SAVERS PRODUCT MAJOR MEDICAL THE SAVERS PRO FORMA
MANAGEMENT LIFE LINE(5) PRODUCT LINE LIFE ACQUISITION COMBINED
---------- ------ ----------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premium income.................... $ 3,562 $22,538 $ (8,039) $14,499 $ -- $18,061
Net investment income............. 14,346 2,269 (202) 2,067 17(11) 16,430
Net realized investment gains..... 206 35 (3) 32 -- 238
Policy charges.................... 2,783 147 -- 147 -- 2,930
Amortization of excess of net
assets acquired over acquisition
cost............................ 694 -- -- -- -- 694
Management fees and similar income
from separate accounts.......... 838 -- -- -- -- 838
Other income...................... 881 704 -- 704 -- 1,585
--------- ------- -------- ------- --------- ---------
Total revenues.................. 23,310 25,693 (8,244) 17,449 17 40,776
Benefits and expenses:
Benefits and claims............... 4,368 19,013 (7,657) 11,356 -- 15,724
Interest credited on
interest-sensitive annuities and
other financial products........ 8,166 1,240 -- 1,240 -- 9,406
Amortization...................... 1,577 2,658 (2,399) 259 (259)(12) 1,934
357(12)
Other operating expenses.......... 6,221 5,828 (2,039) 3,789 -- 10,010
Interest expense and financing
costs........................... 1,078 -- -- -- 186(13) 1,264
--------- ------- -------- ------- --------- ---------
Total benefits and expenses..... 21,410 28,739 (12,095) 16,644 284 38,338
--------- ------- -------- ------- --------- ---------
Income (loss) before federal income
taxes, extraordinary gain on early
redemption of redeemable preferred
stock and preferred stock
dividends......................... 1,900 (3,046) 3,851 805 (267) 2,438
Federal income tax expense
(credit).......................... 575 (627) 770 143 (91)(14) 627
--------- ------- -------- ------- --------- ---------
Income (loss) before extraordinary
gain on early redemption of
redeemable preferred stock and
preferred stock dividends......... $ 1,325 $(2,419) $ 3,081 $ 662 $(176) $ 1,811
========= ======= ======== ======= ========= =========
Income (loss) before extraordinary
gain on early redemption of
redeemable preferred stock and
preferred stock dividends per
share............................. $.25 $.26
============= =========
Weighted average number of common
and common equivalent shares 5,286,706 1,652,772(15) 6,939,478
outstanding.......................
========= ========= =========
</TABLE>

See accompanying notes to unaudited pro forma combined financial statements.

F-78
<PAGE> 235

STANDARD MANAGEMENT CORPORATION

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FINANCIAL ADJUSTMENTS SAVERS LIFE PRO FORMA
STATEMENTS RELATED TO AFTER TRANSFER ADJUSTMENTS
------------------------ TRANSFER OF OF MAJOR RELATING TO
STANDARD MAJOR MEDICAL MEDICAL THE SAVERS PRO FORMA
MANAGEMENT SAVERS LIFE PRODUCT LINE(5) PRODUCT LINE LIFE ACQUISITION COMBINED
---------- ----------- --------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Securities available for
sale:
Fixed maturity
securities............... $350,513 $ 8,450 $ -- $ 8,450 $ 16,439(16) $373,843
(1,559)(17)
Equity securities.......... 63 3,483 -- 3,483 -- 3,546
Fixed maturity securities
held to maturity........... -- 16,439 -- 16,439 (16,439)(16) --
Mortgage loans on real
estate..................... 2,297 6,326 -- 6,326 -- 8,623
Policy loans................. 9,258 -- -- -- -- 9,258
Real estate.................. 537 2,415 -- 2,415 -- 2,952
Other invested assets........ 1,113 -- -- -- -- 1,113
Short-term investments....... 18,381 28,838 -- 28,838 -- 47,219
-------- -------- ------- -------- -------- --------
Total investments........ 382,162 65,951 -- 65,951 (1,559) 446,554
Cash........................... 9,823 7,426 (4,547)(6) 2,879 785(18) 13,487
Accrued investment income...... 6,524 760 -- 760 -- 7,284
Amounts due and recoverable
from reinsurers.............. 69,157 218 -- 218 -- 69,375
Deferred policy acquisition
costs........................ 21,274 1,444 -- 1,444 (1,444)(19) 21,274
Present value of future
profits...................... 22,738 -- -- -- 5,100(20) 27,838
Excess of acquisition cost over
net assets acquired.......... 2,205 -- -- -- 632(21) 2,837
Deferred federal income
taxes........................ -- 1,550 (1,163)(7) 387 (387)(25) --
Other assets................... 4,957 179 1,136(8) 1,315 80(22) 6,352
Assets held in separate
accounts..................... 134,808 -- -- -- -- 134,808
-------- -------- ------- -------- -------- --------
Total assets............. $653,648 $ 77,528 $(4,574) $72,954 $ 3,207 $729,809
======== ======== ======= ======== ======== ========
</TABLE>

See accompanying notes to unaudited pro forma combined financial statements.

F-79
<PAGE> 236

STANDARD MANAGEMENT CORPORATION

UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
JUNE 30, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL FINANCIAL ADJUSTMENTS PRO FORMA
STATEMENTS RELATED TO SAVERS LIFE AFTER ADJUSTMENTS
-------------------- TRANSFER OF TRANSFER OF RELATING TO
STANDARD SAVERS MAJOR MEDICAL MAJOR MEDICAL THE SAVERS PRO FORMA
MANAGEMENT LIFE PRODUCT LINE(5) PRODUCT LINE LIFE ACQUISITION COMBINED
---------- ------ --------------- ----------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES, REDEEMABLE
SECURITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits........ $438,968 $63,515 $(4,511)(9) 59,004 $ -- $497,972
Accounts payable and accrued
expenses.................... 5,716 545 -- 545 700(23) 6,961
Obligations under capital
lease....................... 395 -- -- -- -- 395
Notes payable................. 26,180 -- -- -- 4,000(24) 30,180
Deferred federal income
taxes....................... 3,427 -- -- -- 313(25) 3,740
Excess of net assets acquired
over acquisition cost....... 2,081 -- -- -- -- 2,081
Liabilities related to
separate accounts........... 134,808 -- -- -- -- 134,808
-------- ------- ------- -------- -------- --------
Total liabilities......... 611,575 64,060 (4,511) 59,549 5,013 676,137
Class S Cumulative Convertible
Redeemable Preferred Stock.... 1,825 -- -- -- -- 1,825
Shareholders' equity:
Common stock.................. 40,481 3,603 -- 3,603 (3,603)(26) 52,080
11,599(27)
Treasury stock (deduction).... (3,660) -- -- -- -- (3,660)
Unrealized gain (loss) on
securities available for
sale........................ (835) 322 -- 322 (322)(26) (835)
Foreign currency translation
adjustment.................. (1) -- -- -- -- (1)
Retained earnings............. 4,263 9,543 (63)(10) 9,480 (9,480)(26) 4,263
-------- ------- ------- -------- -------- --------
Total shareholders'
equity.................. 40,248 13,468 (63) 13,405 (1,806) 51,847
-------- ------- ------- -------- -------- --------
Total liabilities,
redeemable securities
and shareholders'
equity.................. $653,648 $77,528 $(4,574) $ 72,954 $ 3,207 $729,809
======== ======= ======= ======== ======== ========
</TABLE>

See accompanying notes to unaudited pro forma combined financial statements.

F-80
<PAGE> 237

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PRO FORMA ADJUSTMENTS

TRANSACTIONS RELATING TO THE SHELBY LIFE MERGER

The costs to acquire Shelby Life are allocated as follows:

<TABLE>
<S> <C>
Book value of net assets acquired based on the date of the
purchase (October 31, 1996)............................... $ 16,709
Dividend paid to former parent of Shelby Life on November 8,
1996 (DLAC)............................................... (3,000)
--------
Adjusted book value of net assets acquired................ 13,709
Increase (decrease) in Shelby Life net asset value to
reflect estimated fair value and asset reclassifications at
the date of Shelby Life acquisition:
Fixed maturity securities available for sale.............. 58,609
Fixed maturity securities held to maturity................ (60,026)
Present value of future profits (related to
acquisition)........................................... 9,372
Present value of future profits and deferred policy
acquisition costs (historical)......................... (5,335)
Goodwill (related to acquisition)......................... 9
Deferred federal income taxes............................. (1,688)
--------
Total estimated fair value adjustments................. 941
--------
Total cost to acquire Shelby Life.................... $ 14,650
========
</TABLE>

Adjustments to the pro forma combined statement of operations to give
effect to the purchase of Shelby Life as of January 1, 1996 are summarized
below.

(1) Amortization of deferred acquisition costs and present value of
future profits recorded by Shelby Life prior to the purchase has been
eliminated and replaced with the amortization of the present value of the
future profits as a result of the transaction. The portion of present value
of future profits recorded by Shelby Life prior to the purchase that
related to the purchase accounting adjustments for investments was included
in net investment income. The amount of present value of future profits
resulting from the transaction is being amortized on a constant yield basis
over the estimated life of insurance in force at the date of acquisition in
proportion to the emergence of profits over a period of 20 years, with
interest equal to the interest rate credited to the underlying policies.
Amortization of goodwill acquired in the transaction is recognized over a
20-year period on a straight-line basis.

-- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.

-- Cost of capital available to fund the acquisition.

-- The perceived likelihood of changes in insurance regulations and tax
laws.

F-81
<PAGE> 238

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

-- Complexity of the acquired company.

-- Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.

The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly this allocation may be adjusted upon final
determination of such value. Expected gross amortization of such value using
current assumptions and accretion of interest based on an interest rate equal to
the liability rate (such rate averages 6 percent) for each of the years in the
five-year period ending December 31, 2001, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING BEGINNING NET ENDING
DECEMBER 31, BALANCE AMORTIZATION BALANCE
- ------------ --------- ------------ -------
<C> <S> <C> <C> <C>
1997 ....................................................... $9,601 $ 783 $8,818
1998 ....................................................... 8,818 629 8,189
1999 ....................................................... 8,189 601 7,588
2000 ....................................................... 7,588 579 7,009
2001 ....................................................... 7,009 596 6,413
</TABLE>

The Amended Credit Agreement provides for SMC to borrow up to $16,000
in the form of a seven year reducing revolving loan arrangement. Interest
on the borrowings under the Amended Credit Agreement is determined, at the
option of SMC, to be: (i) a fluctuating rate of interest based on the
corporate base rate announced by the bank from time to time plus 1% per
annum, or (ii) a rate at LIBOR plus 3.25%. Annual principal repayments of
$2,667 begin in November 1998 and conclude in November 2003. At December
31, 1996, SMC had borrowed $16,000 under the Amended Credit Agreement at an
interest rate of 8.793% for the acquisition of Shelby Life.

F-82
<PAGE> 239

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

The interest expense on the borrowings for the Shelby Life acquisition
for the ten months ended October 31, 1996 is calculated as follows:

<TABLE>
<CAPTION>
10 MONTHS ENDED
OCTOBER 31, 1996
----------------
<S> <C>
Borrowings:
Amended Credit Agreement.................................. $10,100
=======
Subordinated convertible debt............................. 4,000
=======
Interest expense:
Amended Credit Agreement borrowings (LIBOR + 3.25%,
8.793%)................................................ 737
Subordinated convertible debt borrowings (PIK at 14.0%)... 465
-------
Total interest expense on Borrowings................... 1,202
-------
Deferred debt issuance costs:
Amended Credit Agreement borrowings....................... 24
Subordinated convertible debt borrowings.................. 12
-------
Total deferred debt issuance costs..................... 36
-------
Total interest expense and financing costs........ $ 1,238
=======
</TABLE>

(3) Federal income tax expense has been adjusted to reflect the income
tax effects of the pro forma adjustments, based on SMC's tax rate of 34
percent.

(4) Weighted average common and common equivalent shares outstanding
are increased to reflect the restricted SMC Common Stock shares issued to
DLAC, the repurchase of SMC Common Stock warrants previously issued to an
unaffiliated insurer as part of the debt issuance costs for the
subordinated convertible debt agreement and the issuance of SMC Common
Stock warrants in connection with the Amended Credit Agreement.

TRANSACTIONS RELATING TO THE TRANSFER OF THE MAJOR MEDICAL PRODUCT LINE OF
SAVERS LIFE

F-83
<PAGE> 240

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

Adjustments to the selected pro forma combined balance sheet financial data
to give effect to the transfer of the major medical product line as of June 30,
1997 are summarized below.

(6) Cash is decreased for the transfer of cash to World.

(7) Deferred federal income tax liability is recorded for the transfer
of the major medical product line to World assuming a 34 percent tax rate.

(8) Other assets is increased for the current federal income tax
recoverable for the transfer of the major medical product line assuming a
34 percent tax rate.

(9) Future policy benefits is reduced for the transfer of the
liabilities related to the major medical product line to World.

(10) Retained earnings is reduced for the loss recorded on the
transfer of the major medical product line to World.

TRANSACTIONS RELATING TO THE SAVERS LIFE ACQUISITION

In the acquisition of Savers Life, holders of Savers Life Common Stock will
receive the following consideration for each share of Savers Life Common Stock
held immediately prior to the Effective Time of the Merger: (i) $1.50 in cash,
which the holder of such share of Savers Life Common Stock may elect to receive
in shares of SMC Common Stock, (ii) $6.50 in value of shares of SMC Common
Stock, the number of such shares, to be rounded to the nearest hundredth of a
share, determined by dividing $6.50 by the Average Trading Price of SMC Common
Stock for the ten consecutive trading days ending on the fifth day prior to the
earlier of the SMC Annual Meeting and the Savers Life Special Meeting, plus
(iii) the right to receive the Performance Premium, if any. Assuming the Average
Trading Price of SMC Common Stock is $7.00, disregarding the Performance
Premium, and assuming holders of Savers Life Common Stock elect to receive $1.50
per share cash consideration in lieu of the shares of SMC Common Stock, based on
the number of shares of Savers Life Common Stock outstanding at the close of
business on June 30, 1997, SMC will pay approximately $2,670 in cash and issue
1,652,772 shares of SMC Common Stock with a value of approximately $11,569 to
acquire the Savers Life Common Stock.

In addition, SMC is expected to incur costs relating to the acquisition of
Savers Life (including legal, accounting and other fees) of approximately $700.

F-84
<PAGE> 241

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

The cost to acquire Savers Life is allocated as follows:

<TABLE>
<S> <C>
Book value of net assets acquired based on an assumed
Effective Time of June 30, 1997........................... $ 13,405
Costs to be incurred by Savers Life prior to the closing.... (495)
--------
12,910
Increase (decrease) in Savers Life net asset value to
reflect estimated fair value and asset reclassifications
at the assumed Effective Time
Fixed maturity securities available for sale.............. 14,880
Fixed maturity securities held to maturity................ (16,439)
Present value of future profits (related to
acquisition)........................................... 5,100
Deferred policy acquisition costs (historical)............ (1,444)
Goodwill (related to acquisition)......................... 632
Deferred federal income taxes............................. (700)
--------
Total estimated fair value adjustments................. 2,029
--------
Total cost to acquire Savers Life................. $ 14,939
========
</TABLE>

Adjustments to the pro forma combined statement of operations to give
effect to the acquisition of Savers Life as of January 1, 1996 are summarized
below.

(11) Net investment income is increased for the investment income
earned on the amount of borrowings under the Amended Credit Agreement that
exceed the cash payment to Savers Life stockholders that increase existing
working capital.

(12) Amortization of deferred acquisition costs recorded by Savers
Life prior to the purchase has been eliminated and replaced with the
amortization of the present value of the future profits as a result of the
transaction. The amount of present value of future profits resulting from
the transaction is being amortized on a constant yield basis over the
estimated life of insurance in force at the date of acquisition in
proportion to the emergence of profits over a period of 20 years, except
for the Medicare supplement product line which is being amortized over a
period of 10 years, with interest equal to the interest rate credited to
the underlying policies. No future value has been assigned to the major
medical product line. Amortization of goodwill acquired in the transaction
is recognized over a 20-year period on a straight-line basis.

(13) Interest expense and financing costs is increased to reflect the
increase in borrowings under the Amended Credit Agreement and amortization
of deferred debt issuance costs associated with the purchase of Savers
Life.

(14) Federal income tax expense has been adjusted to reflect the
income tax effects of the pro forma adjustments, based on SMC's tax rate of
34 percent.

(15) Weighted average common and common equivalent shares outstanding
are increased to reflect the SMC Common Stock shares issued in the
acquisition of Savers Life and the issuance of SMC Common Stock warrants in
connection with the Amended Credit Agreement.

Adjustments to the pro forma combined balance sheet to give effect to the
acquisition of Savers Life as of June 30, 1997, are summarized below.

(16) Held to maturity securities have been reclassified as available
for sale securities at the purchase consistent with the intention of new
management.

(17) Savers Life's fixed maturity securities held to maturity are
restated to estimated fair value.

F-85
<PAGE> 242

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(18) Amount is net proceeds from borrowings under the Amended Credit
Agreement, payments made to Savers Life shareholders for the purchase of
Savers Life and certain costs incurred by Savers Life in connection with
the acquisition of Savers Life prior to closing (fee paid to Daiwa and cash
payment to holders of options to purchase Savers Life Common Stock).

(19) Deferred policy acquisition costs of Savers Life have been
eliminated under purchase accounting.

(20) Present value of future profits for business has been recorded
from existing insurance acquired in association with the purchase of Savers
Life. The 15 percent discount rate used to determine such value is the rate
of return required by SMC to invest in the business being acquired. In
determining such rate of return, the following factors are considered:

- The magnitude of the risks associated with each of the actuarial
assumptions used in determining the expected cash flows.

- Cost of capital available to fund the acquisition.

- The perceived likelihood of changes in insurance regulations and tax
laws.

- Complexity of the acquired company.

- Prices paid (i.e., discount rates used in determining valuations) on
similar blocks of business sold recently.

The value allocated to the cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon
final determination of such value. Expected gross amortization of such
value using current assumptions and accretion of interest based on an
interest rate equal to the liability rate (such rate averages 6 percent)
for each of the years in the five-year period ending December 31, 2001, are
as follows:

<TABLE>
<CAPTION>
YEAR ENDING BEGINNING NET ENDING
DECEMBER 31, BALANCE AMORTIZATION BALANCE
------------ --------- ------------ -------
<S> <C> <C> <C>
1997........................................ $5,100 $752 $4,348
1998........................................ 4,348 686 3,662
1999........................................ 3,662 621 3,041
2000........................................ 3,041 555 2,486
2001........................................ 2,486 490 1,996
</TABLE>

(21) Goodwill acquired in the purchase of Savers Life is recognized.

(22) Other assets have been increased for the deferred debt issuance
costs of the commitment fees paid for the borrowings on the Amended Credit
Agreement.

(23) Accounts payable have been increased due to the accrual of
estimated acquisition costs associated with the transaction.

(24) Notes payable are increased to reflect the increased borrowings
under the Amended Credit Agreement for the acquisition of Savers Life. The
Amended Credit Agreement provides for SMC to borrow up to $16,000 in the
form of a seven year reducing revolving loan arrangement. Interest on the
borrowings under the Amended Credit Agreement is determined, at the option
of SMC, to be: (i) a fluctuating rate of interest to the corporate base
rate announced by the bank from time to time plus 1% per annum, or (ii) a
rate at LIBOR plus 3.25%. Annual principal repayments of $2,667 begin in
November 1998 and conclude in November 2003. At December 31, 1996, SMC had
borrowed $16,000 under the Amended Credit Agreement at a weighted average
interest rate of 8.793%. SMC anticipates

F-86
<PAGE> 243

STANDARD MANAGEMENT CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

increasing borrowings under the Amended Credit Agreement by $4,000 for the
acquisition of Savers Life at an interest rate of 9%.

(25) Deferred tax liabilities have been recorded, primarily for the
actuarially determined present value of future profits from existing
insurance, and the deferred tax assets of Savers Life are netted against
the deferred tax liabilities of SMC.

(26) The Savers Life historical shareholders' equity and related
average common and common equivalent shares outstanding is eliminated under
purchase accounting.

(27) Common stock has been increased to reflect the issuance of the
SMC Common Stock in the acquisition of Savers Life and the issuance of SMC
Common Stock warrants to Fleet Bank in connection with the increased line
of credit on the Amended Credit Agreement.

F-87
<PAGE> 244

ANNEX A

CONFORMED COPY

- --------------------------------------------------------------------------------

AGREEMENT AND PLAN OF MERGER

AMONG

STANDARD MANAGEMENT CORPORATION,

STANDARD ACQUISITION CORPORATION

AND

SAVERS LIFE INSURANCE COMPANY

DATED AS OF DECEMBER 19, 1996

- --------------------------------------------------------------------------------
<PAGE> 245

TABLE OF CONTENTS

ARTICLE I DEFINITIONS................................................... A-1
1.1 Terms Defined............................................... A-1
1.2 Other Definitional Provisions............................... A-1
ARTICLE II THE MERGER................................................... A-1
2.1 Merger...................................................... A-1
2.2 Effective Time.............................................. A-2
2.3 Terms of the Merger......................................... A-2
2.4 Articles of Incorporation, Bylaws and Directors and A-2
Officers....................................................
2.5 Conversion of Securities.................................... A-2
2.6 Stock Election.............................................. A-2
2.7 Election Procedure.......................................... A-3
2.8 Exchange Agent.............................................. A-3
2.9 Dividends; Transfer Taxes................................... A-4
2.10 No Fractional Securities.................................... A-4
2.11 Return of Exchange Fund and Fractional Securities Fund...... A-5
2.12 Adjustment of Exchange Ratio................................ A-5
2.13 No Further Ownership Rights in Savers Common Stock.......... A-5
2.14 Dissenting Shares........................................... A-5
2.15 Lost Certificates........................................... A-5
2.16 Closing of Company Transfer Books........................... A-5
2.17 Further Assurances.......................................... A-5
2.18 Closing..................................................... A-6
ARTICLE III PERFORMANCE PREMIUM......................................... A-6
3.1 December 31, 1997 Performance Premium....................... A-6
3.2 December 31, 1998 Performance Premium....................... A-6
3.3 Allocation.................................................. A-6
3.4 Cash or SMC Common Stock.................................... A-6
3.5 Delivery of Performance Premiums............................ A-7
3.6 Arbitration................................................. A-7
3.7 Assignability............................................... A-7
3.8 Contingent Payment Committee................................ A-7
3.9 Right to Offset............................................. A-8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SAVERS..................... A-9
4.1 Organization................................................ A-9
4.2 Authority................................................... A-9
4.3 Capital Stock............................................... A-9
4.4 No Subsidiaries............................................. A-9
4.5 No Conflicts or Violations.................................. A-9
4.6 Books and Records........................................... A-10
4.7 SAP Statements.............................................. A-10
4.8 GAAP Statements............................................. A-10
4.9 Registration Statement and Proxy Statement.................. A-11
4.10 Availability of Assets...................................... A-11
4.11 No Other Financial Statements............................... A-11
4.12 Reserves.................................................... A-11
4.13 Absence of Changes.......................................... A-11
4.14 No Undisclosed Liabilities.................................. A-13
4.15 Taxes....................................................... A-14
4.16 Litigation.................................................. A-15

A-i
<PAGE> 246
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.17 Compliance With Laws........................................ A-15
4.18 Benefit Plans, ERISA........................................ A-16
4.19 Employee Relations.......................................... A-18
4.20 Properties.................................................. A-18
4.21 Environmental Matters....................................... A-19
4.22 Contracts................................................... A-20
4.23 Insurance Issued by Savers.................................. A-21
4.24 Threats of Cancellation..................................... A-22
4.25 Licenses and Permits........................................ A-22
4.26 Operations Insurance........................................ A-22
4.27 Intercompany Accounts....................................... A-23
4.28 Bank Accounts............................................... A-23
4.29 Brokers..................................................... A-23
4.30 Disclosure.................................................. A-23
4.31 State Takeover Statutes..................................... A-23
4.32 Sensitive Payments.......................................... A-23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SMC......................... A-24
5.1 Organization................................................ A-24
5.2 Authority................................................... A-24
5.3 No Conflicts or Violations.................................. A-24
5.4 Registration Statement and Proxy Statement.................. A-25
5.5 Litigation.................................................. A-25
5.6 Capitalization.............................................. A-25
5.7 Brokers..................................................... A-25
5.8 Disclosure.................................................. A-25
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SAC................. A-26
6.1 Organization and Standing................................... A-26
6.2 Capital Structure........................................... A-26
6.3 Authority................................................... A-26
6.4 No Conflicts or Violations.................................. A-26
ARTICLE VII COVENANTS OF SAVERS......................................... A-27
7.1 Conduct of Business......................................... A-27
7.2 Financial Statements and Reports............................ A-28
7.3 Investments................................................. A-28
7.4 Employee Matters............................................ A-28
7.5 No Charter Amendments....................................... A-29
7.6 No Issuance of Securities................................... A-29
7.7 No Dividends................................................ A-29
7.8 No Disposal of Property..................................... A-29
7.9 No Breach or Default........................................ A-29
7.10 No Indebtedness............................................. A-29
7.11 No Acquisitions............................................. A-29
7.12 Intercompany Liabilities.................................... A-30
7.13 Tax Matters................................................. A-30
7.14 Notice and Cure............................................. A-30
ARTICLE VIII COVENANTS OF SMC........................................... A-30
8.1 Notice and Cure............................................. A-30
8.2 Form A Filing............................................... A-30
8.3 Jerry Stoltz to be Appointed a Director..................... A-30
8.4 Election of Common Stock Performance Premium Payment........ A-30
</TABLE>

A-ii
<PAGE> 247
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE IX ADDITIONAL AGREEMENTS........................................ A-30
9.1 Stockholder Approval........................................ A-30
9.2 Registration Statement and Proxy Statement.................. A-31
9.3 Stock Exchange Listing...................................... A-31
9.4 Reasonable Efforts.......................................... A-31
9.5 State Takeover Laws......................................... A-32
9.6 Improvements Act Filings.................................... A-32
9.7 Financial Statements........................................ A-32
9.8 Certain Notices............................................. A-32

ARTICLE X CONDITIONS OF BOTH PARTIES.................................... A-32
10.1 Stockholder Approval........................................ A-32
10.2 NASDAQ Listing.............................................. A-32
10.3 Regulatory Approvals........................................ A-32
10.4 Registration Statement...................................... A-32
ARTICLE XI CONDITIONS TO OBLIGATIONS OF SMC AND SAC..................... A-33
11.1 Representations and Warranties.............................. A-33
11.2 Performance................................................. A-33
11.3 Certificates of Officer of Savers........................... A-33
11.4 No Injunction............................................... A-33
11.5 No Proceeding or Litigation................................. A-33
11.6 Consents, Authorizations, etc............................... A-33
11.7 No Adverse Change........................................... A-34
11.8 Opinion of Counsel.......................................... A-34
11.9 Approval by Fleet and Conseco............................... A-34
11.10 Employment Agreement........................................ A-34
11.11 Lockup Agreements........................................... A-34
11.12 Dissenters' Rights.......................................... A-34
11.13 SMC Stockholders Approval................................... A-34
11.14 Savers Adjusted Capital and Surplus......................... A-34
11.15 Savers Stockholders Approval................................ A-34
ARTICLE XII CONDITIONS TO OBLIGATIONS OF SAVERS......................... A-34
12.1 Representations and Warranties.............................. A-34
12.2 Performance................................................. A-34
12.3 Officers' Certificates...................................... A-34
12.4 No Injunction............................................... A-35
12.5 No Proceeding or Litigation................................. A-35
12.6 Consents, Authorizations, etc............................... A-35
12.7 Opinion of Counsel.......................................... A-35
ARTICLE XIII SURVIVAL OF PROVISIONS; REMEDIES........................... A-35
13.1 Survival.................................................... A-35
13.2 Available Remedies.......................................... A-35
ARTICLE XIV TERMINATION................................................. A-35
14.1 Termination................................................. A-35
14.2 Effect of Termination....................................... A-36
14.3 Certain Payments............................................ A-36
ARTICLE XV MISCELLANEOUS................................................ A-37
15.1 Notices..................................................... A-37
15.2 Entire Agreement............................................ A-38
15.3 Expenses.................................................... A-38
15.4 Public Announcements........................................ A-38
</TABLE>

A-iii
<PAGE> 248
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
15.5 Confidentiality............................................. A-38
15.6 Waiver...................................................... A-38
15.7 Amendment................................................... A-39
15.8 Counterparts................................................ A-39
15.9 No Third Party Beneficiary.................................. A-39
15.10 Governing Law............................................... A-39
15.11 Binding Effect.............................................. A-39
15.12 Assignment.................................................. A-39
15.13 Headings, etc............................................... A-39
15.14 Invalid Provisions.......................................... A-39
</TABLE>

A-iv
<PAGE> 249

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of December 19, 1996, among STANDARD
MANAGEMENT CORPORATION, an Indiana corporation ("SMC"), STANDARD ACQUISITION
CORPORATION, a North Carolina corporation ("SAC") and SAVERS LIFE INSURANCE
COMPANY, a North Carolina domestic stock insurance company ("Savers") (SAC and
Savers being hereinafter collectively referred to as the "Constituent
Corporations").

RECITALS

WHEREAS, subject to the terms hereof, SMC, SAC and Savers have agreed to
the statutory merger (the "Merger") of SAC and Savers upon the terms and
conditions set forth herein, pursuant to which each issued and outstanding share
of common stock, no par value, of Savers (the "Savers Common Stock") will be
converted into shares of the common stock, no par value, of SMC ("SMC Common
Stock") and cash.

WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");

WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a purchase; and

WHEREAS, SMC, SAC and Savers desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.

NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants made herein and of the mutual benefits to be derived herefrom, the
parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 TERMS DEFINED. The capitalized terms used in this Merger Agreement and
not otherwise defined herein shall have the meanings specified in Exhibit A,
which Exhibit is incorporated herein by reference.

1.2 OTHER DEFINITIONAL PROVISIONS. Unless the context otherwise requires,
(a) references in this Merger Agreement to the singular number shall include the
plural, and the plural number shall include the singular; (b) words denoting
gender shall include the masculine, feminine and neuter; (c) the words "hereof,"
"herein" and "hereunder" and words of similar import refer to this Merger
Agreement as a whole and not to any particular provision of this Merger
Agreement, (d) unless otherwise specified, all Article and Section references
pertain to this Merger Agreement, and all references to Exhibits or Schedules
are to the Exhibits or Schedules to this Merger Agreement; (e) the term "or"
means "and/or"; and (f) the phrase "ordinary course of business and consistent
with past practice" refers to the business and practice of Savers.

ARTICLE II

THE MERGER

2.1 MERGER. Upon the terms and subject to the conditions hereof, and in
accordance with the North Carolina Business Corporation Act (the "NCBCA"), SAC
shall be merged with and into Savers at the Effective Time (as hereinafter
defined). At the election of SMC, any direct wholly-owned subsidiary of SMC may
be substituted for SAC as a constituent corporation in the Merger. In such
event, the parties agree to execute an appropriate amendment to this Merger
Agreement in order to reflect the foregoing. Following the Merger, the separate
corporate existence of SAC shall cease, and Savers shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of SAC in accordance with the NCBCA.

A-1
<PAGE> 250

2.2 EFFECTIVE TIME. The Merger shall become effective when the Articles of
Merger (the "Articles of Merger"), executed in accordance with the relevant
provisions of the NCBCA, are filed with the Secretary of State of the State of
North Carolina; provided, however, that, upon mutual consent of the Constituent
Corporations the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 90 days after the date the Articles of
Merger are filed. When used in this Merger Agreement, the term "Effective Time"
shall mean the later of the date and time at which the Articles of Merger are
accepted for record or such later time established by the Articles of Merger.
The filing of the Articles of Merger shall be made as soon as practicable after
the satisfaction or waiver of the conditions to the Merger set forth herein.

2.3 TERMS OF THE MERGER. The Merger shall have the effects set forth in
Section 55-11-06 of the NCBCA.

2.4 ARTICLES OF INCORPORATION, BYLAWS AND DIRECTORS AND OFFICERS. The
Articles of Incorporation and Bylaws of SAC, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. The directors and officers of SAC at the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors have been duly elected or appointed in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation or by
applicable law.

2.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue of the
Merger and without any action on the part of any stockholder of Savers:

(a) All shares of Savers Common Stock that are held in the treasury of
Savers or by any wholly-owned Subsidiary of Savers and any shares of Savers
Common Stock owned by SMC, SAC or any other wholly-owned Subsidiary of SMC
shall be cancelled, and no capital stock of SMC or other consideration
shall be delivered in exchange therefor.

(b) Each issued and outstanding share of capital stock of SAC shall be
converted into and become one fully paid and nonassessable share of Common
Stock, no par value per share, of the Surviving Corporation.

(c) Subject to the provisions of Sections 2.10 and 2.12 hereof, each
share of Savers Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with
Section 2.5(a)) shall be converted into (i) subject to Section 2.6, below,
$2.00 in cash, plus (ii) $6.00 in value of shares of SMC Common Stock, the
number of such shares, to be rounded to the nearest hundredth of a share,
determined by dividing $6.00 by the average of the trading prices as
reported by the NASDAQ National Market (the "Average Trading Price") of SMC
Common Stock for the ten (10) consecutive trading days ending on the fifth
day prior to the earlier of the SMC Stockholders Meeting or the Savers
Stockholders Meeting, plus (iii) the Performance Premium described in
Article III, below. All such shares of Savers Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and each holder of a Certificate (as defined in
Section 2.8(a)) representing any such shares shall cease to have any rights
with respect thereto, except the right to receive shares of SMC Common
Stock, cash as provided in this Section 2.5 and Section 2.6 and the
Performance Premium, certain dividends and other distributions as
contemplated by Section 2.9 and any cash, without interest, in lieu of
fractional shares to be issued or paid in consideration therefor upon the
surrender of such Certificate in accordance with Section 2.8.

(d) Each option to purchase Savers Common Stock ("Savers Stock
Option") outstanding immediately prior to the Effective Time shall be
converted into the right to receive cash from Savers equal in amount with
respect to each such option to the difference between $8.00 per option
share and the exercise price for each such option.

2.6 STOCK ELECTION. Each holder of Savers Common Stock may elect to receive
SMC Common Stock in lieu of the cash to which such holder would otherwise be
entitled pursuant to Section 2.5(c). In the event that any holder of Savers
Common Stock shall make such election, such holder shall be entitled to receive,
in lieu of the cash into which such Savers Common Stock would otherwise be
converted pursuant to Section 2.5(c),

A-2
<PAGE> 251

an additional number of shares of SMC Common Stock, rounded to the nearest
hundredth of a share, determined by dividing $2.00 by the Average Trading Price
applied in Section 2.5(c).

2.7 ELECTION PROCEDURE. Each holder of shares of Savers Common Stock may
indicate (an "Election") in a request made in accordance with this Section 2.7
whether such holder wishes to receive cash or SMC Common Stock pursuant to
Section 2.5(c)(ii):

(a) SMC shall prepare a form (the "Form of Election") pursuant to
which each holder of Savers Common Stock may make an Election. The Form of
Election shall be mailed to stockholders of record of Savers as of the
record date for the Savers Stockholder Meeting and shall accompany the
Proxy Statement.

(b) Savers shall use reasonable commercial efforts to make the Form of
Election available to all persons who become stockholders of record of
Savers during the period between such record date and the fifth Business
Day prior to the date of the Savers Stockholders Meeting.

(c) An Election shall have been properly made only if the Exchange
Agent shall have received, by 5:00 p.m. on the last Business Day preceding
the date of the Savers Stockholders Meeting (the "Election Date") a Form of
Election properly completed and signed.

(d) Any holder of record of shares of Savers Common Stock may at any
time prior to the Election Date change his Election by written notice
received at or prior to the Election Date accompanied by a properly
completed Form of Election. SMC shall have the right in its sole discretion
to permit changes in Elections after the Election Date.

(e) Any holder of record of shares of Savers Common Stock may at any
time prior to the Election Date revoke his Election by written notice
received at or prior to the Election Date. Any Election relating to shares
of Savers Common Stock which become Dissenting Shares shall be deemed
automatically revoked as of the Election Date.

(f) SMC and Savers shall have the right to make rules, not
inconsistent with the terms of this Merger Agreement, governing the
validity of Forms of Election, the issuance and delivery of certificates
for shares of SMC Common Stock into which shares of Savers Common Stock are
converted in the Merger and the payment for the portion of shares of Savers
Common Stock converted into the right to receive cash in the Merger.

2.8 EXCHANGE AGENT.

(a) Delivery of Certificates and Cash. SMC shall authorize a
commercial bank (or such other person or persons as shall be acceptable to
SMC and Savers) to act as Exchange Agent hereunder (the "Exchange Agent").
As soon as practicable after the Effective Time, (i) SMC shall deposit with
the Exchange Agent in trust for the holders of certificates which
immediately prior to the Effective Time represented shares of Savers Common
Stock (the "Certificates") certificates representing the shares of SMC
Common Stock, into which the outstanding shares of Savers Common Stock have
been converted pursuant to Section 2.5(c)(i) and Section 2.6 and (ii) SMC
shall make available to the Surviving Corporation, which in turn shall
deposit with the Exchange Agent in trust for the holders of the
Certificates, the cash into which the outstanding shares of Savers Common
Stock have been converted pursuant to Section 2.5(c)(ii), (such shares of
SMC Common Stock, together with any dividends or distributions with respect
thereto and such cash, being hereinafter referred to as the "Exchange
Fund").

(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted pursuant to Section 2.5 and Section
2.6 a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon actual delivery of the Certificates to the Exchange Agent and shall
contain instructions for use in effecting the surrender of the Certificates
in exchange for certificates representing shares of SMC Common Stock and
cash). Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of

A-3
<PAGE> 252

whole shares of SMC Common Stock plus any cash which such holder has the
right to receive pursuant to this Article II, and the Certificate so
surrendered shall forthwith be cancelled. Until surrendered as contemplated
by this Section 2.8, each Certificate shall, at and after the Effective
Time, be deemed to represent only the right to receive, upon surrender of
such Certificate, certificates representing the appropriate number of
shares of SMC Common Stock and the appropriate amount of cash, cash in lieu
of fractional shares as contemplated by Section 2.10 and certain dividends
and other distributions as contemplated by Section 2.9.

2.9 DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that are
declared on or after the Effective Time on SMC Common Stock or are payable to
the holders of record thereof on or after the Effective Time will be paid to
persons entitled by reason of the Merger to receive certificates representing
SMC Common Stock until such persons surrender their Certificates, as provided in
Section 2.8, and no cash payment pursuant to Section 2.5(c)(ii) or in lieu of
fractional shares pursuant to Section 2.10 shall be paid to any such holder
until such holder of such Certificate shall so surrender such Certificate.
Subject to the effect of applicable law, there shall be paid to the record
holder of the certificates representing such SMC Common Stock (i) at the time of
such surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to whole shares
of such SMC Common Stock and having a record date on or after the Effective Time
and a payment date prior to such surrender and (ii) at the appropriate payment
date or as promptly as practicable thereafter, the amount of dividends or other
distributions payable with respect to whole shares of SMC Common Stock and
having a record date on or after the Effective Time but prior to surrender and a
payment date subsequent to surrender. In no event shall the person entitled to
receive such dividends or other distributions be entitled to receive interest on
such dividends or other distributions. If any cash or certificate representing
shares of SMC Common Stock is to be paid to or issued in a name other than that
in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of certificates for such shares
of SMC Common Stock or delivery of such cash to a Person other than the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.

2.10 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of SMC Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article II, and no SMC dividend or
other distribution or stock split shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder of SMC. In lieu of any such fractional securities,
each holder of Savers Common Stock who would otherwise have been entitled to a
fraction of a share of SMC Common Stock upon surrender of Certificates for
exchange pursuant to this Article II will be paid, in addition to the cash to
which such holder is entitled pursuant to Section 2.5(c)(ii), an amount in cash
(without interest) equal to such holder's proportionate interest in the net
proceeds from the sale or sales in the open market by the Exchange Agent, on
behalf of all such holders, of the aggregate fractional shares of SMC Common
Stock issued pursuant to this Article II. As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (x) the number
of full shares of SMC Common Stock delivered to the Exchange Agent by SMC over
(y) the aggregate number of full shares of SMC Common Stock to be distributed to
holders of Savers Common Stock pursuant to Section 2.8(b) (such excess being
herein called the "Excess Shares") and the Exchange Agent, as agent for the
former holders of Savers Common Stock, shall sell the Excess Shares at the
prevailing prices on the NASDAQ National Market. The sale of the Excess Shares
by the Exchange Agent shall be executed on the NASDAQ National Market through
one or more member firms of NASDAQ and shall be executed in round lots to the
extent practicable. SMC shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of Excess Shares. Until
the net proceeds of such sale have been distributed to the former stockholders
of Savers, the Exchange Agent will hold such proceeds in trust for such former
stockholders (the "Fractional Securities Fund"). As soon as practicable after
the determination of the amount of cash to be paid to former

A-4
<PAGE> 253

stockholders of Savers in lieu of any fractional interests, the Exchange Agent
shall make available in accordance with this Merger Agreement such amounts to
such former stockholders.

2.11 RETURN OF EXCHANGE FUND AND FRACTIONAL SECURITIES FUND. Any portion of
the Exchange Fund and the Fractional Securities Fund which remains undistributed
to the former stockholders of Savers for one year after the Effective Time shall
be delivered to SMC, upon demand of SMC, and any former stockholders of Savers
who have not theretofore complied with this Article II shall thereafter look
only to SMC for payment of their claim for SMC Common Stock, cash, including any
cash in lieu of fractional shares of SMC Common Stock, and any dividends or
distributions with respect to SMC Common Stock.

2.12 ADJUSTMENT OF EXCHANGE RATIO. In the event of any reclassification,
stock split or stock dividend with respect to SMC Common Stock (or if a record
date with respect to any of the foregoing should occur) between the time the
exchange ratio is established and the Effective Time, appropriate and
proportionate adjustments, if any, shall be made to the exchange ratios referred
to in Sections 2.5 and 2.6.

2.13 NO FURTHER OWNERSHIP RIGHTS IN SAVERS COMMON STOCK. All shares of SMC
Common Stock and cash issued or delivered upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Sections 2.5(c)(ii), 2.9 or 2.10) shall be deemed to have been
issued or delivered in full satisfaction of all rights pertaining to the shares
of Savers Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distribution with a record
date prior to the Effective Time which may have been declared or made by Savers
on such shares of Savers Common Stock in accordance with the terms of this
Merger Agreement.

2.14 DISSENTING SHARES. Notwithstanding anything in this Merger Agreement
to the contrary, shares of Savers Common Stock which immediately prior to the
Effective Time are held by shareholders who have properly exercised dissenters'
rights under Article 13 of the NCBCA (the "Dissenting Shares") shall not be
converted as provided in Section 2.5 hereof, but the holders of Dissenting
Shares shall be entitled to receive such consideration as shall be determined
pursuant to Article 13 of the NCBCA; provided, however, that, if any such holder
shall withdraw or lose such holder's right to dissent and payment under the
NCBCA, such holder's outstanding shares of Savers Common Stock shall thereupon
be deemed to have been converted as of the Effective Time as provided in Section
2.5, without any adjustment for interest, and such shares shall no longer be
Dissenting Shares. Savers shall give SMC prompt notice of any demands for
payment under Section 55-13-21 of Article 13 of the NCBCA received by Savers.
Except as required by applicable law, prior to the Effective Time, Savers shall
not, except with the prior written consent of SMC, make any payment with respect
to, or settle or offer to settle, any such demands.

2.15 LOST CERTIFICATES. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed, the Exchange Agent
shall deliver to such person the certificates representing the SMC Common Stock
and the amount of cash to which the holder of such lost, stolen or destroyed
certificate is entitled pursuant to this Article II. When authorizing such
payment in exchange for any lost, stolen or destroyed Certificate, the person to
whom such certificates and cash are to be delivered shall, as a condition
precedent to such delivery, give the Surviving Corporation an affidavit of lost
certificate and indemnity agreement, indemnifying the Surviving Corporation
against loss, or a bond satisfactory to the Surviving Corporation in such sum as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to the Surviving Corporation against any claim that may be made
against SMC, SAC or the Surviving Corporation with respect to the Certificate
alleged to have been lost, stolen or destroyed.

2.16 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of Savers shall be closed, and no transfer of shares of Savers
Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged as provided in this Article II.

2.17 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving

A-5
<PAGE> 254

Corporation, its right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of either of the
Constituent Corporations, or (b) otherwise to carry out the purposes of this
Merger Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in the
name and on behalf of either of the Constituent Corporations in the Merger, all
such deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of such Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise to carry out
the purposes of this Merger Agreement.

2.18 CLOSING. The closing of the transactions contemplated by this Merger
Agreement (the "Closing") shall take place at the offices of Womble Carlyle
Sandridge & Rice, PLLC, in Winston-Salem, North Carolina at 10:00 a.m. local
time, on the second business day after the day on which the last of the
conditions set forth in Articles X, XI and XII hereof shall have been fulfilled
or waived or at such other time and place as SMC and Savers shall agree.

ARTICLE III

PERFORMANCE PREMIUM

A holder of record of Savers Common Stock at the Effective Time ("Record
Holder") shall have the following contractual right to receive additional cash
or, at the option of SMC, shares of SMC Common Stock, subject to the terms and
conditions contained herein:

3.1 DECEMBER 31, 1997 PERFORMANCE PREMIUM. If the Surviving Corporation
shall have after-tax net income on a statutory basis for the full calendar year
ending December 31, 1997 ("1997 Statutory Net Income") in excess of 15% of the
total consideration issued or payable to the stockholders of Savers pursuant to
Section 2.5 and Section 2.6 (the "1997 Required Return"), the Record Holders
shall be entitled to receive a Performance Premium (the "1997 Performance
Premium") equal to (a) the excess of 1997 Statutory Net Income over the 1997
Required Return, plus (b) $1,000,000.

3.2 DECEMBER 31, 1998 PERFORMANCE PREMIUM. If the Surviving Corporation
shall have after-tax net income on a statutory basis for the full calendar year
ending December 31, 1998 ("1998 Statutory Net Income") in excess of 15% of the
total consideration issued or payable to the stockholders of Savers pursuant to
Section 2.5, Section 2.6 and Section 3.1 (the "1998 Required Return") the Record
Holders shall be entitled to receive a Performance Premium (the "1998
Performance Premium") equal to (a) the excess of 1998 Statutory Net Income over
the 1998 Required Return, plus (b) $1,000,000.

3.3 ALLOCATION. The Performance Premiums, if any, shall be allocated among
the Record Holders on the basis of the number of shares of Savers Common Stock
held immediately prior to the Effective Time.

3.4 CASH OR SMC COMMON STOCK.

(a) The 1997 Performance Premium and the 1998 Performance Premium
shall be payable either in cash or in shares of SMC Common Stock, or a
combination thereof, at the sole option of SMC. If SMC elects to pay either
Performance Premium, in whole or in part, in shares of SMC Common Stock,
such payment shall consist of the number of shares of SMC Common Stock
determined by dividing (i) the amount of cash to which each Record Holder
would be entitled in payment of such Performance Payment by (ii) the
Average Trading Price of SMC Common Stock for the ten (10) consecutive
trading days ending on the fifth day prior to the payment date of such
Performance Premium, rounded to the nearest hundredth of a share.

(b) The 1997 Performance Premium and the 1998 Performance Premium
shall be calculated as of December 31, 1997, and December 31, 1998,
respectively, based upon the Surviving Corporation's Annual Statements for
the years then ended as filed with the North Carolina Department of
Insurance. The calculations shall be made no later than April 30, of 1998
and 1999, and the payment dates shall be no later than May 31 of 1998 and
1999, respectively.

A-6
<PAGE> 255

3.5 DELIVERY OF PERFORMANCE PREMIUMS.

(a) Promptly after the calculation by SMC of the final 1997
Performance Premium and the final 1998 Performance Premium, as the case may
be, SMC shall deliver, to the Exchange Agent in trust for the Record
Holders, the cash or certificates representing the SMC Common Stock payable
with respect to such Performance Premium.

(b) In the event of any reclassification, stock split or stock
dividend with respect to the SMC Common Stock, any change of the SMC Common
Stock into other securities or any other dividend or distribution with
respect to the SMC Common Stock, other than normal quarterly dividends, as
the same may be adjusted from time to time in the ordinary course, or if a
record date with respect to any of the foregoing should occur between the
time the exchange ratio is established and the applicable payment date, the
number of shares determined in accordance herewith shall be appropriately
adjusted so as to afford the equitable benefit of such changes to the
Record Holders.

(c) Unless and until a certificate for the Performance Premium shall
be delivered to the Record Holders, no dividends payable to holders of
record of shares of SMC Common Stock shall be paid to the Record Holders,
but there shall be paid to the Record Holders (i) upon such delivery to the
Record Holders or as soon as practicable thereafter, the amount, without
interest, of the cash dividends with a record date after the applicable
payment date and a payment date prior to the date of delivery of such
certificate to the Record Holder; and (ii) at the appropriate payment date
or as soon as practicable thereafter, the amount, without interest, of any
cash dividends with a record date prior to the delivery of the certificate
to the Record Holders and a payment date subsequent to such delivery;
provided that, with respect to both (i) and (ii) above, such Record Holder
shall not be entitled to receive any such payments for dividends with a
record date for dividends prior to the applicable payment date.

(d) The Exchange Agent shall deliver any certificates representing the
Performance Premium payable to the Record Holders pursuant to this Article
III to the Record Holders at the addresses of the Record Holders as they
appeared on the stock records of Savers at the Effective Time or such other
addresses as the Record Holders shall provide to the Exchange Agent by
written notice. No fractional shares of SMC Common Stock shall be issued or
delivered pursuant to this Article III. In lieu of any fractional shares,
any Record Holder entitled hereunder to receive fractional shares of SMC
Common Stock but for this Section 3.5(d) will be entitled hereunder to
receive instead a cash payment in lieu thereof, without interest, in an
amount equal to (i) the fraction of a share to which such Record Holder
would otherwise have been entitled multiplied by (ii) the Average Trading
Price of SMC Common Stock for the ten (10) consecutive trading days ending
on the fifth day prior to the payment date of such Performance Premium,
rounded to the nearest hundredth of a share.

3.6 ARBITRATION. Any dispute, controversy or claim arising in connection
with the calculation of the Performance Premiums shall be settled by arbitration
by three arbitrators to be appointed pursuant to the Rules of the American
Arbitration Association and said arbitration shall be conducted in accordance
with the Rules of said Association. The arbitration shall be held in
Indianapolis, Indiana. The determination of the arbitrators shall be final and
binding on the parties. The expenses of the arbitration shall be borne equally
between SMC on the one hand, and the Record Holders, on the other. All fees and
expenses of the Record Holders shall be subtracted from the Performance
Premiums; provided, however, that the arbitrators shall have the discretion to
award fees and expenses to the prevailing party. Judgment upon the award entered
by the arbitrators may be entered in any court having jurisdiction.

3.7 ASSIGNABILITY. The right of each Record Holder to receive shares of SMC
Common Stock pursuant to this Merger Agreement may not be assigned or
transferred in any manner whatsoever except by operation of law or by will.

3.8 CONTINGENT PAYMENT COMMITTEE. There shall be a "Contingent Payment
Committee" consisting of three (3) members having the duties set forth in this
Article III. The initial members will be William G. White, Jr., William
Granberry and J. Leon Rumley. Any vacancy in the Contingent Payment Committee

A-7
<PAGE> 256

caused by the death, resignation or incapacity of a member shall be filled by
appointment by the remaining members of the committee, or, if none, by Jerry D.
Stoltz, Sr. or Jerry Francis.

3.9 RIGHT TO OFFSET.

(a) SMC shall have the right to offset against the Performance
Premiums the amount of Losses (as defined in paragraph (b) hereof) incurred
by SMC or any of its Affiliates in connection with or arising from any
breach or alleged breach of any representation, warranty, covenant or other
undertaking of Savers contained in this Merger Agreement.

(b) For purposes of this Section, "Losses" shall mean any and all
losses, costs, obligations, liabilities, settlement payments, awards,
judgments, fines, penalties, damages and expenses (including, but not
limited to, any and all reasonable expenses incurred in connection with
investigating or defending any claim, action, suit or proceeding incident
to any matter indemnified against hereunder, and any and all reasonable
fees, and disbursements of legal counsel, investigators, accountants,
consultants and witnesses) arising after the Effective Time. Amounts
payable to the broker identified in Section 4.29 shall not be considered as
a Loss under this Section 3.9.

(c) Any claim on account of Losses which is not a Third Party Claim
(as defined below) shall be asserted by written notice (a "Claim Notice")
given by SMC to the Contingent Payment Committee. A Claim Notice in respect
to any action at law or suit in equity by a third party as to which
indemnification will be sought ("Third Party Claim") shall be given
promptly after the action, suit, investigation, or proceeding is commenced;
provided, further, that failure to give such notice shall not prejudice SMC
hereunder, unless such failure shall have materially prejudiced the Record
Holders. Any Claim Notice shall describe in reasonable detail the facts
giving rise to a claim for indemnification hereunder, the amount or method
of computation of the amount of such claim, and a reference to the
representation and warranty which is alleged to have been breached. The
Contingent Payment Committee shall have a period of 30 days within which to
respond thereto. If the Contingent Payment Committee does not respond
within such 30-day period, the Contingent Payment Committee shall be deemed
to have accepted the claim for offset against the Performance Premium and
shall have no further right to contest the validity of such claim. If the
Contingent Payment Committee does respond within such 30-day period and
rejects such claim in whole or in part, the dispute shall be resolved: (i)
by the written agreement between SMC and the Contingent Payment Committee;
(ii) by binding arbitration pursuant to Section 3.6 hereof; or (iii) by any
other means to which SMC and the Contingent Payment Committee shall agree.

(d) In the event any Claim Notice received by the Contingent Payment
Committee remains unresolved on any payment date, the portion of the
Performance Premium, if any, which is not subject to any claim of offset
shall be paid in accordance with this Article III.

(e) SMC shall have the right to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any Third Party
Claim as to which indemnification will be sought by SMC hereunder;
provided, that the Contingent Payment Committee may participate, through
counsel chosen by it and at its own expense, in the defense of any claim,
action or suit as to which SMC has so elected to conduct and control the
defense thereof; and provided, further, that SMC shall not, without the
written consent of the Contingent Payment Committee (which written consent
shall not be unreasonably withheld), pay, compromise or settle any such
claim, action or suit, except that no such consent shall be required if,
following a written request from SMC, the Contingent Payment Committee
shall fail, within 14 days after the making of such request, to acknowledge
and agree in writing that, if such claim, action or suit shall be adversely
determined, the Contingent Payment Committee, through the provisions of the
offset continued in this Section 3.9, has an obligation to provide
indemnification hereunder to SMC. Notwithstanding the foregoing, SMC shall
have the right to pay, settle or compromise any such claim, action or suit
without such consent, provided that in such event SMC shall waive any right
to indemnity therefor hereunder unless such consent is unreasonably
withheld.

A-8
<PAGE> 257

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SAVERS

Savers hereby represents and warrants to SMC as follows:

4.1 ORGANIZATION. Savers is a domestic stock insurance company duly
organized, validly existing and in good standing under the laws of the State of
North Carolina and has full corporate power and authority to enter into this
Merger Agreement and to perform its obligations under this Merger Agreement.
Except as disclosed in Section 4.1 of the Disclosure Schedule, Savers is duly
licensed, qualified, or admitted to do business as an insurance company and is
in good standing in all jurisdictions in which the failure to be so licensed,
qualified, or admitted and in good standing, individually or in the aggregate
with other such failures, has or may reasonably be expected to have a material
adverse effect on the validity or enforceability of this Merger Agreement, on
the ability of Savers to perform its obligations under this Merger Agreement, or
on the Business or Condition of Savers. Section 4.1 of the Disclosure Schedule
contains a true and complete list of the states in which Savers is licensed to
write life and health insurance. Savers has furnished to SMC true and complete
copies of the Articles of Incorporation (as certified by the appropriate
governmental or regulatory authorities) and the Bylaws of Savers, including all
amendments thereto. Savers has made available to SMC the minute books and stock
records of Savers. Such minute books do not omit any material minutes of
meetings or written resolutions of the board of directors, committees of the
board of directors or shareholders of Savers. Such stock records are accurate
and complete in all material respects.

4.2 AUTHORITY. The Board of Directors of Savers has duly and validly
approved this Merger Agreement and the transactions contemplated hereby. The
shareholders of Savers must approve the Merger. Subject to and upon the prior
approval by the shareholders of Savers, this Merger Agreement constitutes a
legal, valid, and binding obligation of Savers and is enforceable against Savers
in accordance with its terms, except to the extent that (a) enforcement may be
limited by or subject to any bankruptcy, insolvency, reorganization, moratorium,
or similar Laws now or hereafter in effect relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court or other similar Person before which any proceeding
therefor may be brought.

4.3 CAPITAL STOCK. The authorized common capital stock of Savers consists
of 20,000,000 shares of common stock, no par value per share, of which 1,779,908
shares are issued and outstanding at the date hereof, all of which shares are
validly issued and outstanding, fully paid and nonassessable. Except as
disclosed in Section 4.3 of the Disclosure Schedule, there are no outstanding
securities, obligations, rights, subscriptions, warrants, options, charter or
founders insurance policies, phantom stock rights, or (except for this Merger
Agreement) other Contracts of any kind that give any Person the right to (a)
purchase or otherwise receive or be issued any shares of capital stock of Savers
(or any interest therein) or any security or Liability of any kind convertible
into or exchangeable for any shares of capital stock of Savers (or any interest
therein) or (b) receive any benefits or rights similar to any rights enjoyed by
or accruing to a holder of the Common Stock, or any rights to participate in the
equity, income, or election of directors or officers of Savers. There are no
obligations of Savers to repurchase, redeem or otherwise acquire any of Savers'
securities.

4.4 NO SUBSIDIARIES. Savers does not control (whether directly or
indirectly, whether through the ownership of securities or by Contract or proxy,
and whether alone or in combination with others) any corporation, partnership,
business organization, or other similar Person.

4.5 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this Merger
Agreement by Savers does not, and the performance by Savers of its obligations
under this Merger Agreement will not:

(a) subject to obtaining the approvals contemplated by Section 4.5(e)
of the Disclosure Schedule hereof, violate any term or provisions of any
Law or any writ, judgment, decree, injunction, or similar order applicable
to Savers;

A-9
<PAGE> 258

(b) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, any of
the terms, conditions, or provisions of the Articles of Incorporation or
Bylaws of Savers;

(c) result in the creation or imposition of any Lien upon Savers or
any of its Assets and Properties that individually or in the aggregate with
any other Liens has or may reasonably be expected to have a material
adverse effect on the validity or enforceability of this Merger Agreement,
on the ability of Savers to perform its obligations under this Merger
Agreement, or on the Business or Condition of Savers or the Surviving
Corporation;

(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give
to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which Savers is a party
or by which any of its Assets or Properties may be bound and as to which
any such conflicts, violations, breaches, defaults, or rights individually
or in the aggregate have or may reasonably be expected to have a material
adverse effect on the validity or enforceability of this Merger Agreement,
on the ability of Savers to perform its obligations under this Merger
Agreement, or on the Business or Condition of Savers or the Surviving
Corporation; or

(e) require Savers to obtain any consent, approval, or action of, or
make any filing with or give any notice to, any Person except: (i) as
disclosed in Section 4.5(e) of the Disclosure Schedule; or (ii) those which
the failure to obtain, make, or give individually or in the aggregate with
any other such failures has or may reasonably be expected to have no
material adverse effect on the validity or enforceability of this Merger
Agreement, on the ability of Savers to perform its obligations under this
Merger Agreement, or on the Business or Condition of Savers or the
Surviving Corporation.

4.6 BOOKS AND RECORDS. Except as disclosed in Section 4.6 of the Disclosure
Schedule, the minute books and other similar records of Savers contain a true
and complete record, in all material respects, of all actions taken at all
meetings and by all written consents in lieu of meetings of the stockholders,
Board of Directors, and each committee thereof of Savers. The Books and Records
of Savers accurately reflect in all material respects the Business or Condition
of Savers, and have been maintained in all material respects in accordance with
good business and bookkeeping practices.

4.7 SAP STATEMENTS. Savers has previously delivered to SMC true and
complete copies of the Annual Statements, and audited SAP basis financial
statements of Savers for each of the years ended December 31, 1993, 1994, and
1995, and unaudited SAP basis financial statements of Savers for the nine months
ended September 30, 1996 (and the notes relating thereto, whether or not
included therein). Except as disclosed in Section 4.7 of the Disclosure
Schedule, each such SAP Statement complied in all material respects with all
applicable Laws when so filed, and all material deficiencies known to Savers
with respect to any such SAP Statement have been cured or corrected. Each such
SAP Statement (and the notes relating thereto, whether or not included therein),
including, without limitation, each balance sheet and each of the statements of
operations, capital and surplus account, and cash flow contained in the
respective SAP Statement, was prepared in accordance with SAP, is true and
complete in all material respects, and fairly presents the financial condition,
the Assets and Properties, and the Liabilities of Savers as of the respective
dates thereof and the results of operations and changes in capital and surplus
and in cash flow of Savers for and during the respective periods covered
thereby.

4.8 GAAP STATEMENTS. Section 4.8 of the Disclosure Schedule contains (i)
the audited balance sheets of Savers as of December 31, 1993, 1994 and 1995 and
the related statements of income, stockholders' equity and cash flows for the
years then ended, together with the appropriate notes to such financial
statements, and (ii) the unaudited balance sheet of Savers as of September 30,
1996 and 1995 and the related statements of income and cash flows for the nine
months then ended. Except as set forth therein or in the notes thereto, such
balance sheets and statements of income and cash flows, have been prepared in
conformity with generally accepted accounting principles consistently applied
except as otherwise noted, and such balance sheets and related statements of
income and cash flows present fairly the financial position and results of
operations of Savers as of their respective dates and for the respective periods
covered thereby.

A-10
<PAGE> 259

4.9 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the information
supplied or to be supplied by Savers for inclusion or incorporation by reference
in the Registration Statement or the proxy statement (together with any
amendments or supplements thereto, the "Proxy Statement") relating to the
Stockholders Meetings will (i) in the case of the Registration Statement, at the
time it becomes effective and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement and at the time of each Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Savers or its officers and directors should occur which is required to be
described in an amendment of, or a supplement to, the Proxy Statement or the
Registration Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of Savers and/or SMC as appropriate. The
Registration Statement will comply (with respect to Savers) as to form in all
material respects with the provisions of the Securities Act, and the Proxy
Statement will (with respect to Savers) comply as to form in all material
respects with the requirements of the Exchange Act.

4.10 AVAILABILITY OF ASSETS. Except as set forth in Section 4.10 of the
Disclosure Schedule, Savers owns all of the assets used in its Business
(including, but not limited to, all books, records, computers and computer
programs and data processing systems) and all such assets are in good condition
(subject to normal wear and tear) and serviceable condition and are suitable for
the uses for which intended.

4.11 NO OTHER FINANCIAL STATEMENTS. Except for the financial statements
described in Section 4.7 and Section 4.8 (collectively, the "Financial
Statements"), since September 30, 1996 no other financial statements have been
prepared by or with respect to Savers (whether on a GAAP, SAP, or other basis).

4.12 RESERVES. All reserves and other similar amounts with respect to
insurance and annuities as established or reflected in the SAP Statements of
Savers dated as of September 30, 1996 (including, without limitation, the
reserves and amounts reflected respectively on lines 1 through 11.3 of page 3 of
the September 30, 1996 Quarterly Statement), were determined in accordance with
generally accepted actuarial principles that are in accordance with those called
for by the provisions of the related insurance and annuity Contracts and in the
related reinsurance, coinsurance, and other similar Contracts of Savers, and
meet the requirements of the insurance Laws of the State of North Carolina and
states in which such insurance and annuity Contracts were issued or delivered.
All such reserves and other similar amounts will be adequate (under generally
accepted actuarial principles consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured benefits, dividends, claims,
and other Liabilities of Savers under all insurance and annuity Contracts under
which Savers has or will have any Liability (including, without limitation, any
Liability arising under or as a result of any reinsurance, coinsurance, or other
similar Contract) on the respective dates of such SAP Statements. Savers owns
assets that qualify as legal reserve assets under applicable insurance Laws in
an amount at least equal to all such required reserves and other similar
amounts.

4.13 ABSENCE OF CHANGES. Except as disclosed in Section 4.13 of the
Disclosure Schedule or as specifically reflected in the September 30, 1996 SAP
Statement, or except for changes or developments relating to the conduct of the
Business of Savers after the date of this Merger Agreement in conformity with
this Merger Agreement, since December 31, 1995, there has not been, occurred, or
arisen any change in, or any event (including without limitation any damage,
destruction, or loss whether or not covered by insurance), condition, or state
of facts of any character that individually or in the aggregate has or may
reasonably be expected to have a material adverse effect on the Business or
Condition of Savers. Except as disclosed in Section 4.13 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below), or
except as specifically reflected in the September 30, 1996 SAP Statement, since
December 31, 1995, Savers

A-11
<PAGE> 260

has operated only in the ordinary course of business and consistent with past
practice, and (without limiting the generality of the foregoing) there has not
been, occurred, or arisen:

(a) any declaration, setting aside, or payment of any dividend or
other distribution in respect of the capital stock of Savers or any direct
or indirect redemption, purchase, or other acquisition by Savers of any
such stock or of any interest in or right to acquire any such stock;

(b) any employment, deferred compensation, or other salary, wage, or
compensation Contract entered into between Savers and any of its officers,
directors, employees, agents, consultants, or similar representatives,
except for normal and customary Contracts with officers, employees, agents
and consultants in the ordinary course of business and consistent with past
practices; or any increase in the salary, wages, or other compensation of
any kind, whether current or deferred, of any officer, director, employee,
agent, consultant, or other similar representative of Savers other than
routine increases that were made in the ordinary course of business and
consistent with past practices; or any creation of any Benefit Plan or any
contribution to or amendment or modification of any Benefit Plan;

(c) any issuance, sale, or disposition by Savers of any debenture,
note, stock, or other security issued by Savers, or any modification or
amendment of any right of the holder of any outstanding debenture, note,
stock, or other security issued by Savers;

(d) any Lien created on or in any of the Assets and Properties of
Savers, or assumed by Savers with respect to any of such Assets and
Properties, which Lien relates to Liabilities individually or in the
aggregate exceeding $25,000 for Savers or which Lien individually or in the
aggregate with any other Liens has or may reasonably be expected to have a
material adverse effect on the Business or Condition of Savers or the
Surviving Corporation;

(e) any prepayment of any Liabilities individually or in the aggregate
exceeding $10,000;

(f) any Liability involving the borrowing of money by Savers;

(g) any Liability incurred by Savers in any transaction (other than
pursuant to any insurance or annuity Contract entered into in the ordinary
course of business and consistent with past practice) not involving the
borrowing of money;

(h) any damage, destruction, or loss (whether or not covered by
insurance) affecting any of the Assets and Properties of Savers, which
damage, destruction, or loss individually exceeds $25,000 or the result of
which individually or in the aggregate has or may reasonably be expected to
have a material adverse effect on the Business or Condition of Savers or
the Surviving Corporation;

(i) any work stoppage, strike, slowdown, other labor difficulty, or
(to the best knowledge of Savers) union organizational campaign (in process
or threatened) at or affecting Savers;

(j) any material change in any underwriting, actuarial, investment,
financial reporting, or accounting practices or policies followed by
Savers, or in any assumption underlying such a practices or policies, or in
any method of calculating any bad debt, contingency, or other reserve for
financial reporting purposes or for any other accounting purposes;

(k) any payment, discharge, or satisfaction by Savers of any Lien or
Liability other than Liens or Liabilities that were paid, discharged, or
satisfied since December 31, 1995 in the ordinary course of business and
consistent with past practice, or were paid, discharged, or satisfied as
required under this Merger Agreement;

(l) any cancellation of any Liability owed to Savers by any other
Person;

(m) any write-off or write-down of, or any determination to write off
or down any of, the Assets and Properties of Savers or any portion thereof,
except for write-offs or write-downs that do not exceed $10,000
individually or in the aggregate for Savers;

(n) any sale, transfer, or conveyance of any investments, or any other
Assets and Properties, of Savers with an individual book value or with an
aggregate book value in excess of $10,000, except as

A-12
<PAGE> 261

contemplated in Section 7.3, and except in the ordinary course of business
and consistent with past practices;

(o) any amendment, termination, waiver, disposal, or lapse of, or
other failure to preserve, any license, permit, or other form of
authorization of Savers, the result of which individually or in the
aggregate has or may reasonably be expected to have a material adverse
effect on the Business or Condition of Savers or the Surviving Corporation;

(p) any transaction or arrangement under which Savers paid, lent, or
advanced any amount to or in respect of, or sold, transferred, or leased
any of its Assets and Properties or any service to, (i) any employee,
officer, director or shareholder of Savers (except for payments of salaries
and wages in the ordinary course of business and consistent with past
practice, and except for payments made pursuant to any Contract disclosed
in Section 4.13(b) or Section 4.22(a) of the Disclosure Schedule), or of
any Affiliate of Savers, or of any such employee, officer, director or
shareholder; (ii) any business or other Person in which Savers, any such
employee, officer, director or shareholder, or any such Affiliate has any
material interest, except for advances made to, or reimbursements of,
officers or directors of Savers for travel and other business expenses in
reasonable amounts in the ordinary course of business and consistent with
past practice; or any Affiliate of Savers pursuant to any Contract of the
type described in Section 4.22(g);

(q) any material amendment of, or any failure to perform all of its
obligations under, or any default under, or any waiver of any right under,
or any termination (other than on the stated expiration date) of, any
Contract that involves or reasonably would involve the annual expenditure
or receipt by Savers of more than $25,000 or that individually or in the
aggregate is material to the Business or Condition of Savers or the
Surviving Corporation;

(r) any decrease in the amount of, or any material change in the
nature of, the insurance or annuities in force of Savers or any material
change in the amount or nature of the reserves, liabilities or other
similar amounts of Savers with respect to insurance and annuity Contracts
(including, without limitation, reserves and other similar amounts of a
type required to be reflected respectively on lines 1 through 11.3 on page
3 of an Annual Statement of Savers);

(s) any amendment to the Articles of Incorporation or Bylaws of
Savers;

(t) any termination, amendment, or execution by Savers of any
reinsurance, coinsurance, or other similar Contract, as ceding or assuming
insurer;

(u) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of Savers, except
for any expenditure or commitment that does not exceed $10,000 individually
or the result of which individually or in the aggregate does not have and
may not reasonably be expected to have a material adverse effect on the
Business or Condition of Savers or the Surviving Corporation;

(v) any amendment or introduction by Savers of any insurance or
annuity Contract other than in the ordinary course of business and
consistent with past practice; or

(w) any Contract to take any of the actions described in this Section
other than actions expressly permitted under this Section.

4.14 NO UNDISCLOSED LIABILITIES. Except to the extent specifically
reflected in the balance sheet included in the September 30, 1996 SAP Statement
(or in the notes relating thereto), or except as disclosed in Section 4.14 of
the Disclosure Schedule, there were no Liabilities (other than policyholder
benefits payable in the ordinary course of business and consistent with past
practices) against, relating to, or affecting Savers as of September 30, 1996
that individually or in the aggregate have or may reasonably be expected to have
a material adverse effect on the Business or Condition of Savers or the
Surviving Corporation. Except to the extent specifically reflected in the
balance sheet included in the September 30, 1996 SAP Statement (or in the notes
relating thereto), or except as disclosed in Section 4.14 of the Disclosure
Schedule, since September 30, 1996, Savers has not incurred any Liabilities
(other than policyholder benefits payable in the ordinary course

A-13
<PAGE> 262

of business and consistent with past practice) that individually or in the
aggregate have or may reasonably be expected to have a material adverse effect
on the Business or Condition of Savers or the Surviving Corporation.

4.15 TAXES. Except as disclosed in Section 4.15 of the Disclosure Schedule
(with paragraph references corresponding to those set forth below):

(a) All Tax Returns required to be filed with respect to Savers have
been duly and timely filed, and all such Tax Returns are true and complete
in all material respects. Savers has duly and timely paid all Taxes that
are due, or claimed or asserted by any taxing authority to be due, from
Savers for the periods covered by such Tax Returns or has duly provided for
all such Taxes in the Books and Records of Savers and in accordance with
GAAP and SAP, including, without limitation, in the Financial Statements.
There are no Liens with respect to Taxes (except for Liens with respect to
real and personal property Taxes not yet due) upon any of the Assets and
Properties of Savers.

(b) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Savers have made due
and sufficient current accruals for such Taxes in its Books and Records and
in accordance with SAP and GAAP, and such current accruals through the
Closing Date are duly and fully provided for in the SAP and GAAP Financial
Statements of Savers for the period then ended.

(c) The United States federal income Tax Returns of Savers and of each
affiliated group (within the meaning of the Code) of which Savers is or has
been a member have not been audited or examined by the IRS, and the statute
of limitations for all periods through the year 1989 has expired. The
state, local, and foreign income Tax Returns of Savers have not been
audited or examined, and all statutes of limitation for all applicable
state, local, and foreign taxable periods through the respective years
specified in Section 4.15(c) of the Disclosure Schedule have expired. There
are no outstanding agreements, waivers, or arrangements extending the
statutory period of limitation applicable to any claim for, or the period
for the collection or assessment of, Taxes due from Savers for any taxable
period. Savers has previously delivered to SMC true and complete copies of
each of the United States federal, state, local, and foreign income Tax
Returns, for each of the last three taxable years, filed by Savers (insofar
as such returns relate to either Savers) filed by any affiliated or
consolidated group of which Savers was then a member.

(d) No audit or other proceeding by any court, governmental or
regulatory authority, or similar Person is pending or (to the knowledge of
Savers) threatened with respect to any Taxes due from Savers or any Tax
Return filed by or relating to Savers. To the best knowledge of Savers, no
assessment of Tax is proposed against Savers or any of its Assets and
Properties.

(e) No election under any of Sections 108, 168, 338, 441, 463, 472,
1017, 1033, or 4977 of the Code (or any predecessor provisions) has been
made or filed by or with respect to Savers or any of its Assets and
Properties. No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to
Savers or any of its Assets and Properties. None of the Assets and
Properties of Savers is an asset or property that SMC or any of its
Affiliates is or will be required to treat as being owned by any other
Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately before the
enactment of the Tax Reform Act of 1986, or tax-exempt use property within
the meaning of Section 168(h)(1) of the Code. No closing agreement pursuant
to Section 7121 of the Code (or any predecessor provision) or any similar
provision of any state, local, or foreign Law has been entered into by or
with respect to Savers or any of its Assets and Properties.

(f) Savers has not agreed to nor is required to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method of Savers, and Savers does
not have any application pending with any taxing authority requesting
permission for any changes in any accounting method of Savers. To the best
knowledge of Savers, the IRS has not proposed any such adjustment or change
in accounting method.

A-14
<PAGE> 263

(g) Savers has not been or is in violation (or with notice or lapse of
time or both, would be in violation) of any applicable Law relating to the
payment or withholding of Taxes. Savers has duly and timely withheld from
employee salaries, wages, and other compensation and paid over to the
appropriate taxing authorities all amounts required to be so withheld and
paid over for all periods under all applicable Laws.

(h) Savers is not a party to, is not bound by, and has no obligation
under, any Tax sharing Contract or similar Contract; notwithstanding any
disclosure contained in the Disclosure Schedule, Savers represents and
warrants that, at the Closing, Savers shall not be a party to, be bound by
or have any obligation under, any Tax sharing Contract or similar Contract
or arrangement. Savers is not a foreign person within the meaning of
Section 1445(f)(3) of the Code.

(i) Savers has not made any direct, indirect, or deemed distributions
that have been or could be taxed under Section 815 of the Code.

(j) All ceding commission expenses paid or accrued by Savers in
connection with any reinsurance arrangement or Contract or transaction have
been capitalized and amortized over the life or lives of such reinsurance
arrangement or Contract in accordance with the decision of the United
States Supreme Court in Colonial American Life Insurance Company v.
Commissioner of Internal Revenue, 109 S.Ct. 240 (1980).

(k) No material Liabilities have been proposed in connection with any
audit or other proceeding by any court, governmental or regulatory
authority, or similar Person with respect to any Taxes due from Savers or
any Tax Return filed by or relating to Savers.

(l) Savers is a not party to any agreement, contract, plan or
arrangement that has resulted, or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.

4.16 LITIGATION. Except as disclosed in Section 4.16 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):

(a) There are no actions, suits, investigations, or proceedings
pending, or (to the best knowledge of Savers) threatened, against or
affecting Savers or any of its Assets and Properties, at law or in equity,
in, before, or by any Person that individually or in the aggregate have or
may reasonably be expected to have a material adverse effect on the
validity or enforceability of this Merger Agreement, on the ability of
Savers to perform its obligations under this Merger Agreement, or on the
Business or Condition of Savers or the Surviving Corporation.

(b) There are no actions, suits, investigations, or proceedings
pending, or (to the best knowledge of Savers) threatened, against Savers or
any of its Assets and Properties, at law or in equity, in, before, or by
any Person that individually involve a claim or claims for any injunction
or similar relief or for Damages exceeding $25,000 or an unspecified amount
of Damages.

(c) There are no writs, judgments, decrees, or similar orders of any
Person outstanding against Savers that individually exceed $10,000 or that
individually or in the aggregate have or may reasonably be expected to have
a material adverse effect on the Business or Condition of Savers, and there
are no injunctions or similar orders of any Person outstanding against
Savers or the Surviving Corporation.

4.17 COMPLIANCE WITH LAWS. To the best knowledge of Savers and except as
disclosed in Section 4.17 of the Disclosure Schedule, Savers has not been and is
not in violation (or with or without notice or lapse of time or both, would be
in violation) of any term or provision of any Law or any writ, judgment, decree,
injunction, or similar order applicable to Savers or any of its Assets and
Properties, the result of which violation individually or violations in the
aggregate has or may reasonably be expected to have a material adverse effect

A-15
<PAGE> 264

on the Business or Condition of Savers or the Surviving Corporation. Without
limiting the generality of the foregoing:

(a) Since January 1, 1996, Savers has duly and validly filed or caused
to be so filed all reports, statements, documents, registrations, filings,
or submissions that were required by Law to be filed with any Person and as
to which the failure to so file, individually in the aggregate with other
such failures, has or may reasonably be expected to have a material adverse
effect on the Business or Condition of Savers or the Surviving Corporation;
all such filings complied with applicable Laws in all material respects
when filed and, no material deficiencies have been asserted by any Person
with respect to any such filings.

(b) Savers has previously delivered to SMC the reports reflecting the
results of the most recent financial examination of Savers issued by the
North Carolina Department of Insurance. All material deficiencies or
violations in such previously issued reports have been resolved to the
satisfaction of the State of North Carolina Department of Insurance.

(c) Except as disclosed in Section 4.17(c) of the Disclosure Schedule,
all outstanding insurance and annuity Contracts issued, reinsured, or
underwritten by Savers are, to the extent required under applicable Laws,
on forms approved by the insurance regulatory authority of the jurisdiction
where issued or have been filed with and not objected to by such authority
within the period provided for objection.

(d)(1) Section 4.17(d) of the Disclosure Schedule contains a true and
complete list of each master or prototype (as well as any individually
designed) pension, profit sharing, defined benefit, Code Section 401(k),
and other retirement or employee benefit plan or Contract (including, but
not limited to, simplified employee pension plans, Code Section 403(a), (b)
and (c) annuities, Keogh plans, and individual retirement accounts and
annuities) offered or sold by Savers to, or maintained or sponsored for the
benefit of any employees of, any other Person, and each determination
letter relating to the creation or amendment of any such plan or Contract.
Except as disclosed in Section 4.17(d) of the Disclosure Schedule, each
such plan or Contract in all material respects conforms with, and has been
offered, sold, maintained, and sponsored in accordance with, all applicable
Laws. Except as disclosed in Section 4.17(d) of the Disclosure Schedule,
Savers is not a fiduciary with respect to any plan or Contract referenced
in this Section 4.17(d).

(2) Savers does not provide administrative or other contractual
services for any plan or Contract referenced in this Section 4.17(d),
including, but not limited to, any third party administrative services for
an Employee Welfare Benefit Plan.

(3) To the extent that Savers maintains any collective or commingled
funds or accounts which restrict the Persons who may invest therein to
tax-exempt entities or qualified plans, each such fund or account (of which
a true and complete list and description is disclosed in Section 4.17(d)(3)
of the Disclosure Schedule) has been established, maintained and operated
in accordance with all applicable Laws, has maintained its tax-exempt
status and has no nonqualified plans or trusts or other taxable entities
investing in it.

(4) In addition to the representations and warranties contained in
Section 4.16, there are no claims pending, or (to the best knowledge of
Savers) threatened, against Savers or any of its Assets and Properties,
under any fiduciary liability insurance policy issued by or to Savers that
individually or in the aggregate has or may reasonably be expected to have
a material adverse effect on the Business or Condition of Savers or the
Surviving Corporation.

4.18 BENEFIT PLANS, ERISA.

Except as disclosed in Section 4.18 of the Disclosure Schedule, Savers has
not had within the past six (6) years and does not currently have any Benefit
Plan or any commitment or obligation to create any Benefit Plan.

(a) Neither Savers, nor any of its respective Affiliates has any
Contract, plan, or commitment, whether legally binding or not, to create
any additional Benefit Plan or to modify or change any existing

A-16
<PAGE> 265

Benefit Plan. Each contribution or other payment required to be made or to
be voluntarily made by Savers on or before December 31, 1995 with respect
to any of the Benefit Plans has been made.

(b) None of the Benefit Plans is or has been a multi-employer plan, as
that term is defined in Section 3(37) of ERISA. There has been no
transaction, action, or omission involving Savers, any ERISA Affiliate, or
(to the best knowledge of Savers) any fiduciary, trustee, or administrator
of any Benefit Plan, or any other Person dealing with any such Benefit Plan
or the related trust or funding vehicle, that in any manner violates or
will result in a violation (with or without notice or lapse of time or
both) of Sections 404 or 406 of ERISA or constitutes or will constitute
(with or without notice or lapse of time or both) a prohibited transaction
(as defined in Section 4975(c)(I) of the Code or Section 406 of ERISA) for
which there exists neither a statutory nor a regulatory exemption and which
could subject Savers or any party in interest (as defined in Section 3(14)
of ERISA) to criminal or civil sanctions under Section 501 or 502 of ERISA,
or to Taxes under Code Section 4975, or to any other Liability.

(c) There has been no reportable event (as defined in Section 4043(b)
of ERISA) with respect to any Employee Pension Benefit Plan or any Employee
Welfare Benefit Plan for which notice to the PBGC has not been waived by
rule or regulation. Neither Savers, nor any ERISA Affiliate has any
Liability to the PBGC (other than any Liability for insurance premiums not
yet due to the PBGC), to any present or former participant in or
beneficiary of any Benefit Plan (or any beneficiary of any such participant
or beneficiary), or to any Employee Pension Benefit Plan or any Employee
Welfare Benefit Plan. No event, fact, or circumstance has arisen or
occurred that has resulted or may reasonably be expected to result in any
such Liability or a claim against Savers by the PBGC, by any present or
former participant in or any beneficiary of any Employee Pension Benefit
Plan or any Employee Welfare Benefit Plan (or any beneficiary of any such
participant or beneficiary), or by any such Benefit Plan. No filing has
been or will be made by Savers, or any ERISA Affiliate, and no proceeding
has been commenced, for the complete or partial termination of any Employee
Pension Benefit Plan or any Employee Welfare Benefit Plan, and no complete
or partial termination of any such Benefit Plan has occurred or, as a
result of the execution or delivery of this Merger Agreement or the
consummation of the transactions contemplated hereby, will occur.

(d) All amounts that Savers is required to pay by Law or under the
terms of the Benefit Plans as a contribution or other payment to or in
respect of such Benefit Plans as of December 31, 1995 have been paid. The
funding method used in connection with each Benefit Plan that is or at any
time has been subject to the funding requirements of Title I, Subtitle B,
Part 3 of ERISA, meets the requirements of ERISA and the Code. No Benefit
Plan subject to Title IV of ERISA (or any trust established thereunder) has
ever incurred any accumulated funding deficiency (as defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of such Benefit Plan. With respect
to any period for which any contribution or other payment to or in respect
of any Benefit Plan is not yet due or owing, Savers has made due and
sufficient current accruals for such contributions and other payments in
accordance with GAAP and SAP, and such current accruals through the Closing
will be duly and fully provided for in the SAP Statement of Savers for the
period then ended.

(e) Each Benefit Plan is and has been operated and administered in all
material respects in accordance with all applicable Laws, including,
without limitation, ERISA and the Code. Each of the Employee Pension
Benefit Plans and Employee Welfare Benefit Plans that is intended to be
qualified within the meaning of Section 401(a) of the Code is so qualified
and satisfies the requirements of Sections 401(a) and 501(a) of the Code.
There exists no fact, condition, or set of circumstances that has or may
reasonably be expected to have a material adverse effect on the qualified
status of any Employee Pension Benefit Plan or any Employee Welfare Benefit
Plan intended to be so qualified or the intended United States federal
income Tax treatment or consequences of any Employee Pension Benefit Plan
or any Employee Welfare Benefit Plan. None of the Benefit Plans, or any
related trust or funding vehicle, conducts or has conducted any unrelated
trade or business as that term is defined in Section 513 of the Code. All
necessary governmental approvals, determinations, and notifications for all
Employee Pension Benefit Plans and all Employee Welfare Benefit Plans have
been obtained.

A-17
<PAGE> 266

(f) Any actuarial assumptions utilized by Savers in connection with
determining the funding of each Employee Pension Benefit Plan (as set forth
in the actuarial report for such Benefit Plan) are reasonable in all
material respects. The fair market value of the Assets or Properties held
under each Employee Pension Benefit Plan exceeds the actuarially determined
present value of all accrued benefits of such Benefit Plan (whether or not
vested) determined on an ongoing-Benefit Plan basis.

(g) Except as disclosed in Section 4.18(g) of the Disclosure Schedule,
and except for claims by third parties for benefits owed to participants or
beneficiaries under the Benefit Plans, and except for divorce proceedings,
there are no pending or (to the best knowledge of Savers) threatened
actions, suits, investigations, or other proceedings by any present or
former participant or beneficiary under any Benefit Plan (or any
beneficiary of any such participant or beneficiary) involving any Benefit
Plan or any rights or benefits under any Benefit Plan or any rights or
benefits under any Benefit Plan other than ordinary and usual claims for
benefits by participants or beneficiaries thereunder. There is no writ,
judgment, decree, injunction, or similar order of any court, governmental
or regulatory authority, or other similar Person outstanding against or in
favor of any Benefit Plan or any fiduciary thereof.

(h) Except as disclosed in Section 4.18(h) of the Disclosure Schedule,
Savers is not a party to any employee collective bargaining agreement,
advisory or service agreement, deferred compensation agreement,
confidentiality agreement or covenant not to compete.

(i) Except as disclosed in Section 4.18(i) of the Disclosure Schedule,
Savers does not have any stock option, stock purchase, bonus or other
incentive plan or agreement.

(j) Section 4.18(j) of the Disclosure Schedule contains: (i) a list of
all employees of Savers as of September 30, 1996 whose then current annual
compensation was in excess of $50,000; (ii) the then current annual
compensation of, and a description of the fringe benefits (other than those
generally available to employees of Savers) provided by Savers to any such
employees; (iii) a list of all present or former employees of Savers paid
in excess of $50,000 in calendar year 1995 who have terminated or given
notice of their intention to terminate their relationship with Savers since
January 1, 1996; (iv) a list of any increase, effective after December 31,
1995, in the rate of compensation of any employees if such increase exceeds
10% of the previous annual salary of such employee; and (v) a list of all
substantial changes in job assignments of, or arrangements with, or
promotions or appointments of, any employees whose compensation as of
December 31, 1995 was in excess of $50,000 per annum.

4.19 EMPLOYEE RELATIONS. Except as set forth in Section 4.19 of the
Disclosure Schedule, Savers has complied in respect of the Business with all
applicable laws, rules and regulations which relate to prices, wages, hours,
discrimination in employment and collective bargaining and to the operation of
the Business of Savers and is not liable for any arrears of wages or any taxes
or penalties for failure to comply with any of the foregoing. Savers believes
that its relations with the employees are satisfactory. Savers is not a party
to, and is not affected by or threatened with, any dispute or controversy with a
union or with respect to unionization or collective bargaining. Savers is not
materially affected by any dispute or controversy with a union or with respect
to unionization or collective bargaining involving any supplier or customer of
Savers.

4.20 PROPERTIES. Except as disclosed in Section 4.20 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):

(a) Savers has good and valid title to all debentures, notes, stocks,
securities, and other assets that are of a type required to be disclosed in
Schedules B through DB of its Annual Statement and that are owned by it,
free and clear of all Liens.

(b) Savers owns good and indefeasible title to, or has a valid
leasehold interest in, all real property used in the conduct of its
business, operations, or affairs or of a type required to be disclosed in
Schedule A of Savers' Annual Statement, free and clear of all Liens. All
such real property, other than raw land, is in good operating condition and
repair and is suitable for its current uses. No improvement on any such
real property owned, leased, or held by Savers encroaches upon any real
property of any other Person. Savers owns, leases, or has a valid right
under Contract to use adequate means of ingress and egress to, from, and
over all such real property. Section 4.20(b) of the Disclosure Schedule
contains a

A-18
<PAGE> 267

brief description of (i) each parcel of real property owned by Savers (the
"Owned Real Property") (showing the record title holder, legal description,
permanent index number, location, improvements, the uses being made thereof
and any indebtedness secured by a mortgage or other Lien thereon) and (ii)
each option held by Savers to acquire any real property. Complete and
correct copies of any title opinions, surveys and appraisals Savers'
possession or any policies of title insurance currently in force and in the
possession of Savers with respect to each such parcel have heretofore been
delivered to SMC.

(c) Savers owns good and indefeasible title to, or has a valid
leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations, or affairs, free and clear of all Liens. All such tangible
personal property is in good operating condition and repair and is suitable
for its current uses.

(d) Savers has, and at all times after the Closing will have, the
right to use, free and clear of any royalty or other payment obligations,
claims of infringement or alleged infringement, or other Liens, all marks,
names, trademarks, service marks, patents, patent rights, assumed names,
logos, trade secrets, copyrights, trade names, and service marks that are
used in the conduct of its business, operations, or affairs (of which a
true and complete list and description is disclosed in Section 4.20(d) of
the Disclosure Schedule), and all computer software, programs, and similar
systems owned by or licensed to Savers, or any Affiliate of Savers or used
in the conduct of its business, operations, or affairs (of which a true and
complete list and description is disclosed in Section 4.20(d) of the
Disclosure Schedule). Savers is not in conflict with or in violation or
infringement of, and Savers has not received any notice of any conflict
with or violation or infringement of or any claimed conflict with, any
asserted rights of any other Person with respect to any intellectual
property or any computer software, programs, or similar systems, including,
without limitation, any of such items disclosed in Section 4.20(d) of the
Disclosure Schedule.

4.21 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.21 of the
Disclosure Schedule:

(a) The operations of Savers comply with all applicable Environmental
Laws.

(b) Savers has obtained all environmental, health and safety
Governmental Permits necessary for its operation, and all such Governmental
Permits are in good standing and Savers is in compliance with all terms and
conditions of such permits.

(c) None of Savers nor any of its Property or operations, or its past
Property or operations, is subject to any on-going investigation by, order
from or agreement with any Person(including without limitation any prior
owner or operator of Property) respecting (i) any Environmental Law, (ii)
any Remedial Action or (iii) any claim of Losses and Expenses arising from
the Release or threatened Release of a Contaminant into the environment.

(d) Savers is not subject to any judicial or administrative
proceeding, order, judgment, decree or settlement alleging or addressing a
violation of or liability under any Environmental Law.

(e) Savers has not with respect to the Business of Savers:

(i) reported a Release of a hazardous substance pursuant to Section
103(a) of CERCLA, or any state equivalent;

(ii) filed a notice pursuant to Section 103(c) of CERCLA;

(iii) filed notice pursuant to Section 3010 of RCRA, indicating the
generation of any hazardous waste, as that term is defined under 40 CFR
Part 261 or any state equivalent; or

(iv) filed any notice under any applicable Environmental Law
reporting a substantial violation of any applicable Environmental Law.

A-19
<PAGE> 268

(f) There is not now, nor to the best knowledge of Savers has there
ever been, on or in any of its Property:

(i) any treatment, recycling, storage or disposal of any hazardous
waste, as that term is defined under 40 CFR Part 261 or any state
equivalent, that requires or required a Governmental Permit pursuant to
Section 3005 of RCRA; or

(ii) any underground storage tank or surface impoundment or
landfill or waste pile.

(g) There is not now on or in any of its Property any polychlorinated
biphenyls (PCB) used in pigments, hydraulic oils, electrical transformers
or other equipment.

(h) Savers has not received any notice or claim to the effect that it
is or may be liable to any Person as a result of the Release or threatened
Release of a Contaminant.

(i) No Environmental Encumbrance has attached to any Property of
Savers.

(j) Any asbestos-containing material which is on or part of any
Property of Savers is in good repair according to the current standards and
practices governing such material, and its presence or condition does not
violate any currently applicable Environmental Law.

4.22 CONTRACTS. Section 4.22 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each of the following Contracts or other documents or arrangements (true
and complete copies, or, if none, written descriptions, of which have been made
available to SMC, together with all amendments thereto), to which Savers is a
party or by which any of its Assets and Properties is or may be bound:

(a) all employment, agency, consultation, or representation Contracts
or other Contracts of any type (including, without limitation, loans or
advances) with any present officer, director, employee, agent, consultant,
or other similar representative of Savers (or former officer, director,
employee, agent, consultant or similar representative of Savers, if there
exists any present or future liability with respect to such Contract,
whether now existing or contingent) (other than Contracts with consultants
and similar representatives who do not receive compensation of $25,000 or
more per year and other than employment or agency Contracts, not containing
terms which are unduly burdensome to Savers, with agents who do not receive
compensation of $25,000 or more per year), and the name, position, and rate
of compensation of each such Person and the expiration date of each such
Contract, as well as all sick leave, vacation, holiday, and other similar
practices, procedures, and policies of Savers established or administered
other than as Benefit Plans;

(b) all Contracts with any Person containing any provision or covenant
limiting the ability of Savers to engage in any line of business or to
compete with or to obtain products or services from any Person or limiting
the ability of any Person to compete with or to provide products or
services to Savers;

(c) all partnership, joint venture, profit-sharing, alliance or
similar Contracts with any Person (other than Benefit Plans);

(d) all Contracts relating to the borrowing of money by Savers or to
the direct or indirect guarantee by Savers of any obligation for borrowed
money in excess of $25,000 in the aggregate for Savers or any of its
Affiliates, or any other Liability in respect of indebtedness of any other
Person, including without limitation any Contract relating to the
maintenance of compensating balances that are not terminable by Savers
without penalty upon not more than sixty (60) calendar days' notice, any
line of credit or similar facility, the payment for property, products, or
services of any other Person even if such property, products, or services
are not conveyed, delivered, or rendered, or the obligation to take-or-pay,
keep-well, make-whole, or maintain surplus or earnings levels or perform
other financial ratios or requirements; Section 4.22(d) of the Disclosure
Schedule contains a true and complete list of any requirements for consents
or approvals of creditors needed to consummate the transactions
contemplated hereby;

(e) all leases or subleases of real property used in Savers' business,
operations, or affairs, and all other leases, subleases, or rental or use
Contracts for which Savers is liable;

A-20
<PAGE> 269

(f) all Contracts relating to the future disposition or acquisition of
any investment in or security of any Person or of any interest in any
business enterprise (other than the disposition or acquisition of
investments in the ordinary course of business and consistent with past
practice);

(g) all Contracts or arrangements (including, without limitation,
those relating to the sharing or allocation of expenses, personnel,
services, or facilities) between or among Savers and any of its Affiliates
or any other Person who is described in Section 4.13(p);

(h) all reinsurance, coinsurance, or other similar Contracts
indicating, with respect to each such Contract, the information required to
be disclosed in Schedule S of Savers' Annual Statement;

(i) all outstanding proxies, powers of attorney, or similar
delegations of authority of Savers, except for powers of attorney for the
service of process pursuant to applicable insurance Laws, except as
incident to participation by Savers in the insurance guaranty fund of any
State wherein Savers is required or elects to participate in such fund.

(j) all Contracts for any product, service, equipment, facility, or
similar item (other than insurance and annuity Contracts issued, reinsured,
or underwritten by Savers and other than reinsurance, coinsurance, and
other similar Contracts) that by their respective terms do not expire or
terminate or are not terminable by Savers, without penalty or other
Liability, within six (6) months after December 31, 1996; and

(k) all other Contracts (other than insurance and annuity Contracts
issued, reinsured, or underwritten by Savers) that involve the payment or
potential payment pursuant to the terms of such Contracts, by or to Savers
of more than $10,000 individually or in the aggregate or that are otherwise
material to the Business or Condition of Savers or the Surviving
Corporation.

Except as set forth in Section 4.22 of the Disclosure Schedule, each of the
leases, contracts and other agreements listed the Disclosure Schedule
(collectively, the "Savers Agreements") constitutes a valid and binding
obligation of the parties thereto and is in full force and effect and (except
for those Savers Agreements which by their terms will expire or are otherwise
terminated prior to the Effective Time in accordance with the provisions hereof)
and will continue in full force and effect after the Effective Time, in each
case without breaching the terms thereof or resulting in the forfeiture or
impairment of any rights thereunder and without the consent, approval or act of,
or the making of any filing with, any other party. Savers has fulfilled and
performed its obligations under each of the Savers Agreements, and Savers is not
in, or alleged to be in, breach or default under, nor is there or is there
alleged to be any basis for termination of, any of the Savers Agreements, and no
other party to any of the Savers Agreements has breached or defaulted
thereunder, and no event has occurred and no condition or state of facts exists
which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by Savers or by any such other party. Savers
is not currently renegotiating any of the Savers Agreements or paying liquidated
damages in lieu of performance thereunder. None of the Savers Agreements
contains terms unduly burdensome to Savers or is harmful to the Business.
Complete and correct copies of each of the Savers Agreements have heretofore
been made available to SMC.

4.23 INSURANCE ISSUED BY SAVERS. Except as required by Law or except as
disclosed in Section 4.23 of the Disclosure Schedule (with paragraph references
corresponding to those set forth below):

(a) All insurance or annuity Contract benefits payable to Savers by
any other Person that is a party to or bound by any reinsurance,
coinsurance, or other similar Contract with Savers have in all material
respects been paid in accordance with the terms of the insurance, annuity,
and other Contracts under which they arose.

(b) No outstanding insurance or annuity Contract issued, reinsured, or
underwritten by Savers entitles the holder thereof or any other Person to
receive dividends, distributions, or to share in the income of Savers or
receive any other benefits based on the revenues or earnings of Savers or
any other Person.

A-21
<PAGE> 270

(c) The underwriting standards utilized and ratings applied by Savers
and (to the best knowledge of Savers) by any other Person that is a party
to or bound by any reinsurance, coinsurance, or other similar Contract with
Savers conform in all material respects to industry accepted practices and
to the standards and ratings required pursuant to the terms of the
respective reinsurance, coinsurance or other similar Contracts.

(d) To the best knowledge of Savers all amounts to which Savers is
entitled under reinsurance, coinsurance, or other similar Contracts
(including without limitation amounts based on paid and unpaid losses) are
fully collectible.

(e) To the best knowledge of Savers, each insurance agent, at the time
such agent wrote, sold, or produced business for Savers, was duly licensed
as an insurance agent (for the type of business written, sold, or produced
by such insurance agent) in the particular jurisdiction in which such agent
wrote, sold or produced such business for Savers.

(f) To the best knowledge of Savers, no such insurance agent violated
(or with or without notice or lapse of time or both, would have violated)
any term or provision of any Law or any writ, judgment, decree, injunction,
or similar order applicable to the writing, sale or production of business
for Savers.

(g) The tax treatment under the Code of all insurance, annuity or
investment policies, plans, or contracts; all financial products, employee
benefit plans, individual retirement accounts or annuities; or any similar
or related policy, contract, plan, or product, whether individual, group,
or otherwise, issued or sold by Savers is and at all times has been the
same or more favorable to Savers, policyholder or intended beneficiaries
thereof as the tax treatment under the Code for which such contracts
qualified or purported to qualify at the time of its issuance or purchase.
For purposes of this Section 4.23(g), the provisions of the Code relating
to the tax treatment of such contracts shall include, but not be limited
to, Sections 72, 79, 89, 101, 104, 105, 106, 125, 130, 401, 402, 403, 404,
408, 412, 415, 419, 419A, 501, 505, 817, 818, 7702, and 7702A of the Code.

(h) There are no reinsurance, coinsurance or other similar Contracts
under which Savers receives or has received surplus relief.

4.24 THREATS OF CANCELLATION. Except as disclosed in Section 4.24 of the
Disclosure Schedule, since December 31, 1995, no policyholder, group of
policyholder Affiliates, or Persons writing, selling, or producing insurance
business that individually or in the aggregate accounted for five percent 5% or
more of the premium or annuity income of Savers for the year ended December 31,
1995, has terminated or (to the best knowledge of Savers) threatened to
terminate its relationship with Savers.

4.25 LICENSES AND PERMITS. Except as disclosed in Section 4.25 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):

(a) Savers owns or validly holds, all licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations and similar documents or instruments that are required for
its business, operations and affairs and that the failure to so own or hold
has or may reasonably be expected to have a material adverse effect on its
Business or Condition.

(b) All such licenses, franchises, permits, approvals, authorizations,
exemptions, classifications, certificates, registrations and similar
documents or instruments are valid and in full force and effect and free of
any restrictions imposed by any Person.

(c) Savers is in compliance in all material respects with its
obligations under the foregoing, with only such exceptions as, individually
or in the aggregate, would not reasonably be expected to have a material
adverse effect on the Business or Condition of Savers, and no event has
occurred that allows, or after notice or lapse of time, or both, would
allow, revocation or termination of any of the foregoing.

4.26 OPERATIONS INSURANCE. Section 4.26 of the Disclosure Schedule contains
a true and complete list and description of all liability, property, workers'
compensation, directors and officers liability and other similar insurance
Contracts that insure the business, operations, or affairs of Savers or affect
or relate to the

A-22
<PAGE> 271

ownership, use, or operations of any of the Assets and Properties of Savers and
that have been issued to Savers or any of its Affiliates (including, without
limitation, the names and addresses of the insurers, the expiration dates
thereof, and the annual premiums and payment terms thereof) or that are held by
Savers or by any Affiliate of Savers for the benefit of the Surviving
Corporation following the Effective Time. All such insurance is in full force
and effect and (to the best knowledge of Savers) is with financially sound and
reputable insurers and, in light of the business, operations, and affairs of
Savers, is in amounts and provides coverage that are reasonable and customary
for Persons in similar businesses.

4.27 INTERCOMPANY ACCOUNTS. Except as reflected in the December 31, 1995
SAP Statement, or except as disclosed in Section 4.27 of the Disclosure
Schedule, there are no accounts between Savers and any of its Affiliates, and
none of its Affiliates provides or causes to be provided to Savers any products,
services, equipment, facilities, or similar items. Except as disclosed in
Section 4.27 of the Disclosure Schedule, since December 31, 1995, no such
intercompany accounts in excess of $10,000 have been paid or received, and all
settlements of such intercompany accounts have been made, and all allocations of
such intercompany expenses have been applied, in the ordinary course of business
and consistent with past practice. All intercompany accounts shall be written
off prior to the Effective Time and, if constituting an admitted asset, taken
into account in calculating the Adjusted Capital and Surplus of Savers.

4.28 BANK ACCOUNTS. Section 4.28 of the Disclosure Schedule contains a true
and complete list of the names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which Savers has an
account or safe deposit box or maintains a banking, custodial, trading or other
similar relationship and a true and complete list and description of each such
account, box and relationship, indicating in each case the account number and
the names of the officers, employees, agents or other similar representatives of
Savers transacting business with respect thereto.

4.29 BROKERS. All negotiations relative to this Merger Agreement and the
transactions contemplated hereby have been carried out by Savers directly with
SMC, without the intervention of any Person on behalf of Savers in such manner
as to give rise to any valid claim by any Person against SMC, Savers or the
Surviving Corporation for a finder's fee, brokerage commission, or similar
payment. Notwithstanding the foregoing, Savers is a party to an agreement with
Daiwa Securities America, Inc., pursuant to which a fee may be owing as a result
of the transaction contemplated by this Merger Agreement.

4.30 DISCLOSURE. Neither this Merger Agreement nor any certificate
furnished by Savers or Savers to SMC in connection with this Merger Agreement or
the transactions contemplated hereby contains any untrue statement of a material
fact by Savers or omits to state a material fact by Savers necessary to make the
statements herein or therein not misleading in light of the circumstances in
which they were made. There is no fact which adversely affects or in the future
is likely to adversely affect the Business or Condition of Savers in any
material respect which has not been set forth or referred to in this Merger
Agreement or the Disclosure Schedule.

4.31 STATE TAKEOVER STATUTES. Valid and irrevocable exemptions from the
Control Share Acquisition Act (Article 9A) and the Shareholder Protection Act
(Article 9) of the NCBCA exist and are applicable to all of the transactions
contemplated by this Merger Agreement. No other similar laws are applicable to
the Merger, this Merger Agreement or the transactions contemplated hereby.

4.32 SENSITIVE PAYMENTS. Except as disclosed in Section 4.32 of the
Disclosure Schedule, (i) to the best knowledge of Savers, Savers is not involved
in any transaction or other situation with any employee, officer, director or
Affiliate of Savers which may be generally characterized as a "conflict of
interest", including, but not limited to, direct or indirect interests in the
business of competitors, suppliers or customers of Savers, and (ii) there are no
situations which involved or involves (A) the use of any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to political activity, (B) the making of any direct or indirect unlawful
payments to government officials or others from corporate funds or the
establishment or maintenance of any unlawful or unrecorded funds, (C) the
violation of any of the provisions of The Foreign Corrupt Practices Act of 1977,
or any rules or regulations promulgated thereunder, (D) the receipt of any
illegal discounts or rebates or any other violation of the antitrust laws or (E)
any investigation

A-23
<PAGE> 272

by the Securities and Exchange Commission or any other federal, foreign, state
or local government agency or authority.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SMC

SMC hereby represents and warrants to Savers as follows:

5.1 ORGANIZATION. SMC is a corporation duly organized, validly existing,
and in good standing under the Laws of the State of Indiana and has full
corporate power and authority to enter into this Merger Agreement and to perform
its obligations under this Merger Agreement. SMC is duly licensed, qualified, or
admitted to do business and is in good standing in all jurisdictions in which
the failure to be so licensed, qualified or admitted and in good standing,
individually or in the aggregate with other such failure, has or may reasonably
be expected to have a material adverse effect on the validity or enforceability
of this Merger Agreement, on the ability of SMC to perform its obligations under
this Merger Agreement or on the Business or Condition of SMC.

5.2 AUTHORITY. The Board of Directors of SMC has duly and validly approved
this Merger Agreement and the transactions contemplated hereby. Except for the
approval of the shareholders of SMC, the execution and delivery of this Merger
Agreement by SMC and the performance by SMC of its obligations under this Merger
Agreement have been duly and validly authorized by all necessary corporate
action on the part of SMC. This Merger Agreement constitutes a legal, valid, and
binding obligation of SMC and is enforceable against SMC in accordance with its
terms, except to the extent that enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or similar Laws now or
hereafter in effect relating to or limiting creditors' rights generally, and the
remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court or other similar Person before which any proceeding therefor may be
brought.

5.3 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this Merger
Agreement by SMC do not, and the performance by SMC of its obligations under
this Merger Agreement will not:

(a) subject to obtaining the approvals contemplated by Article X of
this Merger Agreement, violate any term or provision of any Law or any
writ, judgment, decree, injunction, or similar order applicable to SMC;

(c) except as disclosed in writing to Savers, result in the creation
or imposition of any Lien upon SMC or any of its Assets and Properties that
individually or in the aggregate with any other Liens has or may reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Merger Agreement or on the ability of SMC to perform
its obligations under this Merger Agreement;

(d) except as disclosed in writing to Savers, conflict with or result
in a violation or breach of, or constitute (with or without notice or lapse
of time or both) a default under, or give to any person any right of
termination, cancellation, acceleration, or modification in or with respect
to, any Contract to which SMC is a party or by which any of its Assets and
Properties may be bound and as to which any such conflicts, violations,
breaches, defaults, or rights individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Merger Agreement or on the ability of SMC to perform
its obligations under this Merger Agreement; or

(e) require SMC to obtain any consent, approval, or action of, or make
any filing with or give any notice to, any Person except as contemplated in
Articles X and XI of this Merger Agreement, as disclosed in writing to
Savers, or those which the failure to obtain, make, or give individually or
in the aggregate with other such failures has or may reasonably be expected
to have no material adverse effect on the

A-24
<PAGE> 273

validity or enforceability of this Merger Agreement or on the ability of
SMC to perform its obligations under this Merger Agreement.

5.4 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the information to
be supplied by SMC or SAC for inclusion or incorporation by reference in the
Registration Statement or the Proxy Statement will (i) in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or (ii) in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement and at the time of each
Stockholder Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to SMC, its officers and directors or any of its Subsidiaries shall
occur which is required to be described in the Proxy Statement or the
Registration Statement, such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of Savers and/or SMC, as appropriate. The
Registration Statement will comply (with respect to SMC and SAC) as to form in
all material respects with the provisions of the Securities Act, and the Proxy
Statement will comply (with respect to SMC and SAC) as to form with the
provisions of the Exchange Act.

5.5 LITIGATION. There are no actions, suits, investigations, or proceedings
pending against SMC, or (to the best knowledge of SMC) threatened against SMC,
at law or in equity, in, before, or by any Person, that individually or in the
aggregate have or may reasonably be expected to have a material adverse effect
on the validity or enforceability of this Merger Agreement, on the ability of
SMC to perform its obligations under this Merger Agreement or on the Business
and Condition of SMC.

5.6 CAPITALIZATION. The authorized capital stock of SMC consists of
20,000,000 shares of common stock and 1,000,000 shares of preferred stock. As of
September 30, 1996, there were issued and outstanding: 5,752,499 shares of
common stock, of which 978,229, shares are in the treasury; stock options to
acquire 1,292,170 shares of common stock of which options to acquire 950,395
shares of common stock were exercisable; and warrants to acquire 790,280 shares
of common stock, of which warrants to acquire 786,380 shares of common stock
were exercisable. 300,000 shares of Class S Convertible Cumulative Redeemable
Preferred Stock ("Class S Preferred"), which are convertible into common stock,
were issued, of which 160,789 are outstanding and 4,211 shares are held in
treasury. All outstanding shares of capital stock of SMC have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. Except as set forth in this Section 5.6, there are
outstanding (a) no other shares of capital stock or other voting securities of
SMC, (b) no securities of SMC convertible into or exchangeable for shares of
capital stock or voting securities of SMC and (c) no other options or other
rights to acquire from SMC, and there is no obligation of SMC to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for, or options or warrants to purchase capital stock or voting securities of
SMC (the items in clauses (a), (b) and (c) being referred to, together with the
common stock, collectively as the "SMC Securities"). Except as disclosed in
Section 5.6 of the Disclosure Schedule, there are no outstanding obligations of
SMC to repurchase, redeem or otherwise acquire any SMC Securities.

5.7 BROKERS. All negotiations relative to this Merger Agreement and the
transactions contemplated hereby have been carried out by SMC directly with
Savers, without the intervention of any Person on behalf of SMC in such manner
as to give rise to any valid claim by any Person against Savers, SMC or the
Surviving Corporation for a finder's fee, brokerage commission or similar
payment, except that a fee may be owing to Daiwa Securities America, Inc.
pursuant to its agreement with Savers as disclosed in Section 4.29.

5.8 DISCLOSURE. Neither this Merger Agreement nor any certificate furnished
by SMC to Savers in connection with this Merger Agreement or the transactions
contemplated hereby contains any untrue statement by SMC of material fact or
omits to state a material fact by SMC necessary to make the statements herein or
therein not misleading in light of the circumstances in which they were made.

A-25
<PAGE> 274

ARTICLE VI

REPRESENTATIONS AND WARRANTIES REGARDING SAC

SMC and SAC jointly and severally represent and warrant to Savers as
follows:.

6.1 ORGANIZATION AND STANDING. SAC is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of North Carolina and
has full corporate power and authority to enter into this Merger Agreement and
to perform its obligations under this Merger Agreement. SAC was organized solely
for the purpose of acquiring Savers and engaging in the transactions
contemplated by this Merger Agreement and has not engaged in any business since
it was incorporated which is not in connection with the acquisition of Savers
and this Merger Agreement.

6.2 CAPITAL STRUCTURE. The authorized capital stock of SAC consists of
1,000 shares of common stock, no par value per share, all of which are validly
issued and outstanding, fully paid and nonassessable and are owned by SMC free
and clear of all Liens, claims and encumbrances.

6.3 AUTHORITY. The Board of Directors of SAC has duly and validly approved
this Merger Agreement and the transactions contemplated hereby. The execution
and delivery of this Merger Agreement by SAC and the performance by SAC of its
obligations under this Merger Agreement have been duly and validly authorized by
all necessary corporate action on the part of SAC except stockholder approval.
This Merger Agreement constitutes a legal, valid and binding obligation of SAC
and is enforceable against SAC in accordance with its terms, except to the
extent that enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally, and the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.

6.4 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this Merger
Agreement by SAC do not, and the performance by SAC of its obligations under
this Merger Agreement will not:

(a) subject to obtaining the approvals contemplated by Articles X and
XI of this Merger Agreement, violate any term or provision of any Law or
any writ, judgment, decree, injunction, or similar order applicable to SAC;

(b) violate any term or provision of any Law or any writ, judgment,
decree, injunction, or similar order applicable to SAC;

(c) except as disclosed in writing to Savers, result in the creation
or imposition of any Lien upon SAC or any of its Assets and Properties that
individually or in the aggregate with any other Liens has or may reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Merger Agreement or on the ability of SAC to perform
its obligations under this Merger Agreement;

(d) except as disclosed in writing to Savers, conflict with or result
in a violation or breach of, or constitute (with or without notice or lapse
of time or both) a default under, or give to any person any right of
termination, cancellation, acceleration or modification in or with respect
to, any Contract to which SAC is a party or by which any of its Assets and
Properties may be bound and as to which any such conflicts, violations,
breaches, defaults or rights, individually or in the aggregate, have or may
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Merger Agreement or on the ability of SAC to perform
its obligations under this Merger Agreement; or

(e) require SAC to obtain any consent, approval, or action of, or make
any filing with or give any notice to, any Person except as contemplated in
Articles X and XI of this Merger Agreement, as disclosed in writing to
Savers, or those which the failure to obtain, make, or give individually or
in the aggregate with other such failures has or may reasonably be expected
to have no material adverse effect on the validity or enforceability of
this Merger Agreement or on the ability of SAC to perform its obligations
under this Merger Agreement.

A-26
<PAGE> 275

ARTICLE VII

COVENANTS OF SAVERS

Savers covenants and agrees with SMC and SAC that, at all times before the
Effective Time, Savers will comply with all of the covenants and provisions of
this Article VII, except to the extent SMC may otherwise consent in writing or
to the extent otherwise required or permitted by this Merger Agreement.

7.1 CONDUCT OF BUSINESS. Savers will conduct its business only in the
ordinary course and consistent with past practices. Without limiting the
generality of the foregoing:

(a) Savers will use all commercially reasonable efforts to (i)
preserve intact Savers' present business organization, reputation, and
policyholder relations; (ii) keep available the services of Savers' present
officers, directors, employees, agents, consultants, and other similar
representatives; (iii) maintain all licenses, qualifications, and
authorizations of Savers to do business in each jurisdiction in which it is
so licensed, qualified, or authorized; (iv) maintain in full force and
effect all Contracts, documents, and arrangements referred to in Section
4.22 hereof, (v) maintain all Assets and Properties of Savers in good
working order and condition, ordinary wear and tear excepted and (vi)
continue all current marketing and selling activities relating to the
business, operations or affairs of Savers.

(b) Savers will cause the Books and Records of Savers to be maintained
in the usual manner and consistent with past practices and will not permit
a material change in any underwriting, investment, actuarial, financial
reporting, or accounting practices or policies of Savers or in any
assumption underlying such practices or policies, or in any method of
calculating any bad debt, contingency, or other reserve for financial
reporting purposes or for other accounting purposes (including, without
limitation, any practice, policy, assumption, or method relating to or
affecting the determination of Savers' investment income, reserves or other
similar amounts, or operating ratios with respect to expenses, losses, or
lapses).

(c) Savers will: (i) properly prepare and duly and timely file all
reports and all Tax Returns required to be filed with any governmental or
regulatory authorities with respect to the business, operations, or affairs
of Savers; and (ii) duly and fully pay all Taxes indicated by such Tax
Returns or otherwise levied or assessed upon Savers or any of its Assets
and Properties and withhold or collect and pay to the proper taxing
authorities or hold in separate bank accounts for such payment all Taxes
that Savers is required to so withhold or collect and pay, unless such
Taxes are being contested in good faith and, if appropriate, reasonable
reserves therefor have been established and reflected in the Books and
Records of Savers in accordance with GAAP and SAP.

(d) Savers will: (i) cause all reserves and other similar amounts with
respect to insurance and annuity Contracts established or reflected in
Savers' Books and Records to be (A) established and reflected on a basis
consistent with those reserves and other similar amounts and reserving
methods followed by Savers at December 31, 1995 and (B) good, sufficient
and adequate (under generally accepted actuarial principles consistently
applied) to cover the total amount of all reasonably anticipated matured
and unmatured benefits, dividends, losses, claims, expenses, and other
Liabilities of Savers under all insurance and annuity Contracts pursuant to
which Savers has or will have any Liability (including, without limitation,
any Liability arising under or as a result of any reinsurance, coinsurance,
or other similar Contract); and (ii) continue to own assets that qualify as
legal reserve assets under all applicable insurance Laws in an amount at
least equal to the required reserves of Savers and other similar amounts.

(e) Savers will use all commercially reasonable efforts to maintain in
full force and effect substantially the same levels of coverage as the
insurance afforded under the Contracts listed in Section 4.26 of the
Disclosure Schedule. Any and all benefits under such Contracts paid or
payable (whether before or after the effective date of this Merger
Agreement) with respect to the business, operations, affairs, or Assets and
Properties of Savers will be paid to Savers.

(f) Savers will continue to comply, in all material respects, with all
Laws applicable to its business, operations, or affairs.

A-27
<PAGE> 276

(g) Savers will determine its Adjusted Capital and Surplus consistent
with past practices for determining capital and surplus on its SAP
Statements for any interim period and will not take any actions the effect
of which may be to cause the Adjusted Capital and Surplus of the Surviving
Corporation to be less than $7,390,000 immediately after the Effective Time
less all amounts paid by Savers pursuant to Section 2.5(d).

(h) Savers will not enter into any reinsurance Contracts (whether as
the ceding company or the assuming company).

7.2 FINANCIAL STATEMENTS AND REPORTS. (a) As promptly as practicable after
December 31, 1996, Savers will deliver to SMC a true and complete copy of the
SAP Statement filed by Savers for the year ended December 31, 1996, and for each
quarter thereafter until the Effective Time, prepared in accordance with SAP and
which shall present fairly the financial condition, the Assets and Properties,
and the Liabilities of Savers as of the date thereof and the results of
operations, changes in the capital and surplus account and cash flows of Savers
for and during each of the periods covered thereby.

(b) Savers will promptly deliver to SMC audited financial statements
for the year ended December 31, 1996, and for each quarter thereafter until
the Effective Time unaudited financial statements, prepared in accordance
with GAAP which shall present fairly the financial condition, the Assets
and Properties, and the Liabilities of Savers as of the date thereof and
the results of operations, changes in shareholders' equity and cash flows
of Savers for and during each of the periods covered thereby. Such audited
statements shall be delivered by February 28, 1997, and such unaudited
statements shall be delivered within thirty-five (35) days after the date
of the end of any such quarter.

(c) As promptly as practicable, Savers will deliver to SMC a true and
complete copy of unaudited financial statements for the month ended
November 30, 1996, and for each month thereafter until the Effective Time,
prepared in accordance with SAP which shall present fairly the financial
condition, the Assets and Properties and the Liabilities of Savers as of
the date thereof and the results of operations, changes in the capital and
surplus account and cash flows of Savers for and during each of the periods
covered thereby.

7.3 INVESTMENTS. Savers will invest its future cash flow, any cash from
matured and maturing investments, any cash proceeds from the sale of its Assets
and Properties and any cash funds currently held by Savers, exclusively in cash
equivalent assets, short-term investments or fixed maturity securities (all of
which permissible investments shall consist only of United States government
issued or guaranteed securities, commercial paper rated A-I or PI, or bonds
currently rated NAIC 1 or 2 by the Standard Valuation office, except as
otherwise required by Law or except as required to provide cash (in the ordinary
course of business and consistent with past practice) to meet Savers' reasonably
anticipated current obligations or except as consented to or required by SMC.
Savers will take such steps as are necessary to ensure that such investment
Assets that are classified as Non-Admitted Assets under SAP or by the applicable
insurance regulatory authorities for Savers, do not at any time exceed the
respective amounts of Non-Admitted assets for Savers as of December 31, 1995.

7.4 EMPLOYEE MATTERS. Except as may be required by Law or as disclosed in
Section 7.4 of the Disclosure Schedule, or except for such representations,
promises, changes, alterations, or amendments that do not and will not result in
any Liability to Savers or SMC, Savers will refrain from directly or indirectly:

(a) making any representation or promise, oral or written, to any
officer, director, employee, agent, consultant or other similar
representative of Savers concerning any Benefit Plan;

(b) making any change to, or amending in any way, the Contracts,
salaries, wages, or other compensation of any officer, director, employee,
agent, consultant or other similar representative of Savers whose annual
compensation exceeds $25,000, other than routine changes or amendments that
(a) are made in the ordinary course of business and consistent with past
practices, (b) do not and will not result in increases of more than five
percent (5%) in the salary, wages or other compensation of any such Person
and (c) do not and will not exceed, in the aggregate, five percent (5%) of
the total salaries, wages and other compensation of all employees of
Savers;

A-28
<PAGE> 277

(d) adopting, entering into, amending, altering or terminating,
partially or completely, any employment, agency, consultation, or
representation Contract that is, or had it been in existence on the
effective date of this Merger Agreement would have been, required to be
disclosed in Section 4.22(a) of the Disclosure Schedule;

(e) approving any general or company-wide pay increases for officers,
directors, employees, agents, consultants, or other similar representatives
of Savers; or

(f) entering into any Contract with any officer, director, employee,
agent, consultant, or other similar representative of Savers that is not
terminable by Savers, without penalty or other Liability, upon not more
than sixty (60) calendar days' notice.

7.5 NO CHARTER AMENDMENTS. Savers will not amend its Articles of
Incorporation or Bylaws and will refrain from taking any action with respect to
any such amendment.

7.6 NO ISSUANCE OF SECURITIES. Except upon the exercise of stock options
outstanding at the date hereof, Savers will refrain from authorizing or issuing
any shares of capital stock or other equity securities of Savers, or from
entering into any Contract or granting any option, warrant, or right calling for
the authorization or issuance of any such shares or other equity securities, or
creating or issuing any securities directly or indirectly convertible into or
exchangeable for any such shares or other equity securities or issuing any
options, warrants or rights to purchase any such convertible securities.

7.7 NO DIVIDENDS. Except for dividends and distributions which have been
approved in writing by SMC and for which any required regulatory approvals have
been received, Savers will refrain from declaring, setting aside or paying any
dividend or other distribution in respect of its capital stock and from directly
or indirectly redeeming, purchasing, or otherwise acquiring any of its capital
stock or any interest in or right to acquire any such stock.

7.8 NO DISPOSAL OF PROPERTY. Except as set forth in Section 7.8 of the
Disclosure Schedule or as expressly provided in this Merger Agreement, Savers
will not (a) dispose of any of its Assets and Properties or permit any of its
Assets and Properties to be subjected to any Liens, except to the extent any
such disposition or any such Lien is made or incurred in the ordinary course of
the business and consistent with past practices, (b) sell any part of its
insurance products, operations or business to any third party (other than sales
of insurance products in the ordinary course of business consistent with past
practices pursuant to Section 7.1(a)), (c) enter into any Contracts obligating
Savers to administer the insurance operations of any Person other than any
Affiliate, (d) enter into any Contracts permitting any Person other than any
Affiliate of Savers to administer Savers' insurance operations or (e) enter into
or assume any Contract, if doing so could involve a loss, cost, expense or
commitment in excess of $10,000 unless in the ordinary course of business and
consistent with past practices.

7.9 NO BREACH OR DEFAULT. Savers will not violate or breach, and will not
take or fail to take any action that (with or without notice or lapse of time or
both) would constitute a violation, breach or default in any way under any term
or provision of any Contract to which it is a party or by which any of its
Assets and Properties is or may be bound.

7.10 NO INDEBTEDNESS. Savers will not create, incur, assume, guarantee or
otherwise become liable for, and will not cancel, pay, agree to cancel or pay,
or otherwise provide for a complete or partial discharge in advance of a
scheduled payment date with respect to, any Liability, and will not waive any
right to receive any direct or indirect payment or other benefit under any
Liability owing to it.

7.11 NO ACQUISITIONS. Savers will not (a) merge, consolidate or otherwise
combine or agree to merge, consolidate or otherwise combine with any other
Person, (b) acquire or agree to acquire blocks of business of, or all or
substantially all the Assets and Properties or capital stock or other equity
securities of any other Person or (c) otherwise acquire or agree to acquire
control or ownership of any other Person.

A-29
<PAGE> 278

7.12 INTERCOMPANY LIABILITIES. At least five Business Days before the
Effective Time, Savers will deliver to SMC a true and complete list and
description of all Liabilities between Savers and any Affiliate of Savers to be
outstanding at the Effective Time. Savers will not enter into any Contract or,
except as required by any Contract disclosed in Section 4.22(g) of the
Disclosure Schedule, engage in any transaction with any of its Affiliates.

7.13 TAX MATTERS. Savers will refrain (a) from making, filing or entering
into any election, consent or agreement described in Section 4.15(e) or Section
4.15(f) with respect to Savers or any of its Assets and Properties and (b) from
amending or cancelling any reinsurance or coinsurance Contract.

7.14 NOTICE AND CURE. Savers will notify SMC promptly in writing of, and
contemporaneously will provide SMC with true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Effective Time, any event, transaction or
circumstance occurring after the date of this Merger Agreement that causes or
will cause any covenant or agreement of Savers under this Merger Agreement to be
breached, or that renders or will render untrue any representation or warranty
of Savers contained in this Merger Agreement as if the same were made on or as
of the date of such event, transaction or circumstance. Savers also will use all
commercially reasonable efforts to cure, before the Effective Time, any
violation or breach of any representation, warranty, covenant or agreement made
by it in this Merger Agreement, whether occurring or arising before or after the
date of this Merger Agreement.

ARTICLE VIII

COVENANTS OF SMC

SMC covenants and agrees with Savers that, at all times before the
Effective Time, SMC will comply with all covenants and provisions of this
Article VIII, except to the extent Savers may otherwise consent in writing or to
the extent otherwise required or permitted by this Merger Agreement.

8.1 NOTICE AND CURE. SMC will notify Savers promptly in writing of, and
contemporaneously will provide Savers with true and complete copies of any and
all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Effective Time, any event, transaction or
circumstance occurring after the date of this Merger Agreement that causes or
will cause any covenant or agreement of SMC under this Merger Agreement to be
breached, or that renders or will render untrue any representation or warranty
of SMC contained in this Merger Agreement as if the same were made on or as of
the date of such event, transaction or circumstance. SMC also will use all
commercially reasonable efforts to cure, before the Effective Time, any
violation or breach of any representation, warranty, covenant or agreement made
by it in this Merger Agreement, whether occurring or arising before or after the
date of this Merger Agreement.

8.2 FORM A FILING. Within thirty (30) days of the execution of this Merger
Agreement, SMC will file a Form A with the North Carolina Department of
Insurance relating to the proposed Merger.

8.3 JERRY STOLTZ TO BE APPOINTED A DIRECTOR. Immediately following the
Effective Time, Jerry D. Stoltz, Sr., shall be appointed to the Board of
Directors of SMC.

8.4 ELECTION OF COMMON STOCK PERFORMANCE PREMIUM PAYMENT. SMC will exert
its best efforts to assure that any shares of SMC Common Stock issued to the
former holders of Savers Common Stock as payment of the Performance Premium
provided for in Article III will be received on a tax-free basis.

ARTICLE IX

ADDITIONAL AGREEMENTS

9.1 STOCKHOLDER APPROVAL. (a) Savers shall call a meeting of its
stockholders (the "Savers Stockholder Meeting") for the purpose of voting upon
the Merger and shall use its best efforts to obtain stockholder approval of the
Merger. The Savers Stockholder Meeting shall beheld as soon as practicable
following the date upon which the Registration Statement becomes effective, and
Savers will, through its Board of Directors, recommend to its stockholders the
approval of the Merger and not rescind its declaration that the Merger is

A-30
<PAGE> 279

advisable. At the Savers Stockholder Meeting, all shares of Savers Common Stock
held by Freeman E. Broadwell, Jr., Harmon J. King, Jr., Arthur H. Little, James
P. Marsh, Ted Y. Matney, Theophilus H. Pitt, Jr., William C. Rogers, Sr., Joseph
H. Sherrill, Jr., Jerry D. Stoltz, Sr., William G. White, Jr., Jerry E. Francis
and Patricia G. Landy shall be voted in favor of this Merger Agreement. The vote
required for the adoption of this Merger Agreement shall be the affirmative vote
of the holders of a majority of the outstanding shares of Savers Common Stock as
required by the NCBCA. None of Freeman E. Broadwell, Jr., Harmon J. King, Jr.,
Arthur H. Little, James P. Marsh, Ted Y. Matney, Theophilus H. Pitt, Jr.,
William C. Rogers, Sr., Joseph H. Sherrill, Jr., Jerry D. Stoltz, Sr., William
G. White, Jr., Jerry E. Francis and Patricia G. Landy shall, prior to the
Effective Time, sell, transfer, assign or otherwise dispose of any shares of
Savers Common Stock.

(b) SMC shall promptly call a meeting of its stockholders (the "SMC
Stockholder Meeting" and, together with Savers Stockholder Meeting, the
"Stockholder Meetings") for the purpose of voting upon the issuance of SMC
Common Stock in connection with the Merger and shall use its best efforts
to obtain stockholder approval of such issuance. The SMC Stockholder
Meeting shall be on the date of Savers Stockholder Meeting or, if such date
is not practicable, on the closest date practicable.

9.2 REGISTRATION STATEMENT AND PROXY STATEMENT. SMC shall prepare and file
with the SEC as soon as practicable the Registration Statement and shall use all
reasonable efforts to have the Registration Statement declared effective by the
SEC as soon as practicable. Savers and SMC shall prepare and file with the SEC
as soon as practicable the Proxy Statement. SMC shall also take any action
required to be taken under state securities or "Blue Sky" laws in connection
with the issuance of the SMC Common Stock pursuant to the Merger. Savers shall
furnish SMC all information concerning Savers and the holders of Savers Common
Stock required for use in the Registration Statement, and Savers shall take such
other actions as SMC may reasonably request in connection with the preparation
of such Registration Statement and the actions to be taken by SMC pursuant to
this Section 9.2. Savers and SMC shall each furnish to the other all information
concerning itself and its subsidiaries required for use in the Proxy Statement,
and shall take such other action as the other party may reasonably request in
connection with the preparation of the Proxy Statement.

9.3 STOCK EXCHANGE LISTING. SMC shall use its best efforts to list on the
NASDAQ National Market, upon official notice of issuance, the shares of SMC
Common Stock to be issued in connection with the Merger.

9.4 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Merger Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Merger Agreement, including (a) obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Entities and making of all necessary registrations and filings and taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by any Governmental Entity, including but not
limited to any filing under the Improvements Act and any required approvals of
the insurance regulatory authorities in the State of North Carolina and the
State of Indiana, (b) obtaining of all necessary consents, approvals or waivers
from third parties, (c) defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Merger Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, (d) providing such other information
and communications to such Governmental Entities as the other party or such
Governmental Entities may reasonably request, (e) cooperate with the other party
in obtaining, as promptly as practicable, all actions of Governmental Entities
referred to above and (d) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this Merger
Agreement. Notwithstanding anything to the contrary in this Section 9.4, Savers
shall not commit to any divestiture transaction without SMC's prior consent.

A-31
<PAGE> 280

9.5 STATE TAKEOVER LAWS. If any "fair price" or "control share acquisition"
statute or other similar statute or regulation shall become applicable to the
transactions contemplated hereby, the members of the Board of Directors of
Savers shall use their best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to minimize the effects of such statute or regulations on the
transactions contemplated hereby.

9.6 IMPROVEMENTS ACT FILINGS. SMC and Savers shall promptly, if required,
make their respective filings, and shall thereafter promptly make any required
submissions, under the Improvements Act with respect to the Merger. Each of SMC,
SAC and Savers will use its best efforts to cause the satisfaction of the
waiting period under the Improvements Act. SMC and Savers will furnish to each
other such necessary information and reasonable assistance as may be requested
in connection with their respective preparation of necessary filings or
submissions to any governmental agency, including, without limitation, any
filings necessary under the provisions of the Improvements Act. Savers and SMC
will supply each other with copies of all correspondence, filings or
communications (or memoranda setting forth the substance thereof) between either
of them or their respective representatives and the Federal Trade Commission,
the Antitrust Division of the United States Department of Justice or any other
governmental agency or authority or members of their respective staffs with
respect to this Merger Agreement or the transactions contemplated hereby.

9.7 FINANCIAL STATEMENTS. Savers shall use reasonable efforts to assist SMC
in obtaining the services of D.E. Gatewood and Company and any required consent
to the use of their report regarding audited financial statements of Savers as
of the Effective Time in such form that they can be used in connection with
SMC's required filings with the Securities and Exchange Commission. The fees and
expenses of D.E. Gatewood and Company and all other costs and expenses
associated with the preparation of such audited financial statements shall be
paid by Savers.

9.8 CERTAIN NOTICES. Each party shall give prompt written notice to the
other of (i) the occurrence, or failure to occur, of any event which occurrence
or failure would cause any representation or warranty of Savers contained in
this Merger Agreement to be untrue or inaccurate in any material respect at any
time from the date hereof to the Effective Time or that will result in the
failure to satisfy any of the conditions specified in Articles X, XI or XII and
(ii) any failure of Savers or SMC, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder or under any other agreement or instrument contemplated hereby.

ARTICLE X

CONDITIONS OF BOTH PARTIES

The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:

10.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of Savers Common Stock, and the issuance of shares
of SMC Common Stock in connection with the Merger shall have been approved by
the requisite vote of the holders of SMC Common Stock.

10.2 NASDAQ LISTING. The SMC Common Stock issuable in the Merger shall have
been authorized for listing on the NASDAQ National Market, upon official notice
of issuance.

10.3 REGULATORY APPROVALS. All regulatory approvals necessary to
consummation of the Merger shall have been obtained or relevant waiting periods
shall have expired.

10.4 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or "Blue
Sky" authorizations shall have been received.

A-32
<PAGE> 281

ARTICLE XI

CONDITIONS TO OBLIGATIONS OF SMC AND SAC

The obligations of SMC and SAC hereunder are subject to the fulfillment, at
or before the Effective Time, of each of the following conditions (all or any of
which may be waived in whole or in part by SMC):

11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Savers in this Merger Agreement and the statements of Savers contained
in the Disclosure Schedule shall be true as of the effective date of this Merger
Agreement, the certifications given pursuant to Section 11.3 shall be true as of
the date given, and all of such representations, warranties, certifications and
statements shall be true at the Effective Time as though such representations,
warranties, certifications and statements were made at the Effective Time.

11.2 PERFORMANCE. Savers shall have performed and complied with all
agreements, covenants, obligations, and conditions required by this Merger
Agreement to be so performed or complied with by Savers at or before the
Effective Time.

11.3 CERTIFICATES OF OFFICER OF SAVERS. Savers shall have delivered to SMC
a certificate, dated the Effective Time in the form of Exhibit C hereto and
executed by the chief executive officer or chief financial officer of Savers,
certifying (with respect to Savers) as to the fulfillment of the conditions set
forth in Article X and this Article XI. In addition, Savers shall have delivered
to SMC a certificate, dated the Effective Time and executed by the secretary or
any assistant secretary of Savers, certifying that Savers has duly and validly
taken all corporate action necessary to authorize its execution and delivery of
this Merger Agreement and its performance of its obligations under this Merger
Agreement and that the resolutions (true and complete copies of which shall be
attached to the certificate) of the Board of Directors and the stockholders of
Savers with respect to this Merger Agreement and the transactions contemplated
hereby have been duly and validly adopted and are in full force and effect.

11.4 NO INJUNCTION. There shall not be in effect at the Effective Time any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by this Merger Agreement.

11.5 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending or
(to the best knowledge of SMC or Savers) threatened any action, suit,
investigation, or other proceeding in, before, or by any court, governmental or
regulatory authority or other Person to restrain, enjoin or otherwise prevent
consummation of any of the transactions contemplated by this Merger Agreement or
to recover any Damages or obtain other relief as a result of this Merger
Agreement or any of the transactions contemplated hereby or as a result of any
Contract entered into in connection with or as a condition precedent to the
consummation hereof, which action, suit, investigation or other proceeding may,
in the reasonable opinion of SMC, result in a decision, ruling or finding that
individually or in the aggregate has or may reasonably be expected to have a
material adverse effect on the validity or enforceability of this Merger
Agreement, on the ability of Savers or SMC to perform its respective obligations
under this Merger Agreement or on the Business or Condition of SMC or Savers.
There shall not be in effect at the Effective Time any voluntary or involuntary
bankruptcy, receivership, conservatorship or similar proceeding with respect to
Savers.

11.6 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Sections 4.5 and 11.10 and necessary to permit SMC to perform its obligations
under this Merger Agreement and to consummate the transactions contemplated
hereby (including, without limitation, any requisite action of the insurance
regulatory authorities in the State of North Carolina and the State of Indiana,
in each case without the abrogation or diminishment of Savers's authority or
license or the imposition of significant restrictions upon the transactions
contemplated hereby) shall have been obtained and shall be in full force and
effect, and Savers shall have obtained all consents, approvals, authorizations
and clearances referred to in Article X, and SMC shall have received evidence
satisfactory to it of the receipt of such consents, approvals, authorizations
and clearances.

A-33
<PAGE> 282

11.7 NO ADVERSE CHANGE. Since December 31, 1995, there shall not have been,
occurred, or arisen any change in, or any event (including, without limitation,
any damage, destruction or loss, whether or not covered by insurance), condition
or state of facts of any character that individually or in the aggregate has or
may reasonably be expected to have a material adverse effect on the Business or
Condition of Savers.

11.8 OPINION OF COUNSEL. Savers shall have delivered to SMC the opinion,
dated the Effective Time, of Womble Carlyle Sandridge & Rice, PLLC, counsel to
Savers, to the effect set forth in Exhibit D hereto.

11.9 APPROVAL BY FLEET AND CONSECO. Fleet National Bank of Connecticut and
Conseco, Inc. shall have consented to the consummation of the transactions
contemplated under this Merger Agreement and one or both of them have agreed to
loan SMC the sum of $4,000,000 upon terms and conditions satisfactory to SMC.

11.10 EMPLOYMENT AGREEMENT. The Employment Agreement by and between SMC and
Jerry D. Stoltz, Sr. shall have been executed and delivered in substantially the
form of Exhibit G hereto.

11.11 LOCKUP AGREEMENTS. All holders of 5% or more of Saver's issued and
outstanding capital stock and each director or officer of Savers shall have
executed and delivered Lockup Agreements with SMC substantially in the form of
Exhibit H hereto.

11.12 DISSENTERS' RIGHTS. Holders of not more than 5% of Savers Common
Stock outstanding immediately prior to the Effective Time shall be eligible to
exercise appraisal rights under Section 55-13-01, et seq., of the NCBCA.

11.13 SMC STOCKHOLDERS APPROVAL. The Stockholders of SMC shall have
approved the Merger Agreement and the issuance of SMC Common Stock.

11.14 SAVERS ADJUSTED CAPITAL AND SURPLUS. The Adjusted Capital and Surplus
of the Surviving Corporation, calculated as provided in Exhibit B hereto, shall
not be less than $7,390,000 immediately after the Effective Time.

11.15 SAVERS STOCKHOLDERS APPROVAL. The Stockholders of Savers shall have
approved the Merger Agreement.

ARTICLE XII

CONDITIONS TO OBLIGATIONS OF SAVERS

The obligations of Savers hereunder are subject to the fulfillment, at or
before the Effective Time, of each of the following conditions (all or any of
which may be waived in whole or in part by Savers).

12.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by SMC and SAC in this Merger Agreement shall be true as of the effective
date of this Merger Agreement and shall be true at the Effective Time as though
such representations and warranties were made at the Effective Time.

12.2 PERFORMANCE. SMC and SAC shall have performed and complied with all
agreements, covenants, obligations, and conditions required by this Merger
Agreement to be so performed or complied with by SMC and SAC at or before the
Effective Time.

12.3 OFFICERS' CERTIFICATES. SMC shall have delivered to Savers a
certificate, dated the Effective Time in the form of Exhibit E hereto and
executed by the chief executive officer or the chief financial officer of SMC,
certifying with respect to SMC as to the fulfillment of the conditions set forth
in Article X and this Article XII. In addition, SMC shall have delivered to
Savers a certificate, dated the Effective Time and executed by the secretary or
any assistant secretary of SMC certifying that SMC has duly and validly taken
all corporate action necessary to authorize its execution and delivery of this
Merger Agreement and its performance of its obligations under this Merger
Agreement and that the resolutions (true and complete copies of which shall be
attached to the certificate) of the Board of Directors and the stockholders of
SMC with respect to this Merger Agreement and the transactions contemplated
hereby have been duly and validly adopted and are in full force and effect.

A-34
<PAGE> 283

12.4 NO INJUNCTION. There shall not be in effect at the Effective Time any
writ, judgment, injunction, decree or similar order of any court or similar
Person restraining, enjoining or otherwise preventing consummation of any of the
transactions contemplated by this Merger Agreement.

12.5 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending or
(to the best knowledge of SMC or of Savers) threatened any action, suit,
investigation or other proceeding in, before, or by any court, governmental or
regulatory authority or other Person to restrain, enjoin, or otherwise prevent
consummation of any of the transactions contemplated by this Merger Agreement or
to recover any Damages or obtain other relief as a result of this Merger
Agreement or any of the transactions contemplated hereby or as a result of any
Contract entered into in connection with or as a condition precedent to the
consummation hereof, which action, suit, investigation or other proceeding may,
in the reasonable opinion of Savers, result in a decision, ruling or finding
that individually or in the aggregate has or may reasonably be expected to have
a material adverse effect on the validity or enforceability of this Merger
Agreement or on the ability of SMC or Savers to perform its obligations under
this Merger Agreement.

12.6 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant to
Section 4.5 and necessary to permit Savers to perform its obligations under this
Merger Agreement and to consummate the transactions contemplated hereby shall
have been obtained and shall be in full force and effect, and SMC shall have
obtained all consents, approvals, authorizations and clearances referred to in
Article X and Section 11.6 and Savers shall have received evidence satisfactory
to it of the receipt of such consents, approvals, authorizations and clearances.

12.7 OPINION OF COUNSEL. SMC shall have delivered to Savers the opinion,
dated the Effective Time, of Stephen M. Coons, counsel to SMC, to the effect set
forth in Exhibit F hereto.

ARTICLE XIII

SURVIVAL OF PROVISIONS; REMEDIES

13.1 SURVIVAL. The representations, warranties, covenants, and agreements
respectively made by Savers, SMC and SAC in this Merger Agreement, in the
Disclosure Schedule or in any certificate respectively delivered by Savers, SMC
or SAC pursuant hereto will survive the Merger for a period of 25 months
following the Effective Time.

13.2 AVAILABLE REMEDIES. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Merger Agreement
and to consummate the transactions contemplated hereby, subject only to the
performance or satisfaction of precedent conditions or of precedent requirements
imposed upon another party hereto, the remedy of specific performance shall be
available to a non-breaching and non-defaulting party to enforce performance of
this Merger Agreement by a breaching or defaulting party, including, without
limitation, to require the consummation of the Merger.

ARTICLE XIV

TERMINATION

14.1 TERMINATION. This Merger Agreement may be terminated, and the
transaction contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after any approval by the stockholders of
Savers or SMC:

(a) by mutual written consent of SMC and Savers;

(b) by SMC if (i) Savers shall have failed to comply in any material
respect with any of its covenants or agreements contained in this Merger
Agreement required to be complied with by Savers prior to the date of such
termination, which failure to comply has not been cured within five
Business Days following receipt by Savers of notice of such failure to
comply, (ii) the stockholders of Savers shall have failed to approve the
Merger at the Savers Stockholder Meeting, provided that, at the time of
such termination, SMC has not breached any of its covenants set forth in
Articles VIII or IX; or (iii) the

A-35
<PAGE> 284

stockholders of SMC shall have failed to approve the issuance of the SMC
Common Stock at the SMC Stockholder Meeting provided that at the time of
such termination SMC has not breached any of its covenants set forth in
Articles VIII or IX.

(c) by Savers if (i) SMC or SAC shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with by SMC or SAC prior to the date of
such termination, which failure to comply has not been cured within five
Business Days following receipt by SMC of notice of such failure to comply,
(ii) the stockholders of Savers shall have failed to approve the Merger at
the Savers Stockholder Meeting provided that at the time of such
termination, Savers has not breached any of its covenants set forth in
Articles VII or IX, or (iii) the stockholders of SMC shall have failed to
approve the issuance of the SMC Common Stock at the SMC Stockholders
Meeting, provided that, at the time of such termination, Savers has not
breached any of its covenants set forth in Articles VII or IX.

(d) by either SMC or Savers if (i) the Merger has not been effected on
or prior to the close of business on May 30, 1997; provided, however, that
the right to terminate this Merger Agreement pursuant to this clause shall
not be available to any party whose failure to fulfill any obligation of
this Merger Agreement has been the cause of, or resulted in, the failure of
the Merger to have occurred on or prior to the aforesaid date, or (ii) any
court of competent jurisdiction or any governmental, administrative or
regulatory authority, agency or body shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Merger
Agreement and such order, decree, ruling or other action shall have become
final and nonappealable.

(e) by either SMC or Savers if there has been (i) a material breach by
the other of any representation or warranty that is not qualified as to
materiality or (ii) a breach by the other of any representation or warranty
that is qualified as to materiality, in each case which breach has not been
cured within five Business Days following receipt by the breaching party of
notice of the breach.

(f) by SMC, (i) if the Board of Directors of Savers shall not have
recommended, or shall have resolved not to recommend, or shall have
modified or withdrawn its recommendation of the Merger or declaration that
the Merger is advisable or (ii) if the Board of Directors of Savers shall
have recommended, or shall have resolved to recommend, to the stockholders
of Savers any takeover proposal or offer of any other Person.

14.2 EFFECT OF TERMINATION. If this Merger Agreement is validly terminated
pursuant to Section 14.1, this Merger Agreement will forthwith become null and
void, and there will be no Liability on the part of Savers or SMC (or any of
their respective officers, directors, employees, agents, consultants or other
representatives), except that the provisions relating to confidentiality in
Section 15.5 will continue to apply following any such termination; provided,
however, that notwithstanding anything in this Section to the contrary, no party
electing to terminate this Merger Agreement pursuant to Section 14.1 will be
relieved of any Liability for Damages that the electing party may have to the
other party by reason of the electing party's breach of this Merger Agreement
(or any representation, warranty, covenant or agreement included herein).

14.3 CERTAIN PAYMENTS. Notwithstanding any provision in this Merger
Agreement to the contrary, (x) if this Merger Agreement is terminated pursuant
to Sections 14.1(b)(i), 14.1(c)(i) or 14.1(e) on the grounds that the other
party has failed to proceed in good faith, the party terminating this Merger
Agreement shall be entitled to reimbursement from the other party hereto upon
demand for all out-of-pocket fees and expenses incurred or paid by or on behalf
of the terminating party or any of its Affiliates in connection with this Merger
Agreement or the consummation of the Merger, including, but not limited to, all
fees and expenses of counsel, investment banking firms, accountants, experts and
consultants to the terminating party or any of its Affiliates; provided,
however, that the other party hereto shall not be obligated to make payments
pursuant to this clause (x) in excess of $150,000 in the aggregate; and (y)(i)
if the Board of Directors of Savers fails to make a favorable recommendation or
withdraws, amends or modifies its favorable recommendation to its stockholders
of this Merger Agreement and the Merger and (ii) on or prior to twelve months
after the event described in clause (y)(i) above, a Third Party Acquisition
Event (as defined below) occurs, Savers shall promptly, but in

A-36
<PAGE> 285

no event later than the second Business Day following the later to occur of the
events referred to in clauses (i) and (ii), pay to SMC (without prejudice to any
other rights of SMC against Savers) a fee of $500,000 in cash (inclusive of
expenses). In the event that Savers is obligated to make any payment under
clause (y) of this paragraph, it shall be relieved of its obligations, if any,
under clause (x). For purposes of clause (x) above, a refusal by any party to
perform any of its obligations hereunder based upon a failure of one or more
conditions to such obligations shall constitute a breach of Section 9.5 if such
condition may be waived by such party and if such a wavier is unreasonably
withheld by such party. A "Third Party Acquisition Event" means any of the
following events: (A) any Person or group of Persons, other than SMC or its
Affiliates, acquires or becomes the beneficial owner of 25% or more of the
outstanding shares of Savers Common Stock; (B) any new group is formed which
beneficially owns 25% or more of the outstanding shares of Savers Common Stock
(other than a group which includes or may reasonably be deemed to include SMC or
any of its Affiliates); (C) any Person or group of Persons (other than SMC or
its Affiliates) shall have commenced a tender or exchange offer for 25% or more
of the then outstanding shares of Savers Common Stock or publicly proposed any
bona fide merger, consolidation or acquisition of all or substantially all the
assets of Savers or other similar business combination involving Savers; (D)
Savers enters into an agreement, including, without limitation, an agreement in
principle, providing for a merger or other business combination involving Savers
or the acquisition of a substantial interest in, or a substantial portion of the
assets, business or operations of Savers (other than the transactions
contemplated by this Merger Agreement); (E) any Person or group of Persons
(other than SMC or its Affiliates) is granted any option or right, conditional
or otherwise, to acquire or otherwise become the beneficial owner of shares of
Savers Common Stock, which, together with all shares of Savers Common Stock
beneficially owned by such Person or group of Persons, results or would result
in such Person or group of Persons being the beneficial owner of 25% or more of
the outstanding shares of Savers Common Stock. For purposes of this Section
14.3, the terms "group" and "beneficial owner" shall be defined by reference to
Section 13(d) of the Exchange Act.

ARTICLE XV

MISCELLANEOUS

15.1 NOTICES. All notices and other communications under this Merger
Agreement must be in writing and will be deemed to have been duly given if
delivered, telecopied or mailed, by certified mail, return receipt requested,
first class postage prepaid, to the parties at the following addresses:

If to Savers, to:

Savers Life Insurance Company
8064 North Point Boulevard
Winston Salem, North Carolina 27106
Attention: Jerry D. Stoltz, Sr., President
Telecopy: (910) 759-3999

With a copy to:

Womble Carlyle Sandridge & Rice, PLLC
200 West Second Street
Winston Salem, North Carolina 27101
Attention: Zeb E. Barnhardt, Jr., Esq.
Telecopy: (910) 733-8372

If to SMC or SAC, to:

Standard Management Corporation
9100 Keystone Crossing, #600
Indianapolis, Indiana 46240
Attention: Ronald D. Hunter, Chairman & CEO
Telecopy: (317)574-6227

A-37
<PAGE> 286

With a copy to:

Stephen M. Coons, Esq.
9100 Keystone Crossing, #600
Indianapolis, Indiana 46240
Telecopy: (317) 574-6227

All notices and other communications required or permitted under this Merger
Agreement that are addressed as provided in this Article XV will, if delivered
personally, be deemed given upon delivery, will, if delivered by telecopy, be
deemed delivered when confirmed and will, if delivered by mail in the manner
described above, be deemed given on the third Business Day after the day it is
deposited in a regular depository of the United States mail. Any party from time
to time may change its address for the purpose of notices to that party by
giving a similar notice specifying a new address, but no such notice will be
deemed to have been given until it is actually received by the party sought to
be charged with the contents thereof.

15.2 ENTIRE AGREEMENT. Except for documents executed by Savers, SMC and SAC
pursuant hereto, this Merger Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this Merger
Agreement, and this Merger Agreement (including the exhibits thereto, the
Disclosure Schedule and other Contracts and documents delivered in connection
herewith) contains the sole and entire agreement between the parties hereto with
respect to the subject matter hereof.

15.3 EXPENSES. Except as otherwise expressly provided in this Merger
Agreement, each of Savers, SMC and SAC will pay its own costs and expenses in
connection with this Merger Agreement and the transactions contemplated hereby.

15.4 PUBLIC ANNOUNCEMENTS. At all times at or before the Effective Time,
Savers and SMC will each consult with the other before issuing or making any
reports, statements, or releases to the public with respect to this Merger
Agreement or the transactions contemplated hereby and will use good faith
efforts to agree on the text of a joint public report, statement or release or
will use good faith efforts to obtain the other party's approval of the text of
any public report, statement, or release to be made solely on behalf of a party.
If Savers and SMC are unable to agree on or approve any such public report,
statement or release and such report, statement or release is, in the opinion of
legal counsel to a party, required by Law or may be appropriate in order to
discharge such party's disclosure obligations, then such party may make or issue
the legally required report, statement or release. Any such report, statement,
or release approved or permitted to be made pursuant to this Section 15.4 may be
disclosed or otherwise provided by Savers or SMC to any Person, including
without limitation to any employee or customer of either party hereto and to any
governmental or regulatory authority.

15.5 CONFIDENTIALITY. Each of Savers and SMC will hold, and will cause its
respective officers, directors, employees, agents, consultants and other
representatives to hold, in strict confidence, unless compelled to disclose by
judicial or administrative process (including, without limitation, in connection
with obtaining the necessary approval of insurance regulatory authorities) or by
other requirements of Law, all confidential documents and confidential
information concerning the other party furnished to it by the other party or
such other party's officers, directors, employees, agents, consultants or
representatives in connection with this Merger Agreement or the transactions
contemplated hereby, except to the extent that such documents or information can
be shown to have been (a) previously lawfully known by the party receiving such
documents or information, (b) in the public domain through no fault of such
receiving party or (c) later acquired by the receiving party from other sources
not themselves bound by, and in breach of, a confidentiality agreement. Neither
Savers nor SMC will disclose or otherwise provide any such confidential
documents or confidential information to any other Person, except to SMC's
lenders and investors and to either party's respective auditors, actuaries,
attorneys, financial advisors and other consultants and advisors who need such
documents or information in connection with this Merger Agreement.

15.6 WAIVER. Any term or condition of this Merger Agreement may be waived
at any time by the party that is entitled to the benefit thereof. Such waiver
must be in writing and must be executed by the chief executive officer or the
chief operating officer of such party. A waiver on one occasion will not be
deemed to be

A-38
<PAGE> 287

a waiver of the same or any other breach on a future occasion. All remedies,
either under this Merger Agreement, or by Law or otherwise afforded, will be
cumulative and not alternative.

15.7 AMENDMENT. This Merger Agreement may be modified or amended only by a
writing duly executed by or on behalf of Savers, SMC and SAC.

15.8 COUNTERPARTS. This Merger Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.

15.9 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Merger
Agreement are intended solely for the benefit of Savers and SMC, and their
respective successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person.

15.10 GOVERNING LAW. THIS MERGER AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (EXCLUSIVE OF CONFLICTS OF LAW PRINCIPLES).

15.11 BINDING EFFECT. This Merger Agreement is binding upon and will inure
to the benefit of the parties and their respective successors and assigns.

15.12 ASSIGNMENT. Except as otherwise provided herein, this Merger
Agreement or any right hereunder or part hereof may not be assigned by any party
hereto without the prior written consent of the other parties hereto.

15.13 HEADINGS, ETC. The headings used in this Merger Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Merger Agreement.

15.14 INVALID PROVISIONS. If any provision of this Merger Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of Savers, SMC or SAC under this Merger Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Merger Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof; (c) the remaining provisions of this Merger Agreement will remain in
full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom; and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Merger Agreement a legal, valid and enforceable provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible.

A-39
<PAGE> 288

IN WITNESS WHEREOF, this Merger Agreement has been duly executed and
delivered by the parties hereto, effective as of the date first written above.

STANDARD ACQUISITION CORPORATION

By: /s/ RONALD D. HUNTER
-----------------------------------
Name: Ronald D. Hunter
------------------------------
Title: Chairman and CEO
-----------------------------

SAVERS LIFE INSURANCE COMPANY

By: /s/ JERRY D. STOLTZ, SR.
-----------------------------------
Name: Jerry D. Stoltz, Sr.
------------------------------
Title: President
-----------------------------

STANDARD MANAGEMENT CORPORATION

By: /s/ RONALD D. HUNTER
-----------------------------------
Name: Ronald D. Hunter
------------------------------
Title: Chairman and CEO
-----------------------------

A-40
<PAGE> 289

EXHIBIT A

DEFINITIONS OF TERMS

"ADJUSTED CAPITAL AND SURPLUS" as of any date shall mean Savers' statutory
capital and surplus as of such date, adjusted pursuant to the Formula set forth
on Exhibit B hereto and determined based on SAP consistently applied throughout
the specified period and in the immediately prior comparable period.

"AFFILIATE" shall mean any Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with the Person specified.

"ANNUAL STATEMENT" shall mean any annual statement of Savers filed with or
submitted to the insurance regulatory authority in the State of North Carolina
on forms prescribed or permitted by such authority.

"ARTICLES OF MERGER" has the meaning set forth in Section 2.2.

"ASSETS AND PROPERTIES" shall mean all assets or properties of every kind,
nature, character, and description (whether real, personal, or mixed whether
tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures, insurance or annuities in force, goodwill, and going-concern value.

"AVERAGE TRADING PRICE" shall have the meaning set forth in Section 2.5.

"AVR" shall mean the asset valuation reserve required to be established and
maintained by Savers at any particular date, calculated in accordance with SAP.

"BENEFIT PLANS" shall mean all Employee Pension Benefit Plans, all Employee
Welfare Benefit Plans, all stock bonus, stock ownership, stock option, Merger,
stock appreciation rights, phantom stock, and other stock plans (whether
qualified or nonqualified), and all other pension, welfare, severance,
retirement, bonus, deferred compensation, incentive compensation, insurance
(whether life, accident and health, or other and whether key man, group, workers
compensation, or other), profit sharing, disability, thrift, day care, legal
services, leave of absence, layoff, and supplemental or excess benefit plans,
and all other benefit Contracts, arrangements, or procedures having the effect
of a plan, in each case existing on or before the Effective Time under which
Savers is or may hereafter become obligated in any manner (including without
limitation obligations to make contributions or other payments) and which cover
some or all of the present or former officers, directors, employees, agents,
consultants, or other similar representatives providing services to or for
Savers; provided, however, that such term shall not include (a) routine
employment policies and procedures developed and applied in the ordinary course
of business and consistent with past practice, including without limitation sick
leave, vacation, and holiday policies, and (b) directors and officers liability
insurance.

"BOOKS AND RECORDS" shall mean all accounting, financial reporting, Tax,
business, marketing, corporate, and other files, documents, instruments, papers,
books, and records of a specified Person, including without limitation financial
statements, budgets, projections, ledgers, journals, deeds, titles, policies,
manuals, minute books, stock certificates and books, stock transfer ledgers,
Contracts, franchises, permits, agency lists, policyholder lists, supplier
lists, reports, computer files, retrieval programs, operating data or plans, and
environmental studies or plans.

"BUSINESS DAY" shall mean a day other than Saturday, Sunday, or any day on
which the principal commercial banks located in the City of Indianapolis are
authorized or obligated to close under the Laws of the State of Indiana.

"BUSINESS OR CONDITION" shall mean the organization, existence, authority,
capitalization, business, licenses, condition (financial or otherwise), cash
flow, management, sales force, solvency, prospects, SAP and GAAP results of
operations, insurance or annuities in force, SAP capital and surplus, Mandatory
Securities Valuation Reserve, Liabilities, or Assets and Properties of a
specified Person.

A-41
<PAGE> 290

"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. sec.sec. 9601 et seq., any amendments thereto, any
successor statutes, and any regulations promulgated thereunder.

"CERTIFICATE" has the meaning set forth in Section 2.8.

"CLAIM NOTICE" has the meaning set forth in Section 3.9.

"CLASS S PREFERRED" has the meaning set forth in Section 5.6.

"CLOSING" has the meaning set forth in Section 2.18.

"CODE" shall mean the Internal Revenue Code of 1986, as amended (including
without limitation any successor code), and the rules and regulations
promulgated thereunder.

"CONSTITUENT CORPORATIONS" has the meaning set forth in the Preamble.

"CONTAMINANT" means any waste, pollutant, hazardous or toxic substance or
waste, petroleum, petroleum-based substance or waste, special waste, or any
constituent of any such substance or waste.

"CONTINGENT PAYMENT COMMITTEE" has the meaning set forth in Section 3.8.

"CONTRACT" shall mean any agreement, lease, sublease, license, sublicense,
promissory note, evidence of indebtedness, insurance policy, annuity,
reinsurance agreement, reinsurance treaty, or other contract or commitment
(whether written or oral).

"DAMAGES" shall mean any and all monetary damages, Liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, and expenses
(including without limitation punitive, treble, or other exemplary or extra
contractual damages, amounts paid in settlement, interest, court costs, costs of
investigation, fees and expenses of attorneys, accountants, actuaries, and other
experts, and other expenses of litigation or of any claim, default, or
assessment).

"DISCLOSURE SCHEDULE" shall mean the bound record, dated the effective date
of the Merger Agreement, furnished by Savers to SMC, and containing all lists,
descriptions, exceptions, and other information and materials as are required to
be included therein pursuant to the Merger Agreement.

"DISSENTING SHARES" has the meaning set forth in Section 2.14.

"EFFECTIVE TIME" has the meaning set forth in Section 2.2.

"ELECTION" has the meaning set forth in Section 2.7.

"ELECTION DATE" has the meaning set forth in Section 2.7.

"EMPLOYEE PENSION BENEFIT PLAN" shall mean each employee pension benefit
plan (whether or not insured), as defined in Section 3(2) of ERISA, which is or
was in existence on or before the Effective Time and to which Savers is or may
hereafter become obligated in any manner as an employer.

"EMPLOYEE WELFARE BENEFIT PLAN" shall mean each employee welfare benefit
plan (whether or not insured), as defined in Section 3(1) of ERISA, which is or
was in existence on or before the Effective Time and to which Savers is or may
hereafter become obligated in any manner as an employer.

"ENVIRONMENTAL ENCUMBRANCE" means an Encumbrance in favor of any
Governmental Body for (i) any liability under any Environmental Law, or (ii)
damages arising from, or costs incurred by such Governmental Body in response
to, a Release or threatened Release of a Contaminant into the environment.

"ENVIRONMENTAL LAW" means all Requirements of Laws derived from or relating
to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended (including without limitation any successor act), and the rules and
regulations promulgated thereunder.

A-42
<PAGE> 291

"ERISA AFFILIATE" shall mean any Person under common control (as defined in
Section 414 of the Code) with Savers.

"EXCESS SHARES" has the meaning set forth in Section 2.10.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder).

"EXCHANGE AGENT" has the meaning set forth in Section 2.8.

"EXCHANGE FUND" has the meaning set forth in Section 2.8.

"EXPENSES" means any and all expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs, witness
fees, and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).

"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.11.

"FORM OF ELECTION" has the meaning set forth in Section 2.7.

"FORMULA" shall have the meaning set forth in Exhibit B.

"FRACTIONAL SECURITIES FUND" shall have the meaning set forth in Section
2.10.

"GAAP" shall mean generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.

"GOVERNMENTAL ENTITY" means any foreign, federal, state, local or other
governmental authority or regulatory entity.

"GOVERNMENTAL PERMITS" means Seller owns, holds or possesses all licenses,
franchises, permits, privileges, immunities, approvals and other authorizations
from a Governmental Body.

"IMPROVEMENTS ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.

"IMR" shall mean the interest maintenance reserve required to be
established and maintained by Savers at any particular date, calculated in
accordance with SAP.

"IRS" shall mean the United States Internal Revenue Service or any
successor agency.

"LAW OR LAWS" shall mean all laws, statutes, ordinances, regulations, and
other pronouncements having the effect of law in the United States of America,
any foreign country, or any domestic or foreign state, province, commonwealth,
city, country, municipality, territory, protectorate, possession, court,
tribunal, agency, government, department, commission, arbitrator, board, bureau,
or instrumentality thereof.

"LIABILITY OF LIABILITIES" shall mean all debts, obligations, and other
liabilities of a Person (whether absolute, accrued, contingent, fixed, or
otherwise, or whether due or to become due).

"LIEN" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract, or other
Contract to give or to refrain from giving any of the foregoing.

"LOSSES" has the meaning set forth in Section 3.9.

"MERGER AGREEMENT" shall mean this Merger Agreement, together with the
exhibits and the Disclosure Schedule attached hereto, and the Contracts and
other documents to be executed and delivered by Savers pursuant hereto.

"NAIC" shall mean the National Association of Insurance Commissioners.

"NCBCA" has the meaning set forth in Section 2.1.

A-43
<PAGE> 292

"NON-ADMITTED ASSETS" shall mean any assets of the Company required to be
reported as "assets not admitted" on Exhibit 13 of any Annual Statement or
Quarterly Statement filed by Savers.

"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. sec.sec. 651
et seq., any amendment thereto, any successor statute, and any regulations
promulgated thereunder.

"OWNED REAL PROPERTY" has the meaning set forth in Section 4.20.

"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA.

"PERFORMANCE PREMIUM" means either the 1997 Performance Premium or the 1998
Performance Premium or both.

"PERSON" means any natural person, corporation, general partnership,
limited partnership, proprietorship, trust, union, association, court, tribunal,
agency, government department, commission, self-regulatory organization,
arbitrator, board, bureau, instrumentality, or other entity, enterprise,
authority, or business organization.

"PROXY STATEMENT" has the meaning set forth in Section 4.9.

"QUARTERLY STATEMENT" shall mean any quarterly statement of Savers filed
with or submitted to the insurance regulatory authority in the State of North
Carolina on forms prescribed or permitted by such authority.

"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. sec.sec.
6901 et seq., and any successor statute, and any regulations promulgated
thereunder.

"RECORD HOLDER" has the meaning set forth in Article III.

"REGISTRATION STATEMENT" has the meaning set forth in Section 4.9.

"RELEASE" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant
into the indoor or outdoor environment or into or out of any Property of Savers,
including the movement of Contaminants through or in the air, soil, surface
water, groundwater or Property of Savers.

"REQUIREMENTS OF LAW" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.

"SAC" has the meaning set forth in the Preamble.

"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the State of North Carolina, consistently applied throughout the
specified period and in the immediately prior comparable period.

"SAP STATEMENTS" shall mean the Annual Statements, Quarterly Statements,
and other financial statements and presentations of Savers prepared in
accordance with SAP and delivered to SMC pursuant to of Sections 4.7, 4.11 and
7.2.

"SAVERS" has the meaning set forth in the Preamble.

"SAVERS AGREEMENT" has the meaning set forth in Section 4.22

"SAVERS COMMON STOCK" shall have the meaning ascribed to it in this Merger
Agreement.

"SAVERS STOCKHOLDERS MEETING" has the meaning as set forth in Section 9.1.

"SAVERS STOCK OPTION" has the meaning set forth in Section 9.4.

"SEC" shall mean the Securities and Exchange Commission.

"SECURITIES ACT" means the Securities Act of 1933, as amended (together
with the rules and regulations promulgated thereunder).

A-44
<PAGE> 293

"SMC" shall mean Standard Management Corporation.

"SMC COMMON STOCK" shall have the meaning ascribed to it in the Preamble of
this Merger Agreement.

"SMC SECURITIES" has the meaning set forth in Section 5.6.

"SMC STOCKHOLDERS MEETING" has the meaning set forth in Section 9.1.

"STANDARD VALUATION OFFICE" shall mean the financial instruments rating
entity for the NAIC.

"STOCKHOLDER MEETINGS" has the meaning set forth in Section 9.1.

"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.

"TAXES" shall mean all taxes, charges, fees, levies, or other similar
assessments or Liabilities, including without limitation income, gross receipts,
ad valorem, premium, excise, real property, personal property, windfall profit,
sales, use, transfer, licensing, withholding, employment, payroll, Phase III,
and franchise taxes imposed by the United States of America or any state, local,
or foreign government, or any subdivision agency, or other similar Person of the
United States or any such government; and such term shall include any interest,
fines, penalties, assessments, or additions to tax resulting from, attributable
to, or incurred in connection with any such tax or any contest or dispute
thereof.

"TAX RETURNS" shall mean any report, return, or other information required
to be supplied to a taxing authority in connection with Taxes.

"THIRD PARTY ACQUISITION EVENT" has the meaning set forth in Section 14.3.

"THIRD PARTY CLAIM" has the meaning set forth in Section 3.9.

"WORK PAPERS" shall mean all summaries, calculations, compilations and
similar written documentation derived from the accounts of Savers and used or
prepared by accountants in the process of computing Adjusted Capital and
Surplus.

"1997 STATUTORY NET INCOME" has the meaning set forth in Section 3.1.

"1997 REQUIRED RETURN" has the meaning set forth in Section 3.1.

"1997 PERFORMANCE PREMIUM" has the meaning set forth in Section 3.1.

"1998 STATUTORY NET INCOME" has the meaning set forth in Section 3.2.

"1998 REQUIRED RETURN" has the meaning set forth in Section 3.2.

"1998 PERFORMANCE PREMIUM" has the meaning set forth in Section 3.2.

A-45
<PAGE> 294

AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER

AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of February 17, 1997,
among STANDARD MANAGEMENT CORPORATION, an Indiana corporation ("SMC"), STANDARD
ACQUISITION CORPORATION, a North Carolina Corporation ("SAC") and SAVERS LIFE
INSURANCE COMPANY, a North Carolina domestic stock insurance company ("Savers")
(SAC and Savers being hereinafter collectively referred to as the "Constituent
Corporations").

RECITALS

WHEREAS, SMC, SAC and Savers agreed to the merger of SAC with and into
Savers (the "Merger") and executed an Agreement and Plan of Merger dated as of
December 19, 1996 (the "Merger Agreement") to specify the terms of the Merger;

WHEREAS, the parties intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"); and

WHEREAS, the parties now desire to amend the Merger Agreement to effect
their intention that the Merger qualify as a tax-free reorganization within the
meaning of the Code Section 368(a) to satisfy the requirements imposed pursuant
to Code Sections 368(a)(1)(A) and 368(a)(2)(E) with respect to a reverse
triangular reorganization transaction;

1. AMENDMENT TO CASH CONSIDERATION. Section 2.5(c) of the Agreement shall
be deleted in its entirety and the following shall be inserted therefor:

"(c) Subject to the provisions of Section 2.10 and 2.12 hereof, each
share of Savers Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with
Section 2.5(a)) shall be converted into (i) subject to Section 2.6 below,
$1.50 in cash, plus (ii) $6.50 in value of shares of SMC Common Stock, the
number of such shares, to be rounded to the nearest hundredth of a share,
determined by dividing $6.50 by the average of the closing trading prices
as reported by the NASDAQ National Market (the "Average Trading Price") of
SMC Common Stock for the ten (10) consecutive trading days ending on the
fifth day prior to the earlier of the SMC Stockholders Meeting or the
Savers Stockholders Meeting, plus (iii) the Performance Premium described
in Article III, below. All such shares of Savers Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired, and each holder of a Certificate (as defined in
Section 2.8(a)) representing any such shares shall cease to have any rights
with respect thereto, except the right to receive shares of SMC Common
Stock, cash as provided in this Section 2.5 and Section 2.6 and the
Performance Premium, certain dividends and other distributions as
contemplated by Section 2.9 and any cash in lieu of fractional shares to be
issued or paid in consideration therefor upon surrender of such Certificate
in accordance with Section 2.8."

2. AMENDMENT TO STOCK ELECTION. Section 2.6 of the Merger Agreement shall
be deleted in its entirety and the following shall be inserted therefor:

"2.6 STOCK ELECTION. Each holder of Savers Common Stock may elect to
receive SMC Common Stock in lieu of the cash to which such holder would
otherwise be entitled pursuant to Section 2.5(c). In the event that any
holder of Savers Common Stock shall make such election, such holder shall
be entitled to receive for each share of Savers Common Stock so held, in
lieu of the cash into which such Savers Common Stock would otherwise be
converted pursuant to Section 2.5(c), an additional number of shares of SMC
Common Stock, rounded to the nearest hundredth of a share, determined by
dividing $1.50 by the Average Trading Price applied in Section 2.5(c)."

A-46
<PAGE> 295

3. AMENDMENTS TO ARTICLE III INTRODUCTORY LANGUAGE. The first three lines
of Article III of the Merger Agreement immediately preceding Section 3.1 of the
Merger Agreement shall be deleted in their entirety and the following shall be
inserted therefor:

"A holder of record of Savers Common Stock at the Effective Time
("Record Holder") shall have the following contractual right to receive
shares of SMC Common Stock, together with interest payable in cash, subject
to the terms and conditions contained herein."

4. AMENDMENT TO PERFORMANCE PREMIUM ELECTION PROVISIONS. Section 3.4 of the
Agreement shall be deleted in its entirety and the following shall be inserted
therefor:

"3.4 SMC COMMON STOCK AND INTEREST.

(a) The 1997 Performance Premium and the 1998 Performance Premium
shall be payable in SMC Common Stock and in cash (as interest) as
hereinafter determined. The portion of the 1997 Performance Premium and
the portion of the 1998 Performance Premium that shall be payable in
cash shall be the portion that represents interest computed using the
applicable federal rate (short-term) established in Code Section 1274(d)
for the month during which the Effective Time pursuant to Section 2.2
occurs. The portions of the 1997 Performance Premium and the 1998
Performance Premiums that represent interest determined in accordance
with the immediately preceding sentence shall be the only portions of
Performance Premium that shall be payable in cash (with the exception of
cash paid as Performance Premium in lieu of fractional shares). The
payment of the Performance Premium in shares of SMC Common Stock that is
not payable in cash as interest shall consist of the number of shares of
SMC Common Stock determined by dividing (i) the amount to which each
Record Holder would be entitled in payment of such Performance Premium
reduced by the allocable portion of the interest by (ii) the Average
Trading Price of SMC Common Stock for the ten (10) consecutive trading
days ending on the fifth day prior to the payment date of such
Performance Premium, rounded to the nearest hundredth of a share. SMC
shall pay cash in lieu of issuing certificates or scrip for fractional
shares.

(b) The 1997 Performance Premium and the 1998 Performance Premium
shall be calculated as of December 31, 1997, and December 31, 1998,
respectively, based upon the Surviving Corporation's Annual Statements
for the years then ended as filed with the North Carolina Department of
Insurance. The calculations shall be made no later than April 30, 1998
and 1999, and the payment dates shall be no later than May 31, of 1998
and 1999, respectively.

(c) The maximum aggregate value of the 1997 Performance Premium and
the 1998 Performance Premium payable pursuant to this Merger Agreement
shall be $6,000,000."

5. AMENDMENT TO DELIVERY OF PERFORMANCE PREMIUMS PROVISION. Section 3.5(a)
of the Merger Agreement shall be deleted in its entirety and the following shall
be inserted therefor:

"(a) Promptly after the calculation by SMC of the final 1997
Performance Premium and the final 1998 Performance Premium, as the case may
be, SMC shall deliver, to the Exchange Agent in trust for the Record
Holders, the cash representing interest and the SMC Common Stock payable
with respect to such Performance Premium."

6. AMENDMENT TO EXCHANGE AGENT PERFORMANCE PREMIUM DELIVERY PROVISIONS. The
words, ", without interest," in the eighth line of Section 3.5(d) shall be
deleted. It is the intention of the parties that the 1997 Performance Premium
and the 1998 Performance Premium be calculated in accordance with the provisions
of this Article III, as the case may be, and that the portions of the 1997
Performance Premium and the 1998 Performance Premiums that constitute interest
(computed using the applicable federal rate (short-term) established in Code
Section 1274(d) for the month during which the Effective Time pursuant to
Section 2.2 occurs) be determined and paid in cash. The parties further intend
that the remaining portions of the 1997 Performance Premium and the 1998
Performance Premium be paid in SMC Common Stock, with the exception of any
portion of the Performance Premium that would require the issuance of fractional
shares, which portion shall also be paid in cash by SMC.

A-47
<PAGE> 296

IN WITNESS WHEREOF, this AMENDMENT TO AGREEMENT AND PLAN OF MERGER has been
duly executed and delivered by the parties hereto, effective as of the date
first written above.

STANDARD ACQUISITION CORPORATION

By: /s/ EDWARD T. STAHL
------------------------------------
Name: Edward T. Stahl
Title: Executive Vice President

STANDARD MANAGEMENT CORPORATION

By: /s/ EDWARD T. STAHL
------------------------------------
Name: Edward T. Stahl
Title: Executive Vice President

SAVERS LIFE INSURANCE COMPANY

By: /s/ JERRY D. STOLTZ
------------------------------------
Name: Jerry D. Stoltz
Title: President

A-48
<PAGE> 297

SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER

AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of May 7, 1997, among
STANDARD MANAGEMENT CORPORATION, an Indiana corporation ("SMC") STANDARD
ACQUISITION CORPORATION, a North Carolina Corporation ("SAC") and SAVERS LIFE
INSURANCE COMPANY, a North Carolina domestic stock insurance company ("Savers")
(SAC and Savers being hereinafter collectively referred to as the "Constituent
Corporations").

RECITALS

WHEREAS, SMC, SAC and Savers agreed to the merger of SAC with and into
Savers (the "Merger") and executed an Agreement and Plan of Merger dated as of
December 19, 1996, and amended as of February 17, 1997 (the "Merger Agreement"),
to specify the terms of the Merger; and

WHEREAS, the parties acknowledge that, because of events that have
transpired since the execution of the Amendment, dated as of February 17, 1997,
various provisions contained in the Merger Agreement should be modified; and

WHEREAS, the parties now desire to amend the Merger Agreement further to
effect their intentions accurately;

1. AMENDMENT TO CALCULATION OF 1997 PERFORMANCE PREMIUM. Section 3.1 of the
Agreement shall be deleted in its entirety and the following shall be inserted
in replacement thereof:

3.1 December 31, 1997 Performance Premium. If the sum of (a) the
Surviving Corporation's after-tax net income on a statutory basis for the
full calendar year ended December 31, 1997, plus (b) the $256,500 fee
payable to Daiwa Securities America, Inc., less the portion of that amount
equal to Savers' 1997 marginal federal income tax rate multiplied by the
fee amount, plus (c) all amounts paid by Savers pursuant to Section 2.5(d)
of the Merger Agreement, less the portion of that amount equal to Savers'
1997 marginal federal income tax rate multiplied by the amount so paid,
plus (d) the total of all management fees paid after the Effective Time of
the Merger to SMC and any of its other subsidiaries, less the portion of
that amount equal to Savers' 1997 marginal federal income tax rate
multiplied by the fee amount (such sum hereafter being called the "1997
Adjusted Statutory Net Income") shall be in excess of 15% of the total
consideration issued or payable to the stockholders of Savers pursuant to
Section 2.5 and Section 2.6 (the "1997 Required Return"), the Record
Holders shall be entitled to receive a Performance Premium (the "1997
Performance Premium") equal to (a) the excess of 1997 Adjusted Statutory
Net Income over the 1997 Required Return, plus (b) $1,000,000.

2. AMENDMENT TO CALCULATION OF 1998 PERFORMANCE PREMIUM. Section 3.2 of the
Agreement shall be deleted in its entirety and the following shall be inserted
in replacement thereof:

3.2 December 31, 1998 Performance Premium. If the sum of (a) the
Surviving Corporation's after-tax net income on a statutory basis for the
full calendar year ending December 31, 1998, plus (b) the total of all
management fees paid by the Surviving Corporation during 1998 to SMC and
any of its other subsidiaries, less the portion of that amount equal to
Savers' 1998 marginal federal income tax rate multiplied by the fee amount
(such sum hereafter being called the "1998 Adjusted Statutory Net Income")
shall be in excess of 15% of the total consideration issued or payable to
the stockholders of Savers pursuant to Section 2.5, Section 2.6 and Section
3.1 (the "1998 Required Return"), the Record Holders shall be entitled to
receive a Performance Premium (the "1998 Performance Premium") equal to (a)
the excess of 1998 Adjusted Statutory Net Income over the 1998 Required
Return, plus (b) $1,000,000.

A-49
<PAGE> 298

3. AMENDMENT TO LOCKUP AGREEMENT REQUIREMENT. In recognition of the fact
that each director of Savers will be limited, pursuant to Rule 145 under the
Securities Act, in his ability to resell shares of SMC Common Stock acquired in
exchange for his shares of Savers Common Stock in the Merger, and there is no
need for duplication of such restrictions. Section 11.11 of the Merger Agreement
is hereby amended by deleting therefrom the words "director or".

4. AMENDMENT TO SECTION 14.1(D). In view of the fact that the Merger cannot
now reasonably be expected to be consummated by May 30, 1997, Section 14.1(d) of
the Merger Agreement is hereby amended to change the "May 30, 1997" Merger
deadline date appearing therein to "June 30, 1997".

5. AMENDMENTS TO GLOSSARY. The term "1997 Statutory Net Income" appearing
in the Glossary (Exhibit A to the Merger Agreement) is hereby changed to "1997
Adjusted Statutory Net Income", and the term "1998 Statutory Net Income"
appearing in the Glossary (Exhibit A to the Merger Agreement) is hereby changed
to "1998 Adjusted Statutory Net Income".

IN WITNESS WHEREOF, this SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
has been duly executed and delivered by the parties hereto, effective as of the
date first written above.

STANDARD MANAGEMENT CORPORATION

By: /s/ RONALD D. HUNTER

-----------------------------------------------------

Name: Ronald D. Hunter

----------------------------------------------

Title: Chairman and CEO

-----------------------------------------------

STANDARD ACQUISITION CORPORATION

By: /s/ EDWARD T. STAHL

-----------------------------------------------------

Name: Edward T. Stahl

----------------------------------------------

Title: Executive Vice President

-----------------------------------------------
SAVERS LIFE INSURANCE COMPANY

By: /s/ JERRY D. STOLTZ

-----------------------------------------------------

Name: Jerry D. Stoltz

----------------------------------------------

Title: President

-----------------------------------------------

A-50
<PAGE> 299

THIRD AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER

AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of June 27, 1997, among
STANDARD MANAGEMENT CORPORATION, an Indiana corporation ("SMC"), STANDARD
ACQUISITION CORPORATION, a North Carolina Corporation ("SAC") and SAVERS LIFE
INSURANCE COMPANY, a North Carolina domestic stock insurance company ("Savers")
(SAC and Savers being hereinafter collectively referred to as the "Constituent
Corporations").

RECITALS

WHEREAS, SMC, SAC and Savers agreed to the merger of SAC with and into
Savers (the "Merger") and executed an Agreement and Plan of Merger dated as of
December 19, 1996, and amended as of February 17, 1997 and as of May 7, 1997
(the "Merger Agreement"), to specify the terms of the Merger; and

WHEREAS, the parties acknowledge that, because of events that have
transpired since the execution of the Amendment, dated as of May 7, 1997,
Section 14.1(d) of the Merger Agreement should be further modified, and they now
desire to amend the Merger Agreement further to extend the date set forth in
that Section;

NOW THEREFORE, pursuant to Section 15.7 of the Merger Agreement and in
consideration of the mutual representations, warranties and covenants made
herein and of the mutual benefits to be derived herefrom, and, in view of the
fact that the Merger cannot now reasonably be expected to be consummated by June
30, 1997, the parties hereby agree to amend the Merger Agreement as follows:
Section 14.1(d) of the Merger Agreement is hereby further amended to change the
"June 30, 1997" Merger deadline date appearing therein to "September 10, 1997".

IN WITNESS WHEREOF, this THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
has been duly executed and delivered by the parties hereto, effective as of the
date first written above.

STANDARD MANAGEMENT CORPORATION

By: /s/ RONALD D. HUNTER

--------------------------------------------------------

Name: Ronald D. Hunter

-------------------------------------------------

Title: Chairman and CEO

--------------------------------------------------

STANDARD ACQUISITION CORPORATION

By: /s/ EDWARD T. STAHL

--------------------------------------------------------

Name: Edward T. Stahl

-------------------------------------------------

Title: Executive Vice President

--------------------------------------------------
SAVERS LIFE INSURANCE COMPANY

By: /s/ JERRY D. STOLTZ

--------------------------------------------------------

Name: Jerry D. Stoltz

-------------------------------------------------

Title: President

--------------------------------------------------

A-51
<PAGE> 300

FOURTH AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER

AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of July 31, 1997, among
STANDARD MANAGEMENT CORPORATION, an Indiana corporation ("SMC"), STANDARD
ACQUISITION CORPORATION, a North Carolina Corporation ("SAC") and SAVERS LIFE
INSURANCE COMPANY, a North Carolina domestic stock insurance company ("Savers")
(SAC and Savers being hereinafter collectively referred to as the "Constituent
Corporations").

RECITALS

WHEREAS, SMC, SAC and Savers agreed to the merger of SAC with and into
Savers (the "Merger") and executed an Agreement and Plan of Merger dated as of
December 19, 1996, and amended as of February 17, 1997, as of May 7, 1997, and
as of June 27, 1997 (the "Merger Agreement"), to specify the terms of the
Merger; and

WHEREAS, the parties acknowledge that, because of events that have
transpired since the execution of the Amendment, dated as of June 27, 1997,
Section 14.1(d) of the Merger Agreement should be further modified, and they now
desire to amend the Merger Agreement further both to extend the date set forth
in that Section and to provide for automatic termination of the Agreement if the
Merger shall not have occurred by November 5, 1997;

NOW THEREFORE, pursuant to Section 15.7 of the Merger Agreement and in
consideration of the mutual representations, warranties and covenants made
herein and of the mutual benefits to be derived herefrom, and, in view of the
fact that the Merger cannot now reasonably be expected to be consummated by
September 10, 1997, the parties hereby agree to amend the Merger Agreement as
follows:

1. Section 14.1(d) of the Merger Agreement is hereby further amended to
change the "September 10, 1997" Merger deadline date appearing therein to
"November 5, 1997".

2. A new Section 14.1(g) is hereby added to the Merger Agreement as
follows:

(g) Notwithstanding any other provision of this Merger Agreement to
the contrary, if the Effective Time shall not have occurred at or before
11:59 PM, Eastern Time, on November 5, 1997, this Merger Agreement shall
automatically terminate at that time and, subject to the provisions of
Section 14.2 hereof, shall become thereafter null and void; provided,
however, that this termination provision may be waived upon the authority
and direction of the boards of directors of both Savers and SMC, and the
failure of either board to approve such a waiver shall not be considered a
failure to proceed in good faith.

IN WITNESS WHEREOF, this FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
has been duly executed and delivered by the parties hereto, effective as of the
date first written above.

STANDARD MANAGEMENT CORPORATION
By: /s/ RONALD D. HUNTER

-----------------------------------------------------
Name: Ronald D. Hunter
----------------------------------------
Title: Chairman and CEO
------------------------------------------

STANDARD ACQUISITION CORPORATION
By: /s/ EDWARD T. STAHL

-----------------------------------------------------
Name: Edward T. Stahl
----------------------------------------
Title: Executive Vice President
------------------------------------------
SAVERS LIFE INSURANCE COMPANY
By: /s/ JERRY D. STOLTZ

-----------------------------------------------------
Name: Jerry D. Stoltz
----------------------------------------
Title: President
------------------------------------------

A-52
<PAGE> 301

ANNEX B

ARTICLE 13.

DISSENTERS' RIGHTS.

PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.

SECTION 55-13-01. DEFINITIONS. IN THIS ARTICLE:

(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.

(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.

(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.

(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.

(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

SECTION 55-13-02. RIGHT TO DISSENT.

(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:

(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;

(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;

(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;

(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a

B-1
<PAGE> 302

fraction of a share if the fractional share so created is to be acquired
for cash under G.S. 55-6-04; or (vi) changes the corporation into a
nonprofit corporation or cooperative organization;

(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.

SECTION 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.

(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.

(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:

(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and

(2) He does so with respect to all shares of which he is the
beneficial shareholder.

SECTIONS 55-13-04 TO 55-13-19: RESERVED FOR FUTURE CODIFICATION PURPOSES.

Part 2. Procedure for Exercise of Dissenters' Rights.

SECTION 55-13-20. NOTICE OF DISSENTERS' RIGHTS.

(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.

(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.

(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.

SECTION 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.

(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:

(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and

(2) Must not vote his shares in favor of the proposed action.

(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.

B-2
<PAGE> 303

SECTION 55-13-22. DISSENTERS' NOTICE.

(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.

(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:

(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(3) Supply a form for demanding payment;

(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is mailed; and

(5) Be accompanied by a copy of this Article.

SECTION 55-13-23. DUTY TO DEMAND PAYMENT.

(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.

(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.

(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.

SECTION 55-13-24. SHARE RESTRICTIONS.

(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.

SECTION 55-13-25. OFFER OF PAYMENT.

(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with G.S. 55-13-23 the amount the corporation estimates to be the fair value of
his shares, plus interest accrued to the date of payment, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.

(b) The offer of payment must be accompanied by:

(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
offer of payment, an income statement for that year, a statement of cash
flows for that year, and the latest available interim financial statements,
if any;

(2) A statement of the corporation's estimate of the fair value of the
shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and

B-3
<PAGE> 304

(5) A copy of this Article.

SECTION 55-13-26. FAILURE TO TAKE ACTION.

(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.

(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.

SECTION 55-13-27. RESERVED FOR FUTURE CODIFICATION PURPOSES.

SECTION 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S OFFER
OR FAILURE TO PERFORM.

(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:

(1) The dissenter believes that the amount offered under G.S. 55-13-25
is less than the fair value of his shares or that the interest due is
incorrectly calculated;

(2) The corporation fails to make payment to a dissenter who accepts
the corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; or

(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.

(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation offered payment for his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.

SECTION 55-13-29: RESERVED FOR FUTURE CODIFICATION PURPOSES.

Part 3. Judicial Appraisal of Shares

SECTION 55-13-30. COURT ACTION.

(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the date of his payment
demand under G.S. 55-13-28 and petition the court to determine the fair value of
the shares and accrued interest. Upon service upon it of the petition filed with
the court, the corporation shall pay to the dissenter the amount offered by the
corporation under G.S. 55-13-25.

(a1) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.

(b) Reserved for future codification purposes.

(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.

B-4
<PAGE> 305

(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.

(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.

SECTION 55-13-31. COURT COSTS AND COUNSEL FEES.

(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.

(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or

(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.

(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.

B-5
<PAGE> 306

ANNEX C

STANDARD MANAGEMENT CORPORATION

AMENDED AND RESTATED 1992 STOCK OPTION PLAN

I. INTRODUCTION

1. Purposes. The purpose of the 1992 Stock Option Plan (the "Plan") of
Standard Management Corporation and its subsidiaries (collectively, the
"Company") are to align the interests of the Company's stockholders and the
recipients of awards under the Plan by increasing the proprietary interest of
such recipients in the Company's growth and success and furthermore, to advance
the interests of the Company by attracting and retaining officers and key
employees and well-qualified persons who are not salaried officers or employees
of the Company for service as directors, upon whose judgment the Company is
largely dependent for the successful conduct of its operations and success and
by providing such individuals with incentives to put forth maximum efforts for
the long-term success of the Company's business by means of performance-related
incentives.

2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of the Board of Directors of the Company.

The Committee shall, subject to the terms of the Plan, select eligible
officers and other key employees for participation in the Plan and determine the
number of shares of Common Stock allocable to an award granted hereunder, any
exercise price associated with such award, the time and conditions of exercise
and all other terms and conditions of the award, including, without limitation,
the form of any option agreement. The Committee may, subject to the terms of the
Plan, interpret the Plan, establish rules and regulations for the administration
of the Plan, and impose, incidental to the grant of an award, conditions with
respect to the grant or award of stock options, competitive employment or other
activities. All such rules, regulations and interpretations shall be conclusive
and binding on all parties. All awards under the Plan shall be evidenced by
written agreements between the Company and the recipients of such awards and no
such award shall be valid until so evidenced.

The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided however, that the Committee may not
delegate its power and authority with regard to the selection for participation
in the Plan of an officer or other person subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or decisions
concerning the timing, pricing and amount of a grant or award to an officer or
such other person.

Neither the Committee nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan in good faith, and the members of the Committee and the Chief Executive
Officer or other executive officer shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or expense
(including attorneys' fees) arising therefrom to the full extent permitted by
law and under any directors' and officers' liability insurance that may be in
effect from time to time.

A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be the acts of the Committee.

3. Eligibility. Participants in the Plan will consist of such officers or
other key employees of the Company and its subsidiaries as the Committee in its
sole discretion may select from time to time. Members of the Board of Directors
of the Company who are not full-time salaried officers or employees of the
Company or its subsidiaries ("Outside Directors") shall be eligible to
participate in the Plan in accordance with Section III. The Committee's
selection of a person to participate in the Plan in any year shall not require
the Committee to select such person to participate in the Plan in any other
year. No employee shall have the right to be selected to participate in the
Plan.

C-1
<PAGE> 307

4. Shares Issuable. Subject to adjustment as provided in Section IV.7 of
the Plan, 2,500,000 shares of the common stock, no par value, of the Company
("Common Stock"), are available for awards under the Plan. If any outstanding
option, in whole or in part, expires or terminates unexercised or is canceled or
forfeited, the shares of Common Stock allocable to the unexercised, canceled or
forfeited portion of such option shall again be made the subject of awards under
the Plan.

Shares of Common Stock to be delivered upon exercise of options under the
Plan shall be made available from authorized and unissued shares of Common
Stock, or authorized and issued shares of Common Stock reacquired and held as
treasury shares or otherwise or a combination thereof.

II. STOCK OPTIONS

1. Grants of Stock Options. The Committee may, in its discretion, grant
options to purchase shares of Common Stock to such eligible persons as may be
selected by the Committee. All options granted hereunder shall be non-qualified
stock options.

2. Terms of Stock Options. Options granted hereunder shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem advisable:

(a) Purchase Price. The purchase price per share of Common Stock
purchasable upon exercise of an option shall be determined by the
Committee; provided, however, that the purchase price per share of Common
Stock purchasable upon exercise of an option shall not be less than 100% of
the fair market value of the Common Stock on the date of grant of such
option. For purposes of this Plan, "Fair Market Value" shall be determined
by the Committee.

(b) Option Period and Exercisability. Each option granted hereunder
may be granted at any time on or after the effective date, and prior to the
termination, of this Plan, provided that no option may be granted later
than ten years after the date this Plan is adopted. The period for the
exercise of each option shall be determined by the Committee, provided that
no incentive stock option may be exercised later than ten years after the
date such option is granted. The Committee shall determine whether an
option shall become exercisable in cumulative or non-cumulative
installments or in full at any time. An exercisable option, or portion
thereof, may be exercised in whole or in part only with respect to whole
shares of Common Stock.

(c) Method of Exercise. An option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares to be
purchased and accompanied by payment therefor in full either (A) in cash,
(B) in previously owned whole shares of Common Stock (for which the
participant has good title free and clear of all liens and encumbrances)
having a fair market value determined as of the date of exercise, (C) by
authorizing the Company to retain whole shares of Common Stock which would
otherwise be issuable upon exercise of the option having a fair market
value determined as of the date of exercise, (D) in cash by a broker-dealer
to whom the holder of the option has submitted an irrevocable notice of
exercise, or (E) a combination of (A), (B) and (C), in each case to the
extent determined by the Committee at the time of grant of an option, and
(ii) by executing such documents as the Company may reasonably request. No
shares of Common Stock shall be issued until the full purchase price has
been paid.

(d) Replacement of Options. The Committee may, in its discretion,
grant to the holder of an option granted under this Plan or any other plan
of the Company, in exchange for the surrender and cancellation of such
option, a new option on such terms and conditions as may be determined by
the Committee in accordance with this Plan.

(e) Additional Options. The Committee shall have the authority to
include in any award agreement relating to options a provision entitling
the participant to an additional option in the event such participant
exercises the option represented by such award agreement, in whole or in
part, by delivering previously owned whole shares of Common Stock in
payment of the purchase price in accordance with this Plan and

C-2
<PAGE> 308

such award agreement. Any such additional option shall be for a number of
shares of Common Stock equal to the number of delivered shares, shall have
a purchase price determined by the Committee in accordance with this Plan,
shall be exercisable on the terms and subject to the conditions established
by the Committee at the time of grant of such additional option, and shall
be subject to such other terms and conditions as the Committee shall
determine in accordance with this Plan.

3. Termination of Employment.

(a) Disability. If a participant's employment by the Company or a
subsidiary of the Company terminates by reason of disability, any option
held by such participant shall become fully exercisable and may thereafter
be exercised by the participant for a period of three years (or such
shorter period as the Committee may specify at the time of grant of such
option) from the date of such participant's termination of employment or
until the expiration of the term of such option, whichever period is
shorter. For purposes of this Plan, "disability" shall mean the inability
of a participant to substantially perform his duties for a continuous
period of six months.

(b) Retirement. If a participant's employment by the Company or a
subsidiary of the Company terminates by reason of retirement on or after
age 62 after a minimum of three years of employment with the Company and/or
one or more subsidiaries of the Company any option held by such participant
shall become fully exercisable and may thereafter be exercised by the
participant or the participants's legal representative for a period of
three years (or such shorter period as the Committee may specify at the
time of grant of such option) from the date of such participant's
termination of employment or until the expiration of the term of such
option, whichever period is shorter.

(c) Death. If a participant's employment by the Company or a
subsidiary of the Company terminates by reason of death, any option held by
such participant shall become fully exercisable and may thereafter be
exercised by such participant's Permitted Transferees or legal
representative, as the case may be, for a period of three years (or such
shorter period as the Committee may specify at the time of grant of such
option) from the date of death or until the expiration of the term of such
option, whichever period is shorter. If a participant dies during the three
year period following termination of employment by reason of disability, or
if a participant dies during the three year period following termination of
employment by reason of retirement on or after age 62 after a minimum of
three years of employment with the Company and/or one or more subsidiaries
of the Company, or if a participant dies during the one year period
following termination of employment for any other reason other than
termination of employment for cause, any option held by such participant
shall be exercisable only to the extent that such option was exercisable on
the date of such participant's death and may thereafter be exercised by
such participant's Permitted Transferees or legal representative, as the
case may be, for a period of one year (or such shorter period as the
Committee may specify at the time of grant of such option) from the date of
death or until the expiration of the term of such option, whichever period
is shorter.

(d) Other Termination. If a participant's employment by the Company or
a subsidiary of the Company terminates for any reason other than
disability, retirement on or after age 62 after a minimum of three years of
employment with the Company and/or one or more subsidiaries of the Company,
or death, any option held by such participant shall be exercisable only to
the extent that such option was exercisable on the date of such
participant's termination of employment and may thereafter be exercised for
a period of one year (or such shorter period as the Committee may specify
at the time of grant of such option) from the date of such participant's
termination of employment or until the expiration of the term of such
option, whichever period is shorter; provided, however, that if such
participant's employment is terminated for cause, any option held by such
participant shall terminate automatically on the date of such participant's
termination of employment. For purposes of this plan, termination of
employment "for cause" shall mean a termination of employment resulting
from, or caused by, the participant's theft or embezzlement from the
Company, the violation of a material term or condition of the participant's
employment, the participant's disclosure of confidential information of the
Company, the conviction of the participant of a crime of moral turpitude or
the participant's engagement in acts or conduct which, in the opinion of
the Board of Directors, is adverse to the interests of the Company.

C-3
<PAGE> 309

III. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS

1. Eligibility. Each Outside Director shall be granted options to purchase
shares of Common Stock in accordance with this Section III.

2. Grants of Stock Options. Each Outside Director shall be granted
non-qualified stock options as follows:

(a) Initial Options. On April 30, 1993 (or, if later, on the date on
which a person is first elected or begins to serve as an Outside Director),
each Outside Director shall be granted an option to purchase 500 shares of
Common Stock at a purchase price per share equal to the fair market value
of the Common Stock on the date of grant of such option.

Subsequent Options. On the date of the Company's annual meeting of
stockholders next succeeding the date on which an Outside Director received
an initial option and, thereafter, on the date of each succeeding annual
meeting of stockholders of the Company, such Outside Director, if serving
as an Outside Director immediately after such meeting, shall be granted an
option to purchase such number of shares of Common Stock as the Committee
shall determine, provided that such number shall not be less than 500, at a
purchase price per share equal to the fair market value of the Common Stock
on the date of grant of such option.

(b) Option Period and Exercisability. Each option granted hereunder to
an Outside Director shall be granted after the effective date, and prior to
the termination, of this Plan. Each such option shall be fully exercisable
on the date of grant. Each option granted hereunder to an Outside Director
shall be exercisable for a period of ten years from the date of grant. An
exercisable option, or portion thereof, may be exercised in whole or in
part only with respect to whole shares of Common Stock. Options granted to
Outside Directors shall be exercisable in accordance with Section II.2(c).

3. Termination of Directorship.

(a) Disability, Retirement and Death. If an Outside Director's
directorship terminates by reason of disability, retirement on or after age
62 after a minimum of three years of service as a director of the Company,
or death, any option granted under this Section III and held by such
director may thereafter be exercised by such director (or such director's
Permitted Transferees or legal representative, as the case may be) for a
period of three years from the date of such termination of such director's
directorship or until the expiration of the term of such option, whichever
period is shorter.

If an Outside Director dies during the three-year period following
termination of such director's directorship by reason of disability or
retirement, or if an Outside Director dies during the one-year period
following termination of such director's directorship for any reason other
than removal for cause, any option held by such director may thereafter be
exercised by such director's Permitted Transferees or legal representative,
as the case may be, for a period of one year from the date of death or
until the expiration of the term of such option, whichever period is
shorter.

(b) Other Termination. If an Outside Director's directorship
terminates for any reason other than disability, retirement on or after age
62 after a minimum of three years of service as a director of the Company,
or death, any option held by such director and may thereafter be exercised
for a period of one year from such date or until the expiration of the term
of such option, whichever period is shorter; provided, however, that if
such director is removed for cause, any option held by such director shall
terminate automatically on the date of such removal.

IV. GENERAL

1. Effective Date and Term of Plan. This Plan shall be submitted to the
stockholders of the Company for approval and, if approved, shall become
effective on August 31, 1992. In the event that this Plan is not approved by the
stockholders of the Company, this Plan and any awards hereunder shall be void
and of no force or effect. This Plan shall terminate ten years after its
effective date unless terminated earlier by the

C-4
<PAGE> 310

Board of Directors. Termination of this Plan shall not affect the terms or
conditions of any award granted prior to termination.

2. Amendments. The Board of Directors may amend this Plan as it shall deem
advisable, subject to any requirement of stockholder approval imposed by
applicable law; provided, however, that no amendment shall be made without
stockholder approval if such amendment would (a) increase the maximum number of
shares of Common Stock available under this Plan (subject to Section IV.7), (b)
reduce the minimum purchase price in the case of an option or, (c) extend the
term of this Plan; provided, further, that this Plan shall not be amended in a
manner which fails to comply with Rule 16b-3 under Section 16 of the Exchange
Act. No amendment may impair the rights of a holder of an outstanding option
without the consent of such holder.

3. Award Agreement. Each award under this Plan shall be evidenced by an
award agreement setting forth the terms and conditions applicable to such award.
No award shall be effective unless and until an award agreement has been
executed by the Company and the participant and delivered to the Company. Except
as required by Rule 16b-3, each award shall be effective as of the date of grant
by the Committee, provided that an award agreement is executed by the Company
and the participant and delivered to the Company.

4. Non-Transferability. No award made hereunder shall be transferable other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or ERISA, or the rules and
regulations thereunder and shall be exercisable during the participant's
lifetime only by the participant or the participant's Legal Representative.
Except as permitted by the preceding sentence, no award made hereunder shall be
transferred, assigned, pledged, hypothecated or otherwise disposed of (whether
by operation of law or otherwise) or be subject to execution, attachment or
similar process. Upon any attempt to so transfer, assign, pledge, hypothecate or
otherwise dispose of any award made hereunder, such award and all rights
thereunder shall immediately become null and void.

5. Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock hereunder, payment by the
participant of any Federal, state, local or other taxes which may be required to
be withheld or paid in connection with an award hereunder. An award agreement
may provide that (i) the number of shares of Common Stock issuable in respect to
such award shall be reduced by the amount necessary to satisfy any such
obligation or (ii) the participant may satisfy any such obligation by any of the
following means: (A) a cash payment to the Company, (B) delivery to the Company
of previously owned whole shares of Common Stock to the Company of previously
owned whole shares of Common Stock (for which the participant has good title,
free and clear of all liens and encumbrances) having a fair market value
determined as of the date of the obligation to withhold or pay taxes first
arises in connection with an award (the "Tax Date"), (C) authorizing the Company
to withhold from the shares of Common Stock otherwise issuable to the
participant pursuant to an award, a number of whole shares of Common Stock
having a fair market value determined as of the Tax Date or (D) any combination
of the foregoing methods; provided, however, that in the case of a participant
who is subject to Section 16 of the Exchange Act, the method of satisfying such
an obligation shall be in compliance with Section 16 and the rules and
regulations thereunder. An award agreement may provide for shares of Common
Stock to be delivered or withheld having a fair market value in excess of the
minimum amount required to be withheld, but not in excess of the amount
determined by applying the participant's maximum marginal tax rate. Any fraction
of a share of Common Stock which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid in cash by the
participant. The Company may require that any or all obligations to satisfy or
pay taxes with respect to any award shall be satisfied or paid by the
participant prior to satisfaction of such award by the Company.

6. Restrictions on Shares. Each award made hereunder shall be subject to
the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, the consent or approval of
any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the issuance of shares
thereunder, such shares shall not be issued unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company. The Company may
require that certificates evidencing shares of

C-5
<PAGE> 311

Common Stock issued pursuant to any award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933, as amended, and
the rules and regulations thereunder.

7. Adjustment. In the event of any change in the outstanding Common Stock
by reason of any stock split, stock dividend, recapitalization, reorganization,
merger, consolidation, combination, exchange of shares, liquidation, spin-off or
other similar change in capitalization, or any distribution to holders of Common
Stock other than a cash dividend, the number and class of shares available under
this Plan, the number and class of shares under each outstanding option and the
purchase price per share, shall be appropriately adjusted by the Committee, such
adjustments to be made in the case of outstanding options without a change in
the aggregate purchase price.

8. Change in Control.

(a) Notwithstanding any provision in this Plan or any award agreement,
in the event of a Change in Control, each holder thereof, and each such
option shall immediately be cancelled by the Company, and the holder shall
receive, within ten days of the occurrence of a Change in Control pursuant
to Section (b)(1) or (2) below or within ten days of the approval of the
stockholders of the Company pursuant to Section (b)(3) or (4) below, a cash
payment from the Company in an amount equal to the number of shares of
Common Stock subject to such option, multiplied by the difference between
the purchase price per share of Common Stock subject to the option and (A)
the highest per share price offered to stockholders of the Company in any
transaction whereby the Change in Control takes place or (B) the fair
market value of a share of Common Stock on the date of occurrence of the
Change in Control, if the Change in Control occurs other than pursuant to
an acquisition of shares of Common Stock.

(b) "Change in Control" shall mean:

(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act, of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more
of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting
owner of the then outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall
not constitute a Change in Control: (A) any acquisition directly from
the Company (excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding convertible
or exchangeable securities), (B) any acquisition by the Company, (C) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company
or (D) any acquisition by any corporation pursuant to a reorganization,
merger or consolidation involving the Company, if, immediately after
such reorganization, merger or consolidation, each of the conditions
described in clauses (i), (ii) and (iii) of subsection (3) of this
Section (8)(b) shall be satisfied and provided further that, for
purposes of clause (B), if any Person (other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company) shall become the
beneficial owner of 20% or more of the Outstanding Company Common Stock
or 20% or more of the Outstanding Company Voting Securities by reason of
an acquisition by the Company, and such Person shall, after such
acquisition by the Company, become the beneficial owner of any
additional Outstanding Company Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership
shall constitute a Change in Control;

(2) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; provided, however, that any individual who
becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was
approved by the vote of at least a majority of the directors then
comprising the Incumbent Board shall be deemed to have been a

C-6
<PAGE> 312

member of the Incumbent Board; and provided further, that no individual
who was initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall be deemed to have been a
member of the Incumbent Board;

(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i) more
than 60% of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
and more than 60% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entitles
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation and in
substantially the same proportions relative to each other as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or the corporation
resulting from such reorganization, merger or consolidation (or any
corporation controlled by the Company) and any Person which beneficially
owned, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or the Outstanding Company Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 20% or more
of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board of Directors providing for such reorganization, merger or
consolidation; or

(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which, immediately
after such sale or other disposition, (A) more than 60% of the then
outstanding shares of common stock thereof and more than 60% of the
combined voting power of the then outstanding securities thereof
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or
other disposition and in substantially the same proportions relative to
each other as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (other than
the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation
controlled by the Company) and any Person which beneficially owned,
immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of the then outstanding shares
of common stock thereof or 20% or more of the combined voting power of
the then outstanding securities thereof entitled to vote generally in
the election of directors and (C) at least a majority of the members of
the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition.

9. Unfunded Plan. This Plan shall be unfunded. Neither the Company nor the
Committee shall be required to segregate any assets that may at any time be
represented by awards made hereunder. Neither the

C-7
<PAGE> 313

Company nor the Committee shall be deemed to be a trustee of any amounts to be
distributed or paid hereunder. Any liability or obligation of the Company to any
person with respect to an award shall be based solely upon this Plan and the
award agreement. No such liability or obligation shall be deemed to be secured
by any pledge of, or encumbrance on, any property of the Company or any
affiliate of the Company.

10. No Right of Participation or Employment. No person shall have any right
to participate in this Plan. Neither this Plan nor any award made hereunder
shall confer upon any person any right to continued employment by the Company or
any affiliate of the Company or affect in any manner the right of the Company or
any affiliate of the Company to terminate the employment of any person at any
time without liability hereunder.

11. Rights as Stockholder. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock or other equity
security of the Company which is subject to an award hereunder until such person
becomes a stockholder of record with respect to such shares of Common Stock or
equity security.

12. Designation of Beneficiary. Each participant shall file with the
Committee a written designation of one or more persons as such participant's
beneficiary or beneficiaries (both primary and contingent) to whom distributions
and payments under this Plan shall be made in the event of the participant's
death prior to distribution or payment to participant of all awards or amounts
due hereunder. To the extent an outstanding option granted hereunder is
exercisable, such beneficiary or beneficiaries shall be entitled to exercise
such option.

Each beneficiary designation shall become effective only when filed in
writing with the Committee during the participant's lifetime on a form
prescribed by the Committee. The filing with the Committee of a new beneficiary
designation shall cancel all previously filed beneficiary designations.

If a participant fails to designate a beneficiary, or if all designated
beneficiaries of a participant predecease the participant [or die prior to
completion of all distributions and payments due to the participant under this
Plan], then the Committee shall direct that all remaining distributions and
payments be made to the participant's estate.

13. Governing Law. This Plan, all awards hereunder, and all determinations
made and actions taken pursuant thereto, to the extent not otherwise governed by
the Code or the laws of the United States, shall be governed by the laws of the
State of Indiana and construed in accordance therewith without giving effect to
principles of conflicts of laws.

14. Approval of Plan. This Plan and all awards made hereunder shall be null
and void if the adoption of this Plan is not approved by the stockholders of the
Company.

15. Permitted Transferee. As used herein, the term Permitted Transferee
shall include any transferee (i) pursuant to a transfer permitted under Section
IV.4 hereof or (ii) designated in accordance with Section IV.12 hereof.

16. Legal Representative. As used herein, the term Legal Representative
shall include a guardian, administrator, executor and other person acting in a
similar capacity.

C-8
<PAGE> 314

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Indiana Business Corporation Law permits an Indiana corporation to
indemnify its directors and officers from liability for their conduct if such
conduct was made in good faith with the reasonable belief that such conduct was
in the corporation's best interest. If the individual was not acting in his or
her official capacity with the corporation, then indemnification is permitted
for good faith conduct made with the reasonable belief that such conduct was at
least not opposed to the best interest of the corporation. Unless limited by its
articles of incorporation, a corporation must indemnify a director or officer,
who is wholly successful in the defense of any proceeding to which the director
or officer is a party by virtue of being a director or officer of the
corporation, against reasonable expenses incurred in connection with the
proceeding. Indemnification can be made in advance of the final disposition of a
proceeding if certain procedural requirements are met. An Indiana corporation is
permitted to purchase and maintain insurance on behalf of directors and officers
against liability asserted against them in that capacity or arising from an
individual's status as a director or officer, whether or not the corporation
would have power to indemnify the individual against the same liability under
the Indiana Business Corporation Law. In addition, the stockholders of a
corporation may approve the inclusion of other or additional indemnification
provisions in the articles of incorporation or by-laws.

The Articles of Incorporation of SMC provide for the indemnification of
directors and officers against reasonable expenses actually incurred, except in
relation to any action in which it is finally adjudged that the director or
officer is liable for willful misconduct or recklessness in the performance of
corporate duties. In addition, indemnification is permitted for amounts paid by
directors or officers upon judgement and the reasonable costs of settlement of
any such action, if a majority of a disinterested committee of the SMC Board
determines that such payment or settlement is in the interest of the SMC and
that the director or officer to be reimbursed did not engage in any act
constituting willful misconduct or recklessness in the performance of corporate
duties.

The Bylaws of SMC provide for indemnification of directors and officers to
the fullest extent available under then applicable law.

SMC has entered into separate indemnification agreements with some of its
directors that may require SMC, among other things, to indemnify them against
certain liabilities that may arise by reason of their status of service as
directors, to the maximum extent permitted under the Indiana Business
Corporation Law. Standard Life has entered into separate indemnification
agreements with each of its directors and each of the directors of SMC, which
agreements require Standard Life, among other things, to indemnify such
directors against certain liabilities that may arise by reason of their status
or service as directors to the maximum extent permitted under Indiana law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following is a list of Exhibits included as part of this
Registration Statement. Items marked with an asterisk are filed herewith.

<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of December 19, 1996
among SMC, Standard Acquisition Corporation ("SAC") and
Savers Life (included in Annex A to the Proxy
Statement/Prospectus). Schedules to the Agreement and Plan
of Merger are omitted pursuant to Item 601(b)(2) of
Regulation 5-K. SMC hereby agrees to furnish copies of such
Schedules to the SEC upon request.
2.2 Amendment to Agreement and Plan of Merger dated as of
February 17, 1997 among SMC, Standard Acquisition
Corporation ("SAC") and Savers Life (included in Annex A to
the Proxy Statement/Prospectus).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
May 7, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
</TABLE>

II-1
<PAGE> 315
2.4 Third Amendment to Agreement and Plan of Merger dated as of
June 27, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
2.5 Fourth Amendment to Agreement and Plan of Merger dated as of
July 31, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
3.1 Amended and Restated Articles of Incorporation of SMC, as
amended (incorporated by reference to SMC's Annual Report on
Form 10-K (File No. 0-20882) for the year ended December 31,
1995).
3.2 Amended and Restated Bylaws of SMC, as amended (incorporated
by reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993 and to Exhibit 3 of SMC's Quarterly Report
on Form 10-Q (File No. 0-20882) for the quarter ended
September 30, 1994).
4.1 Form of Senior Note Agreement Warrant (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.2 Form of Oppbridge Partners Warrant (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.3 Registration Rights Agreement, dated as of May 3, 1990 among
SMC, Howard T. Cohn and Joseph J. Piazza and the first
amendment thereto, dated June 4, 1990 (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.4 Amended and Restated Registration Rights Agreement dated as
of November 8, 1996 by and between SMC and Fleet National
Bank (incorporated by reference to SMC's Quarterly Report on
Form 10-Q (File No. 0-20882) for the quarter ended September
30, 1996).
4.5 Form of Fleet National Bank Warrant (incorporated by
reference to SMC's Quarterly Report on Form 10-Q (File No.
0-20882) for the quarter ended September 30, 1996).
4.6 Form of President's Club Warrant (incorporated by reference
to SMC's Annual Report on Form 10-K (File No. 0-20882) for
the year ended December 31, 1995).
4.7 Registration Rights Agreement dated as of November 8, 1996
by and between SMC and Great American Reserve Insurance
Company ("Great American Reserve") (incorporated by
reference to SMC's Quarterly Report on Form No. 0-20882) for
the quarter ended September 30, 1996.
4.8 Form of Sand Brothers & Company, Ltd. Warrant (incorporated
by reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1996).
*5. Opinion of Stephen M. Coons regarding the legality of the
securities being registered.
*8. Opinion of Womble Carlyle Sandridge & Rice, PLLC regarding
certain federal income tax consequences of the Merger.
*9. Voting Trust Agreement dated as of November 8, 1996 among
Delta Life and Annuity Company, Messrs. Ronald D. Hunter and
Allen O. Jones, Jr., as Voting Trustees, and SMC.
10.1 Amended Advisory Agreement, dated as of August 1, 1991,
between SMC and Conseco Capital Management, Inc., as
amended, April 17, 1995 (incorporated by reference to SMC's
Annual Report on Form 10-K (File No. 0-20882) for the year
ended December 31, 1995).
10.2 Second Amended and Restated Employment Contract by and
between SMC and Ronald D. Hunter, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).
10.3 Second Amended and Restated Employment Contract by and
between SMC and Edward T. Stahl, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).
10.4 Second Amended and Restated Employment contract by and
between SMC and Raymond J. Ohlson, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).

II-2
<PAGE> 316

<TABLE>
<S> <C>
10.5 First Amended and Restated Employment Contract by and
between SMC and Stephen M. Coons dated and effective, April
3, 1995 (incorporated by reference to SMC's Quarterly Report
on Form 10-Q (File No. 0-20882) for the quarter ended June
30, 1995).
10.6 Indemnification Agreement between SMC and Stephen M. Coons
and Coons & Saint, dated August 1, 1991 (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
10.7 Second Amended and Restated 1992 Stock Option Plan, as
amended (included in Annex C to the Proxy
Statement/Prospectus).
10.8 Lease by and between Standard Life and WRC Properties, Inc.,
dated February 27, 1991 (incorporated by reference to SMC's
Registration Statement on Form S-1 (Registration No.
33-53370) as filed with the Commission on January 27, 1993).
10.9 Management Service Agreement between Standard Life and SMC
dated August 1, 1992, as amended on January 1, 1997
(incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1996).
10.10 Agreement for Assumption Reinsurance between the National
Organization Of Life and Health Insurance Guaranty
Associations and Standard Life, concerning, The Midwest Life
Insurance Company In Liquidation effective June 1, 1992
(incorporated by reference to SMC's Registration Statement
on Form S-1 (Registration No. 33-53370) as filed with the
Commission on January 27, 1993).
10.11 Reinsurance Agreement between Standard Life and The
Mercantile and General Reinsurance Company Limited effective
May 1, 1975 (incorporated by reference to SMC's Registration
Statement on Form S-1 (Registration No. 33-53370) as filed
with the Commission on January 27, 1993).
10.12 Reinsurance Agreement between Firstmark Standard Life
Insurance Company and The Mercantile and General Reinsurance
Company of America effective February 1, 1984 (incorporated
by reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
10.13 Reinsurance Contract between First International and
Standard Life dated July 10, 1992 (incorporated by reference
to SMC's Registration Statement on Form S-1 (Registration
No. 33-53370) as filed with the Commission on January 27,
1993).
10.14 Renewal Promissory Note from Ronald D. Hunter to SMC in the
amount of $337,854 executed December 31, 1996 and due
December 31, 2001 (incorporated by reference to SMC's Annual
Report on Form 10-K (File No. 0-20882) for the year ended
December 31, 1996).
10.15 Amended Reinsurance Agreement between Standard Life and
Winterthur Life Re Insurance Company effective January 1,
1995 (incorporated by reference to SMC's Annual Report on
Form 10-K (File No. 0-20882) for the year ended December 31,
1995).
10.16 Management Service Agreement between Premier Life
(Luxembourg) and SMC dated September 30, 1994 (incorporated
by reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1994).
10.17 Assignment of Management Contract dated October 2, 1995 of
Management Contract dated January 1, 1987 between DNC and
Dixie National Life to Standard Life (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
</TABLE>

II-3
<PAGE> 317
10.18 Indemnity Reinsurance Agreement between Dixie National Life
and Crown Life Insurance Company dated and effective
September 30, 1992, and Amendment No. 1 as amended October
29, 1992; Amendment No. 2 as amended December 9, 1992;
Amendment No. 3 as amended February 11, 1993; Amendment No.
4 as amended June 29, 1993; Amendment No. 5 as amended
November 17, 1994; Amendment No. 6 as amended December 31,
1996 (the Agreement and Amendment Nos. 1 through 5 are
incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1995, and Amendment No. 6 is incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).
10.19 Automatic Indemnity Reinsurance Agreement between the First
International and The Guardian Insurance & Annuity Company,
Inc. dated and effective January 1, 1996 (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
10.20 Indemnity Retrocession Agreement the ("Guardian Indemnity
Retrocession Agreement") between The Guardian Insurance &
Annuity Company, Inc. and Standard Life dated and effective
January 1, 1996 (incorporated by reference to SMC's Annual
Report on Form 10-K (File No. 2-20882) for the year ended
December 31, 1995).
10.21 Automatic Indemnity Reinsurance Agreement between The
Guardian Insurance & Annuity Company, Inc. and Standard Life
dated and effective January 1, 1996 (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
10.22 Administrative Services Agreement between First
International and Standard Life dated and effective March
18, 1996 (incorporated by reference to SMC's Annual Report
on Form 10-K (File No. 0-20882) for the year ended December
31, 1995).
10.23 Amended and Restated Revolving Line of Credit Agreement
dated as of November 8, 1996 between SMC and Fleet National
Bank (incorporated by reference to SMC's Quarterly Report on
Form 10-Q (File No. 0-20882) for the quarter ended September
30, 1996).
10.24 Note Agreement dated as of November 8, 1996 between SMC and
Fleet National Bank in the amount of $16,000,000
(incorporated by reference to SMC's Quarterly Report on Form
10-Q (File No. 0-20882) for the quarter ended September 30,
1996).
10.25 Amended and Restated Pledge Agreement dated as of November
8, 1996 between SMC and Fleet National Bank (incorporated by
reference to SMC's Quarterly Report on Form 10-Q (File No.
0-20882) for the quarter ended September 30, 1996).
10.26 Revised Service Contract Agreement dated as of October 16,
1995 and effective January 1, 1995 between Standard Life and
Standard Marketing (incorporated by reference to SMC's
Annual Report on Form 10-K (File No. 0-20882) for the year
ended December 31, 1995).
10.27 Amended and Restated Note Agreement dated as of November 8,
1996, as amended and restated on June 30, 1997, by and
between SMC and Great American Reserve in the amount of
$4,371,573 (incorporated by reference to SMC's Quarterly
Report on Form 10-Q (File No. 0-20882) for the quarter ended
June 30, 1997).
10.28 Amended and Restated Senior Subordinated Convertible Note
dated as of November 8, 1996, as amended and restated on
June 30, 1997, by and between SMC and Great American Reserve
in the amount of $4,371,573 (incorporated by reference to
SMC's Quarterly Report on Form 10-Q (File No. 0-20882) for
the quarter ended June 30, 1997).
10.29 Surplus Debenture dated as of November 8, 1996 by and
between SMC and Standard Life in the amount of $13,000,000
(incorporated by reference to SMC's Quarterly Report on Form
10-Q (File No. 0-20882) for the quarter ended September 30,
1996).
10.30 Portfolio Indemnify Reinsurance Agreement between Dixie
National Life and Cologne Life Reinsurance Company dated and
effective December 31, 1996 (incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).

II-4
<PAGE> 318
10.31 Note Agreement dated as of June 30, 1997 between SMC,
Capitol American Life Insurance Company and Transport Life
Insurance Company in the amount of $5,628,427 (incorporated
by reference to SMC's Quarterly Report on Form 10-Q (File
No. 0-20882) for the quarter ended June 30, 1997).
10.32 Senior Subordinated Convertible Note dated as of June 30,
1997 between SMC and Capitol American Life Insurance Company
in the amount of $3,628,427 (incorporated by reference to
SMC's Quarterly Report on Form 10-Q (File No. 0-20882) for
the quarter ended June 30, 1997).
10.33 Senior Subordinated Convertible Notes dated as of June 30,
1997 between SMC and Transport Life Insurance Company in the
amount of $2,000,000 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1997).
*10.34 Coinsurance Agreement effective as of July 1, 1997 by and
between Savers Life and World Insurance Company.
*10.35 Amendment I to the Guardian Indemnity Retrocession Agreement
effective as of January 1, 1996 by and between The Guardian
Insurance and Annuity Company and Standard Life.
11. Statement regarding computation of per share earnings
(incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1996).
21. List of Subsidiaries of SMC (incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of KPMG Audit.
*23.3 Consent of D.E. Gatewood and Company.
23.4 Consent of Stephen M. Coons (included in Exhibit 5).
23.5 Consent of Womble Carlyle Sandridge & Rice, PLLC (included
in Exhibit 8).
*24. Powers of Attorney.
*99.1 Form of Proxy to be mailed to the stockholders of SMC.
*99.2 Form of Proxy to be mailed to the stockholders of Savers
Life.
*99.3 Form of Election to be mailed to the stockholders of Savers
Life.

- -------------------------
* Items marked with an asterisk are filed herewith.

(b) The financial statement schedules required to be included pursuant to
this Item are not included herein because they are not applicable or the
required information is shown in the financial information included or
incorporated by reference herein.

ITEM 22. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and

II-5
<PAGE> 319

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15 (d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145 (c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10 (a) (3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6
<PAGE> 320

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, State of Indiana, on September 11, 1997.

STANDARD MANAGEMENT CORPORATION

By: RONALD D. HUNTER

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

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

RONALD D. HUNTER Chairman, President and September 11, 1997
- ----------------------------------------------------- Chief Executive Officer
Ronald D. Hunter

PAUL B. PHEFFER Executive Vice September 11, 1997
- ----------------------------------------------------- President, Chief
Paul B. Pheffer Financial Officer,
Treasurer and Director
(Principal Financial
Officer)

GERALD R. HOCHGESANG Senior Vice President -- September 11, 1997
- ----------------------------------------------------- Finance (Principal
Gerald R. Hochgesang Accounting Officer)

RAYMOND J. OHLSON Director September 11, 1997
- -----------------------------------------------------
Raymond J. Ohlson

EDWARD T. STAHL Director September 11, 1997
- -----------------------------------------------------
Edward T. Stahl

STEPHEN M. COONS Director September 11, 1997
- -----------------------------------------------------
Stephen M. Coons

Director September 11, 1997
- -----------------------------------------------------
Martial R. Knieser

* Director September 11, 1997
- -----------------------------------------------------
Ramesh H. Bhat

Director September 11, 1997
- -----------------------------------------------------
James C. Lanshe

* Director September 11, 1997
- -----------------------------------------------------
Robert A. Borns
</TABLE>

*By: RONALD D. HUNTER

-------------------------------
Ronald D. Hunter
Attorney-in-Fact

II-7
<PAGE> 321

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
</TABLE>

2.1 Agreement and Plan of Merger dated as of December 19, 1996
among SMC, Standard Acquisition Corporation ("SAC") and
Savers Life (included in Annex A to the Proxy
Statement/Prospectus). Schedules to the Agreement and Plan
of Merger are omitted pursuant to Item 601(b)(2) of
Regulation 5-K. SMC hereby agrees to furnish copies of such
Schedules to the SEC upon request.
2.2 Amendment to Agreement and Plan of Merger dated as of
February 17, 1997 among SMC, Standard Acquisition
Corporation ("SAC") and Savers Life (included in Annex A to
the Proxy Statement/Prospectus).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
May 7, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
2.4 Third Amendment to Agreement and Plan of Merger dated as of
June 27, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
2.5 Fourth Amendment to Agreement and Plan of Merger dated as of
July 31, 1997 among SMC, SAC and Savers Life (included in
Annex A to the Proxy Statement/Prospectus).
3.1 Amended and Restated Articles of Incorporation of SMC, as
amended (incorporated by reference to SMC's Annual Report on
Form 10-K (File No. 0-20882) for the year ended December 31,
1995).
3.2 Amended and Restated Bylaws of SMC, as amended (incorporated
by reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993 and to Exhibit 3 of SMC's Quarterly Report
on Form 10-Q (File No. 0-20882) for the quarter ended
September 30, 1994).
4.1 Form of Senior Note Agreement Warrant (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.2 Form of Oppbridge Partners Warrant (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.3 Registration Rights Agreement, dated as of May 3, 1990 among
SMC, Howard T. Cohn and Joseph J. Piazza and the first
amendment thereto, dated June 4, 1990 (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
4.4 Amended and Restated Registration Rights Agreement dated as
of November 8, 1996 by and between SMC and Fleet National
Bank (incorporated by reference to SMC's Quarterly Report on
Form 10-Q (File No. 0-20882) for the quarter ended September
30, 1996).
4.5 Form of Fleet National Bank Warrant (incorporated by
reference to SMC's Quarterly Report on Form 10-Q (File No.
0-20882) for the quarter ended September 30, 1996).
4.6 Form of President's Club Warrant (incorporated by reference
to SMC's Annual Report on Form 10-K (File No. 0-20882) for
the year ended December 31, 1995).
4.7 Registration Rights Agreement dated as of November 8, 1996
by and between SMC and Great American Reserve Insurance
Company ("Great American Reserve") (incorporated by
reference to SMC's Quarterly Report on Form No. 0-20882) for
the quarter ended September 30, 1996.
4.8 Form of Sand Brothers & Company, Ltd. Warrant (incorporated
by reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1996).
*5. Opinion of Stephen M. Coons regarding the legality of the
securities being registered.
*8. Opinion of Womble Carlyle Sandridge & Rice, PLLC regarding
certain federal income tax consequences of the Merger.
<PAGE> 322
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
*9. Voting Trust Agreement dated as of November 8, 1996 among
Delta Life and Annuity Company, Messrs. Ronald D. Hunter and
Allen O. Jones, Jr., as Voting Trustees, and SMC.
10.1 Amended Advisory Agreement, dated as of August 1, 1991,
between SMC and Conseco Capital Management, Inc., as
amended, April 17, 1995 (incorporated by reference to SMC's
Annual Report on Form 10-K (File No. 0-20882) for the year
ended December 31, 1995).
10.2 Second Amended and Restated Employment Contract by and
between SMC and Ronald D. Hunter, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).
10.3 Second Amended and Restated Employment Contract by and
between SMC and Edward T. Stahl, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).
10.4 Second Amended and Restated Employment contract by and
between SMC and Raymond J. Ohlson, dated and effective, as
amended, April 3, 1995 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1995).
10.5 First Amended and Restated Employment Contract by and
between SMC and Stephen M. Coons dated and effective, April
3, 1995 (incorporated by reference to SMC's Quarterly Report
on Form 10-Q (File No. 0-20882) for the quarter ended June
30, 1995).
10.6 Indemnification Agreement between SMC and Stephen M. Coons
and Coons & Saint, dated August 1, 1991 (incorporated by
reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
10.7 Second Amended and Restated 1992 Stock Option Plan, as
amended (included in Annex C to the Proxy
Statement/Prospectus).
10.8 Lease by and between Standard Life and WRC Properties, Inc.,
dated February 27, 1991 (incorporated by reference to SMC's
Registration Statement on Form S-1 (Registration No.
33-53370) as filed with the Commission on January 27, 1993).
10.9 Management Service Agreement between Standard Life and SMC
dated August 1, 1992, as amended on January 1, 1997
(incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1996).
10.10 Agreement for Assumption Reinsurance between the National
Organization Of Life and Health Insurance Guaranty
Associations and Standard Life, concerning, The Midwest Life
Insurance Company In Liquidation effective June 1, 1992
(incorporated by reference to SMC's Registration Statement
on Form S-1 (Registration No. 33-53370) as filed with the
Commission on January 27, 1993).
10.11 Reinsurance Agreement between Standard Life and The
Mercantile and General Reinsurance Company Limited effective
May 1, 1975 (incorporated by reference to SMC's Registration
Statement on Form S-1 (Registration No. 33-53370) as filed
with the Commission on January 27, 1993).
10.12 Reinsurance Agreement between Firstmark Standard Life
Insurance Company and The Mercantile and General Reinsurance
Company of America effective February 1, 1984 (incorporated
by reference to SMC's Registration Statement on Form S-1
(Registration No. 33-53370) as filed with the Commission on
January 27, 1993).
10.13 Reinsurance Contract between First International and
Standard Life dated July 10, 1992 (incorporated by reference
to SMC's Registration Statement on Form S-1 (Registration
No. 33-53370) as filed with the Commission on January 27,
1993).
10.14 Renewal Promissory Note from Ronald D. Hunter to SMC in the
amount of $337,854 executed December 31, 1996 and due
December 31, 2001 (incorporated by reference to SMC's Annual
Report on Form 10-K (File No. 0-20882) for the year ended
December 31, 1996).
10.15 Amended Reinsurance Agreement between Standard Life and
Winterthur Life Re Insurance Company effective January 1,
1995 (incorporated by reference to SMC's Annual Report on
Form 10-K (File No. 0-20882) for the year ended December 31,
1995).
</TABLE>
<PAGE> 323
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.16 Management Service Agreement between Premier Life
(Luxembourg) and SMC dated September 30, 1994 (incorporated
by reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1994).
10.17 Assignment of Management Contract dated October 2, 1995 of
Management Contract dated January 1, 1987 between DNC and
Dixie National Life to Standard Life (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
10.18 Indemnity Reinsurance Agreement between Dixie National Life
and Crown Life Insurance Company dated and effective
September 30, 1992, and Amendment No. 1 as amended October
29, 1992; Amendment No. 2 as amended December 9, 1992;
Amendment No. 3 as amended February 11, 1993; Amendment No.
4 as amended June 29, 1993; Amendment No. 5 as amended
November 17, 1994; Amendment No. 6 as amended December 31,
1996 (the Agreement and Amendment Nos. 1 through 5 are
incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1995, and Amendment No. 6 is incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).
10.19 Automatic Indemnity Reinsurance Agreement between the First
International and The Guardian Insurance & Annuity Company,
Inc. dated and effective January 1, 1996 (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
10.20 Indemnity Retrocession Agreement the ("Guardian Indemnity
Retrocession Agreement") between The Guardian Insurance &
Annuity Company, Inc. and Standard Life dated and effective
January 1, 1996 (incorporated by reference to SMC's Annual
Report on Form 10-K (File No. 2-20882) for the year ended
December 31, 1995).
10.21 Automatic Indemnity Reinsurance Agreement between The
Guardian Insurance & Annuity Company, Inc. and Standard Life
dated and effective January 1, 1996 (incorporated by
reference to SMC's Annual Report on Form 10-K (File No.
0-20882) for the year ended December 31, 1995).
10.22 Administrative Services Agreement between First
International and Standard Life dated and effective March
18, 1996 (incorporated by reference to SMC's Annual Report
on Form 10-K (File No. 0-20882) for the year ended December
31, 1995).
10.23 Amended and Restated Revolving Line of Credit Agreement
dated as of November 8, 1996 between SMC and Fleet National
Bank (incorporated by reference to SMC's Quarterly Report on
Form 10-Q (File No. 0-20882) for the quarter ended September
30, 1996).
10.24 Note Agreement dated as of November 8, 1996 between SMC and
Fleet National Bank in the amount of $16,000,000
(incorporated by reference to SMC's Quarterly Report on Form
10-Q (File No. 0-20882) for the quarter ended September 30,
1996).
10.25 Amended and Restated Pledge Agreement dated as of November
8, 1996 between SMC and Fleet National Bank (incorporated by
reference to SMC's Quarterly Report on Form 10-Q (File No.
0-20882) for the quarter ended September 30, 1996).
10.26 Revised Service Contract Agreement dated as of October 16,
1995 and effective January 1, 1995 between Standard Life and
Standard Marketing (incorporated by reference to SMC's
Annual Report on Form 10-K (File No. 0-20882) for the year
ended December 31, 1995).
10.27 Amended and Restated Note Agreement dated as of November 8,
1996, as amended and restated on June 30, 1997, by and
between SMC and Great American Reserve in the amount of
$4,371,573 (incorporated by reference to SMC's Quarterly
Report on Form 10-Q (File No. 0-20882) for the quarter ended
June 30, 1997).
</TABLE>
<PAGE> 324
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.28 Amended and Restated Senior Subordinated Convertible Note
dated as of November 8, 1996, as amended and restated on
June 30, 1997, by and between SMC and Great American Reserve
in the amount of $4,371,573 (incorporated by reference to
SMC's Quarterly Report on Form 10-Q (File No. 0-20882) for
the quarter ended June 30, 1997).
10.29 Surplus Debenture dated as of November 8, 1996 by and
between SMC and Standard Life in the amount of $13,000,000
(incorporated by reference to SMC's Quarterly Report on Form
10-Q (File No. 0-20882) for the quarter ended September 30,
1996).
10.30 Portfolio Indemnify Reinsurance Agreement between Dixie
National Life and Cologne Life Reinsurance Company dated and
effective December 31, 1996 (incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).
10.31 Note Agreement dated as of June 30, 1997 between SMC,
Capitol American Life Insurance Company and Transport Life
Insurance Company in the amount of $5,628,427 (incorporated
by reference to SMC's Quarterly Report on Form 10-Q (File
No. 0-20882) for the quarter ended June 30, 1997).
10.32 Senior Subordinated Convertible Note dated as of June 30,
1997 between SMC and Capitol American Life Insurance Company
in the amount of $3,628,427 (incorporated by reference to
SMC's Quarterly Report on Form 10-Q (File No. 0-20882) for
the quarter ended June 30, 1997).
10.33 Senior Subordinated Convertible Notes dated as of June 30,
1997 between SMC and Transport Life Insurance Company in the
amount of $2,000,000 (incorporated by reference to SMC's
Quarterly Report on Form 10-Q (File No. 0-20882) for the
quarter ended June 30, 1997).
*10.34 Coinsurance Agreement effective as of July 1, 1997 by and
between Savers Life and World Insurance Company.
*10.35 Amendment I to the Guardian Indemnity Retrocession Agreement
effective as of January 1, 1996 by and between The Guardian
Insurance and Annuity Company and Standard Life.
11. Statement regarding computation of per share earnings
(incorporated by reference to SMC's Annual Report on Form
10-K (File No. 0-20882) for the year ended December 31,
1996).
21. List of Subsidiaries of SMC (incorporated by reference to
SMC's Annual Report on Form 10-K (File No. 0-20882) for the
year ended December 31, 1996).
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of KPMG Audit.
*23.3 Consent of D.E. Gatewood and Company.
23.4 Consent of Stephen M. Coons (included in Exhibit 5).
23.5 Consent of Womble Carlyle Sandridge & Rice, PLLC (included
in Exhibit 8).
*24. Powers of Attorney.
*99.1 Form of Proxy to be mailed to the stockholders of SMC.
*99.2 Form of Proxy to be mailed to the stockholders of Savers
Life.
*99.3 Form of Election to be mailed to the stockholders of Savers
Life.
</TABLE>

- -------------------------
* Items marked with an asterisk are filed herewith.

<PAGE> 1

EXHIBIT 5
September 11, 1997

Standard Management Corporation
9100 Keystone Crossing
Indianapolis, Indiana 46240

Re: Registration of $21,090,841 maximum aggregate value of Shares of Common
Stock

Ladies and Gentlemen:

I have acted as counsel to Standard Management Corporation, an Indiana
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), of the Company's registration
statement on Form S-4 (the "Registration Statement") relating to the
registration of $21,090,841 maximum aggregate value of shares of common stock,
without par value, of the Company ("Company Common Stock") to be issued pursuant
to the terms of the Agreement and Plan of Merger dated as of December 19, 1996,
as amended (the "Merger Agreement"), among the Company, Standard Acquisition
Corporation, a North Carolina corporation and a wholly-owned subsidiary of the
Company ("Sub"), and Savers Life Insurance Company, a North Carolina domestic
stock insurance company ("Savers Life"), which provides for the merger (the
"Merger") of Sub with and into Savers Life, with Savers life surviving as a
wholly-owned subsidiary of the Company. Subject to the terms and conditions of
the Merger Agreement, holders of Common Stock, no par value ("Savers Life Common
Stock"), of Savers Life will receive the following consideration for each share
of Savers Life Common Stock held immediately prior to the Effective Time (as
defined in the Merger Agreement) of the Merger: (i) $1.50 in cash, which the
holder of such share of Savers Life Common Stock may elect to receive in shares
of Company Common Stock, (ii) $6.50 in value of shares of Company Stock, the
number of such shares, to be rounded to the nearest hundredth of a share,
determined by dividing $6.50 by the average of the closing trading prices as
reported by The Nasdaq National Market ("Nasdaq") (the "Average Trading Price")
of Company Common Stock for the ten consecutive trading days ending on the fifth
day prior to the earlier of the SMC Annual Meeting or the Savers Life Special
Meeting, plus (iii) the right to receive the Performance Premium (as defined in
the Prospectus that is a part of The Registration Statement), if any.

For the purpose of rendering the opinions expressed below, I have reviewed
the Merger Agreement, the Registration Statement and the Exhibits to the latter.
I have also examined the originals, or copies of originals certified or
otherwise identified to my satisfaction, of the corporate records of the Company
and of such other agreements, documents, instruments and certificates of public
officials, officers and representatives of the Company and other persons, have
examined such questions of law and have satisfied myself as to such matters of
fact as I have deemed relevant and necessary as a basis for the opinions
expressed below. I have assumed the authenticity of all documents submitted to
me as originals, the genuineness of all signatures, the legal capacity of all
natural persons and the conformity with the original documents of any copies
thereof submitted to me for my examination.

Based on the foregoing, it is my opinion that:

1. The Company is duly incorporated and validly existing under the laws of
the State of Indiana.

2. Each share of Company Common Stock issued as consideration for the
Merger (the "Merger Shares") other than shares attributable to the Performance
Premium will be legally issued, fully paid and non-assessable when: (i) the
Registration Statement, as finally amended, shall have become effective under
the Securities Act; and (ii) the Merger shall have become effective under the
North Carolina Business Corporation Act (the "NCBCA").

3. Each Merger Share which is attributable to the Performance Premium will
be legally issued, fully paid and non-assessable when: (i) the Registration
Statement, as finally amended, shall have become effective under the Securities
Act; (ii) the Merger shall have become effective under the NCBCA; and (iii) the
related
<PAGE> 2

Performance Premium Payment shall have become payable and been made in
accordance with the terms of the Merger Agreement.

The foregoing opinions are limited to the federal laws of the United States
of America and the Indiana Business Corporation Law. I express no opinion as to
the application of the securities or blue sky laws of the various states to the
issuance or sale of the Merger Shares.

I hereby consent to the filling of this opinion as an Exhibit to the
Registration Statement and to all references to me included in or made part of
the Registration Statement.

Very truly yours,

/s/ Stephen M. Coons
--------------------------------

<PAGE> 1

EXHIBIT 8
September 11, 1997

Savers Life Insurance Company
8064 North Point Boulevard
Winston-Salem, NC 27106

RE: Certain federal income tax consequences of Merger provided for in
the Agreement and Plan of Merger by and among Standard Management
Corporation ("SMC"), Standard Acquisition Corporation ("SAC") and
Savers Life Insurance Company ("Savers Life") dated December 19,
1996, as amended (the "Merger Agreement"); capitalized terms
herein have the meanings defined in the Agreement

Ladies and Gentlemen:

You have requested our opinion concerning certain federal income tax
consequences of the proposed Merger. We have acted as your counsel in connection
with the Merger in which SAC, a North Carolina corporation, will merge into
Savers Life, a North Carolina domestic stock insurance company, pursuant to
North Carolina law. In the Merger, each outstanding share of Savers Life Common
Stock (the only class outstanding) is to be converted into $1.50 cash per share,
which the holder of such share of Savers Life Common Stock may elect to receive
in shares of SMC Common Stock, and a sufficient number of shares of SMC Common
Stock that will have a value of $6.50 at the Effective Time. Stockholders also
will be eligible to receive a Performance Premium of SMC Common Stock, together
with interest paid in cash in each of the two years following closing. Cash will
be paid in lieu of issuance of fractional shares. Savers Life stockholders are
entitled by state law to dissent to the Merger.

In giving this opinion we have reviewed, and with your permission we rely
upon the facts contained in, the Merger Agreement, the Registration Statement on
Form S-4 filed by SMC under the Securities Act of 1933 relating to the shares of
SMC Common Stock to be issued in the Merger and to which this opinion is
attached as an exhibit ("the S-4"), and Tax Certificates dated September 11,
1997 (the "Tax Certificates") in which officers of Savers Life and officers of
SMC make certain representations on behalf of Savers Life, SMC and SAC regarding
the Merger. We also have reviewed such other documents as we have considered
necessary and appropriate.

In giving this opinion we have made certain assumptions, with your
permission. We have assumed that the statements in the Tax Certificates are true
as of the date of this opinion, and that any representation or statement made
"to the best of knowledge" or similarly qualified is correct without such
qualification. As to all matters in which a person or entity has represented
that such person or entity either is not a party to, or does not have, or is not
aware of, any plan or intention, understanding or agreement, we have assumed
that there is in fact no such plan, intention, understanding or agreement. We
also assume that (a) the Merger will be consummated in accordance with the
Agreement, (b) SMC's only outstanding stock (as that term is used in sec.368 of
the Internal Revenue Code) is the SMC Common Stock and (c) that at least eighty
percent (80%) of the merger consideration (exclusive of the Performance Premium)
is paid in SMC Common Stock.

Based on the foregoing, and subject to the limitations herein, we are of
the opinion that under existing law, upon consummation of the Merger in
accordance with the Merger Agreement, for federal income tax purposes:

(1) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code.

(2) No gain or loss will be recognized by SMC, Savers Life or SAC due
to consummation of the Merger by the exchange of SMC Common Stock and cash
for Savers Life Common Stock upon the merger of SAC into Savers Life.
<PAGE> 2

(3) No gain or loss will be recognized by the stockholders of Savers
Life upon the receipt of SMC Common Stock (including any fractional share
interest to which they may be entitled) solely in exchange for their shares
of Savers Life Common Stock.

We express no opinion as to the laws of any jurisdiction other than the
United States of America. Further, our opinion is limited to the specific
conclusions set forth above, and no other opinions are expressed or implied. The
opinions stated with respect to shares of Savers Life Common Stock do not apply
to any stock rights, warrants or options to acquire Savers Life Common Stock.
The opinions stated as to Savers Life stockholders are general in nature and do
not necessarily apply to any particular Savers Life stockholder, and, for
example, may not apply to stockholders who are corporations, trusts, dealers in
securities, financial institutions, insurance companies, tax exempt
organizations; or to persons who are not United States citizens or resident
aliens or domestic entities (partnerships or trusts), subject to the alternative
minimum tax (to the extent that tax affects the tax consequences), or are
subject to the "golden parachute" provisions of the Code (to the extent that tax
affects the tax consequences); or to stockholders who acquired Savers Life
Common Stock pursuant to employee stock options or otherwise as compensation if
such shares are subject to any restriction related to employment, who do not
hold their shares as capital assets, or who hold their shares as part of a
"straddle" or "conversion transaction."

This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind. Changes to the Code, regulations, the
rulings thereunder, or changes by the courts in the interpretation of the
authorities relied upon, may be applied retroactively and may affect the
opinions expressed herein. Any material defect in any assumption or
representation on which we have relied would adversely affect our opinions.

We hereby consent to the filing of this opinion as an Exhibit to the S-4
and to all references to our firm included in or made a part of the S-4. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.

Very truly yours,

WOMBLE CARLYLE SANDRIDGE & RICE,
a Professional Limited Liability
Company

Zeb E. Barnhardt, Jr.

<PAGE> 1

EXHIBIT 9

VOTING TRUST AGREEMENT

This Agreement, dated as of the 8th day of November, 1996, among Delta Life
and Annuity Company, a Tennessee corporation (the "Shareholder"), Ronald D.
Hunter and Allen O. Jones, Jr. (the "Voting Trustees"), and Standard Management
Corporation (the "Company"):

WITNESSETH:

WHEREAS, Company is a corporation organized and existing under the laws of
the State of Indiana, with an authorized capital stock divided into 21,000,000
shares, consisting of 1,000,000 shares of Preferred Stock, and 20,000,000 shares
of Common Stock, without par value ("Common Stock");

WHEREAS, the Shareholder owns 250,000 shares of Common Stock; and

WHEREAS, the parties hereto desire the Boatmen's Trust Company, a Missouri
trust company (the "Depositary") to act as the Depositary hereunder pursuant to
a Depositary Agreement attached hereto as Annex II, and

WHEREAS, in order to insure continuity and stability of policy and
management and for the benefit and protection of the present and future holders
of Common Stock, pursuant to the terms of the Stock Purchase Agreement dated as
of July 18, 1996 by and between the Company and the Shareholder (the "Stock
Purchase Agreement"), the Company, as a condition to the purchase of all of the
issued and outstanding shares of the common capital stock of Shelby Life
Insurance Company from the Shareholder required the deposit hereunder with the
Depositary as agent of the Voting Trustees, of the 250,000 shares of Common
Stock being so deposited, and the Shareholder deems the deposit of its stock
hereunder to be to its interest:

NOW, THEREFORE, in consideration of the premises the parties hereby agree
as follows:

1. The Shareholder, simultaneously with the execution hereof, is causing to
be issued by the Company in the name of the Voting Trustees and to be deposited
with the Depositary as agent for the Voting Trustees, a certificate for 250,000
shares of Common Stock which the Shareholder is delivering to the Depositary as
agent for the Voting Trustees, properly stamped for transfer and duly endorsed
in blank or accompanied by proper instruments of assignment and transfer thereof
in blank duly executed, and in either case accepting in respect thereof, a
certificate for 250,000 shares of Common Stock issued under this agreement.

2. The Voting Trustees hereby agree with the Shareholder that, from time to
time, upon request, they will cause to be duly issued to the Shareholder, or
upon their order, in respect of all Common Stock caused by the Shareholder to be
issued in the name of the Voting Trustees as aforesaid, or in exchange for all
certificates of shares received from the Shareholder by the Depositary as agent
of the Voting Trustees as aforesaid, trust certificates in substantially the
form attached hereto as Annex I, to all the terms, conditions and provisions of
which the Shareholder hereby assents.

The Voting Trustees shall have full power to appoint and remove from time
to time, agents to sign in their behalf and transfer agents and registrars to
register the trust certificates. Such agents and registrars shall at all times
be banks or trust companies.

The trust certificates issued hereunder shall be transferable at the agency
of the Voting Trustees, on surrender thereof, by the registered holder in person
or by attorney duly authorized, in accordance with such rules as may be
reasonably established for that purpose by the Voting Trustees. Until so
transferred the Voting Trustees and the Depositary may treat the registered
holders as owners thereof for all purposes whatsoever, but the Depositary shall
not be required to deliver stock certificates hereunder without the surrender of
trust certificates calling therefor. Every transferee of a certificate or
certificates issued hereunder, shall, by the acceptance of such certificate or
certificates, become a party hereto with like effect as though an original party
hereto, and shall be embraced within the meaning of the term Shareholders
whenever used herein. In connection with, and as a condition of, making or
permitting any transfer or delivery of stock certificates or

1
<PAGE> 2

trust certificates under any provision of this agreement, the Voting Trustees
may require the payment of a sum sufficient to pay or reimburse them, or the
Depositary for any stamp tax or other governmental charge in connection
therewith. The transfer books for trust certificates may be closed by the Voting
Trustees, at any time prior to the payment or distribution of dividends, or for
any other purpose.

3. The Voting Trustees hereby designate the Depositary their agent for the
custody of the certificates of Common Stock now or hereafter delivered to them
hereunder. The certificates of Common Stock delivered to the Depositary duly
endorsed in blank or accompanied by proper instruments of assignment of transfer
in blank as aforesaid shall be surrendered by the Depositary to the Company and
cancelled, and certificates for an equal amount of said Common Stock shall be
issued in the name of the Voting Trustees as trustees and delivered to the
Depositary. Duplicates of this Agreement shall be filed in the office of the
Company in the City of Indianapolis, State of Indiana, and in the office of the
Depositary in the City of St. Louis, State of Missouri.

4. Upon the termination of this Agreement as provided in Section 13 hereof,
or whenever earlier the Voting Trustees shall decide to make such delivery, the
Voting Trustees in exchange for, and upon surrender of, any trust certificate
then outstanding, will, in accordance with the terms thereof and subject to
Section 6 hereof, deliver, at the office or agency of the Depositary in the City
of St. Louis, Missouri, certificates of Common Stock in the amounts called for
by the respective trust certificates, and may require the holders of the trust
certificates to exchange them for certificates of such Common Stock.

Whenever, pursuant to the foregoing provisions of Section 4, certificates
for Common Stock shall become deliverable and the Voting Trustees shall file
with the Depositary an order in writing directing the Depositary to make
delivery thereof in exchange for trust certificates, the Depositary shall
thereupon have authority as agent to endorse the names of the Voting Trustees
upon such share certificates as may be necessary to effectuate such order of the
Voting Trustees and to deliver the appropriate certificate or certificates to
the holders of Trustees' certificates upon the surrender of such Trustees'
certificates. When the Voting Trustees shall have filed their written order with
the Depositary directing the Depositary to make such delivery of share
certificates in exchange for Trustees' certificates, all further obligation or
duty of the Voting Trustees under this Agreement to the holders of trust
certificates shall terminate.

5. Prior to the delivery, or the filing of an order with the Depositary for
delivery, of certificates of Common Stock in exchange for trust certificates
pursuant to Section 4 hereof, the holder of each trust certificate shall be
entitled to receive from time to time payments equal to the dividends, if any,
collected by the Voting Trustees upon a like number of shares of Common Stock as
is called for by such trust certificate; provided, however, that if any dividend
on the Common Stock which may have been deposited hereunder shall be declared
and paid or distributed in fully paid Common Stock, the respective holders of
trust certificates hereunder shall be entitled to the delivery of trust
certificates with respect to the amount of the Common Stock received by the
Voting Trustees as such dividend upon the number of such shares of Common Stock
called for by their respective trust certificates. The Voting Trustees, through
the Depositary, shall, so far as practicable and in such manner and upon such
terms, as they, in their discretion, deem reasonable and fair, accord to the
holders of trust certificates, in proportion to the number of shares of Common
Stock called for therein, the opportunity to exercise, or to dispose of, any
rights of subscription to stock or other securities of the Company which at any
time during the continuance of this Agreement may accrue in respect of the
shares registered in the name of the Voting Trustees.

6. The term Company, for the purposes of this Agreement and for all rights
hereunder, including the issue and delivery of stock, shall be taken to mean the
above named Standard Management Corporation, or any corporation(s) successor to
it.

7. Any Voting Trustee may at any time resign, by delivering to the other
Voting Trustees or to the Depositary his resignation in writing, to take effect
30 days thereafter, unless sooner accepted by the remaining Voting Trustees. In
every case of death, resignation or inability of any Voting Trustee to act, the
vacancy so occurring shall be filled by the appointment of a successor(s), to be
made by the Shareholder if the resigning Voting Trustee was originally appointed
by the Shareholder, or, by the Company, if the resigning Voting Trustee was
originally appointed by the Company, by a written instrument. The term Voting
Trustees as used

2
<PAGE> 3

herein, and in said trust certificates, shall apply to the parties of the second
part and their successors hereunder. Notwithstanding any change in the Voting
Trustees, the Voting Trustees for the time being may adopt and issue trust
certificates in the names of the original Voting Trustees, the parties hereto of
the second part.

The Depositary may at any time be removed by a written instrument signed by
all of the then Voting Trustees and delivered to the Depositary. In every case
of the resignation, removal or inability of the Depositary to act, the majority
of the Voting Trustees may by writing signed by them and delivered to a
successor named therein, elect as successor to the Depositary some other bank or
trust company having power to act, and having a capital and surplus of at least
Fifty Million Dollars ($50,000,000), which successor shall thereupon be entitled
to all the rights, authority and powers hereby conferred on the above-named
Depositary. The Voting Trustees shall direct the Depositary so resigning or so
removed to thereupon transfer and deliver to such successor the stock
certificates then held by it hereunder, together with all books, registers and
other papers pertaining or relating to said stock certificates or to the trust
certificates which may from time to time be issued hereunder. The term
Depositary as used in this Agreement and in said trust certificates shall apply
to the Depositary herein named and its successor(s) at any time hereunder.

8. The action of a majority of the Voting Trustees, expressed from time to
time at a meeting or by writing without a meeting, shall, except as otherwise
herein stated, constitute the action of the Voting Trustees and have the same
effect as if assented to by all. Any Voting Trustee may vote or may act in
person or by proxy. Any meeting of the Voting Trustees may be held by conference
telephone. At any meeting of the Voting Trustees the presence of all of the
Voting Trustees in person or by proxy shall constitute a quorum. The Voting
Trustees may adopt their own rules of procedure. Any Voting Trustee may act as a
director of the Company or of any controlled or subsidiary company; and he, or
any firm of which he may be member, or any corporation of which he may be a
shareholder, director of officer, may, to the extent permitted by law, contract
with the Company or with any controlled or subsidiary company, or be or become
pecuniarily interested in any matter or transaction to which the Company or any
controlled or subsidiary company may be a party, or in which the Company or any
controlled or subsidiary company may in any way be concerned, as fully as though
he were not a Voting Trustee.

9. Until delivery, or the filing of and order with the Depositary for
delivery, of all stock certificates in accordance with Section 4 hereof, the
Voting Trustees shall possess, in respect of any and all stock deposited
hereunder, and shall be entitled, in their discretion, but subject to the
provisions of this Agreement, to exercise, all the powers of absolute owners of
said stock, and all rights of every name and nature in respect of such stock,
including the right to vote and consent for every purpose. The Voting Trustees
shall vote or consent or issue proxies to vote or consent, at shareholders'
meetings with respect to matters relating to the election of directors of the
Company, including setting the number of such directors, in their discretion,
except that they shall vote for up to nine nominees for director designated in
its discretion by the Company in writing (and shall take such action as may be
feasible to effect the election of such nominees, including cumulating the votes
of such shares). At or prior to each meeting of shareholders, the Voting
Trustees shall deliver to Ronald D. Hunter or his designed a proxy entitling
Hunter or such designed to vote all of the shares held by the Voting Trustees
with respect to all other matters. The Voting Trustee appointed by the
Shareholder shall vote as directed by the Voting Trustee appointed by the
Company except in the following circumstances: (a) upon the sale or merger of
the Company; (b) upon the book value of the Company, not adjusted by FASB 115
being less than $6.00 per share of Common Stock; (c) upon the sale of
significant assets of the Company constituting either twenty-five percent (25%)
of assets or revenues; (d) upon three (3) consecutive calendar quarterly losses
at the Company consolidated level; or (e) if total adjusted capital is less than
one hundred percent (100%) of the Risk-Based Capital ("RBC") authorized capital
level in Standard Life Insurance Company of Indiana.

The Voting Trustees shall in every such case, within 10 days after receipt
of notice of any shareholders' meeting called to authorize or consider any such
action, cause the Company to mail copies of the notice of such meeting received
by them to the holders of the trust certificates hereunder, addressed to them at
the address furnished by them to the Depositary. After delivery of all of the
stock certificates to the Depositary, any proxy signed by the Depositary as
agent of the Voting Trustees shall be sufficient for every purpose, but

3
<PAGE> 4

any proxy issued by the Depositary shall not be recognized if the Voting Trustee
shall, either before or after the issuance of a proxy by the Depositary, issue
their proxy for the same purpose. Except as set forth above, no voting or other
right or power passes to holders of trust certificates or to others by or under
the trust certificates, or by or under this Agreement, or by or under any
agreement, whether by implication or otherwise.

In voting or giving directions for voting the stock represented by the
Stock Certificates deposited hereunder, the Voting Trustees, subject to the
provisions of this Agreement, shall exercise their best judgment from time to
time to select suitable directors, to the end that the affairs of the Company
shall be properly managed, and, in voting or giving directions for voting and
acting on other matters for shareholders' action, the Voting Trustees shall
exercise like judgment; but they assume no responsibility with respect to such
management or with respect to any action taken by them or taken in pursuance of
the issuance of a proxy by their agent, the Depositary, and no Voting Trustee
incurs any responsibility as shareholder, trustee, or otherwise, by reason of
any error of law or of any matter or thing done or omitted under this Agreement,
except for his own individual malfeasance. The Voting Trustees and their
successors, as Trustees' hereunder, shall receive to the maximum extent
permitted by law from the Company indemnity for and against any and all claims
and expenses and liabilities by them incurred in connection with, or growing out
of, this Agreement, or the bona fide discharge of their duties hereunder.

10. All notices to be given to the holders of trust certificates shall be
given by mail addressed to the registered holders of such trust certificates at
the addresses furnished by such holders to the Voting Trustees or to the
Depositary. Any call or notice whatsoever, when mailed by the Voting Trustees as
herein provided, shall be taken and considered as though personally served on
all parties hereto, including the holders of said trust certificates, and upon
all parties becoming bound hereby, and such mailing shall be the only notice
required to be given under any provision of this Agreement.

11. No agent or registrar appointed by the Voting Trustees shall be liable
or responsible for any action taken or suffered by it in good faith or for
anything other than its own individual willful default, and no such agent or
registrar shall incur any liability by reason of anything done or permitted to
be done at the request or by the permission of the Voting Trustees, and any such
agent or registrar shall be fully protected and relieved in all cases in acting
upon the written directions or with the written approval of a majority of the
Voting Trustees.

Any agent or registrar appointed by the Voting Trustees may resign upon 90
days' written notice to the Voting Trustees or on such shorter notice as the
Voting Trustees may accept as sufficient.

12. This Agreement may be executed in several counterparts, each of which,
so executed, shall be deemed to be an original; and such counterparts shall
together constitute but one and the same instrument.

13. Subject to the provisions set forth below, this Agreement shall be
irrevocable for a period of ten (10) years from its effective date. This
Agreement shall be renewable for additional periods of not more than ten (10)
years each on the affirmative vote of the holders of a majority in amount of the
trust certificates, by written ballots after notice given pursuant to Section 10
hereof, under rules adopted by the Voting Trustees.

4
<PAGE> 5

The Agreement may be terminated by the Shareholder by notice given to the
Voting Trustees and the Depositary at any time after November , 1998.

Voting Trustees

/s/ RONALD D. HUNTER
- ------------------------------------
Ronald D. Hunter

/s/ ALLEN O. JONES, JR.
- ------------------------------------
Allen O. Jones, Jr.

DELTA LIFE AND ANNUITY COMPANY

By: /s/ ALLEN O. JONES, JR.

--------------------------------------

Title: Senior Vice President

-----------------------------------

STANDARD MANAGEMENT CORPORATION

By: /s/ EDWARD T. STAHL

------------------------------------

Title: Executive Vice President

-----------------------------------

5
<PAGE> 6

ANNEX I

VOTING TRUST CERTIFICATE

NO.__________ COMMON STOCK
__________ SHARES

STANDARD MANAGEMENT CORPORATION
AN INDIANA CORPORATION

This is to certify that ____________ will be entitled upon surrender of
this certificate after payment of a sum sufficient to reimburse the undersigned
for any stamp tax or other governmental charge payable thereon, to receive a
certificate for ____________ fully paid and nonassessable shares of Common
Stock, no par value, of Standard Management Corporation, an Indiana corporation,
deposited with the undersigned pursuant to the terms of an agreement (the
"Agreement") dated as of November , 1996, among Delta Life and Annuity
Company and the undersigned Voting Trustees, the original of which is on file at
the principal office of Standard Management Corporation in Indianapolis,
Indiana. In the interval the holder hereof shall be entitled to receive payments
equal to dividends received by the Voting Trustees named in the Agreement or
their successors, upon a like number of shares of stock of such class, less any
expense chargeable to the holder hereof under the Agreement; such dividends, if
received by the Voting Trustees in stock of Standard Management Corporation
having general or other voting power, however, to be payable in voting trust
certificates in similar form.

This certificate is issued, subject to, and the holder by accepting the
same consents to, all the terms of the Agreement and the acceptance of this
certificate shall bind successive holders hereof to all the terms of the
Agreement as if the holder were a party to it. No voting right passes by this
certificate and until the actual delivery of the stock certificates, the Voting
Trustee shall, according to the provisions of the Agreement, be entitled to
exercise all rights of ownership with respect to the stock.

No stock certificate shall be deliverable under this certificate until the
termination of the Agreement with respect to the shares represented by such
certificate.

In case of a vacancy in the position of Voting Trustee, caused by death,
resignation or incapacity to act, the vacancy shall be filled according to the
provisions of the Agreement.

This certificate is transferrable on the books of the Voting Trustees at
their office in Indianapolis, Indiana, or at any other place designated by the
Voting Trustees, by the holder of record, in person or by a duly authorized
attorney in accord with the rules established for that purpose by the voting
Trustees, and on surrender of the certificate properly endorsed; but until so
transferred, the voting Trustees may treat the holder of record as the owner of
the certificate for all purposes whatsoever. In connection with any transfer or
delivery of stock certificates or voting trust certificates, the Voting Trustees
may require the payment of a sufficient sum to pay or reimburse them for any
governmental charge or any stamp tax in connection herewith.

This certificate shall not be valid until signed by the Voting Trustees.

In witness whereof the Voting Trustees have signed this certificate.

Dated:
- ------------------------

--------------------------------------
Ronald D. Hunter

--------------------------------------
Allen O. Jones, Jr.

For value received hereby sell, assign and transfer unto
the within certificate and all rights represented thereby and do
hereby irrevocably constitute and appoint

6
<PAGE> 7

attorney to transfer such certificates on the books of the Voting Trustees in
the certificate with full power of substitution in the premises.

---------------------------------------------------------

Signed in the presence of

- ---------------------------------------------------------

7
<PAGE> 8

ANNEX II

DEPOSITARY AGREEMENT

This Agreement dated as of the day of November, 1996, among
Ronald D. Hunter and Allen O. Jones, Jr. (the "Voting Trustees") and Boatmen's
Trust Company, a Missouri Trust Company (the "Depositary").

WITNESSETH:

WHEREAS, the Voting Trustees, Delta Life and Annuity Company, a Tennessee
corporation (the "Shareholder") and Standard Management Corporation (the
"Company") have entered into a Voting Trust Agreement (the "Voting Trust
Agreement"), as of the day of November, 1996; and

WHEREAS, the Voting Trustees desire to deposit with the Depositary a
certificate for 250,000 shares of Common Stock of the Company owned by the
Shareholder:

NOW THEREFORE, in consideration of the premises the parties hereby agree as
follows:

2. The Voting Trustees hereby designate the Depositary their agent for the
custody of the certificate for 250,000 shares of Common Stock, now or hereafter
delivered to the Depositary hereunder. Duplicates of this Agreement shall be
filed in the office of the Company in the City of Indianapolis, State of
Indiana, and in the office of the Depositary in the City of St. Louis, in the
State of Missouri.

3. Upon the joint written direction of the Voting Trustees, the Voting
Trustees may terminate this Depositary Agreement and file with the Depositary an
order in writing directing the Depositary to make delivery of share certificates
of the Company to the person or persons designated by the Voting Trustees.

4. The General Terms and Conditions (the "General Terms and Conditions")
attached hereto as Exhibit "A" as incorporated and made a part of this
Depositary Agreement as if fully set out herein.

VOTING TRUSTEES

- ------------------------------------------------------
Ronald D. Hunter

- ------------------------------------------------------
Allen O. Jones, Jr.
DEPOSITARY

BOATMEN'S TRUST COMPANY

By:
- -------------------------------------------------
Jerry L. Rector, Vice President

8
<PAGE> 9

EXHIBIT A

GENERAL TERMS AND CONDITIONS

- - The duties of Boatmen's Trust Company (the "Trust Company") shall be as
expressed herein and the Trust Company shall have no implied duties nor shall
the permissive right or power to take any action be construed as a duty to
take such action under any circumstances and it shall not be liable except in
the event of its gross negligence or willful misconduct.

- - The Trust Company shall not be obligated to risk its own funds in the
administration of the account and shall have a lien against any funds,
securities or other property in its possession or control (the "Escrow
Account") for its fees, expenses and advancements. The Trust Company need not
take any action under the Agreement which may involve it in any expense or
liability until indemnified to its satisfaction for any expense or liability
it reasonably believes it may incur.

- - Any recitals contained in the Agreement shall be deemed to be those of the
principal and not those of the Trust Company.

- - Unless specifically required by the Agreement, the Trust Company shall not be
required to give any bond or surety or report to any Court despite any
statute, custom, or rule to the contrary.

- - Any notice to or demand upon the Trust Company shall be given by being
deposited, certified mail, postage prepaid, in the United States mail,
addressed (until another address is filed in writing) to the Trust Company as
follows:

Boatmen's Trust Company
Attn.: Corporate Trust Company
510 Locust Street
P.O. Box 14737
St. Louis, MO 63178

- - The Trust Company shall be protected in acting upon any notice, request,
consent, certificate, order, affidavit, letter, telegram, or other paper or
document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons.

- - The Trust Company may execute any of the duties under the Agreement by or
through agents or receivers.

- - The Trust Company shall not be required to take notice or be deemed to have
notice of any default or other fact or event under the Agreement unless the
Trust Company shall be specifically notified in writing of such default, fact
or event.

- - The Trust Company may at any time resign from the position created in the
Agreement by giving thirty (30) days written notice by registered or certified
mail to the parties to the Agreement and such resignation shall take effect at
the end of such thirty days or upon earlier appointment of a successor.

- - In the event the Trust Company becomes involved in litigation by reason
hereof, it is hereby authorized to deposit with the Clerk of the Court in
which the litigation is pending any and all funds, securities, or other
property held by it pursuant hereto, less its fees, expenses and advances, and
thereupon shall stand fully relieved and discharged of any further duties
hereunder. Also, in the event the Trust Company is threatened with litigation
by reason hereof, it is hereby authorized to implead all interested parties in
any court of competent jurisdiction and to deposit with the Clerk of such
Court any such funds, securities, or other property held by it pursuant
hereto, less its fees, expenses and advances, and thereupon shall stand fully
relieved and discharged of any further duties hereunder.

- - The Trust Company may engage legal counsel, who may be counsel for any party
to the Agreement, and shall not be liable for any act or omission taken or
suffered pursuant to the opinion of such counsel. The fees and expenses of
such counsel shall be deemed to be a proper expense for which the Trust
Company will have a lien against the Escrow Account.

9
<PAGE> 10

- - Unless specifically required by the terms of the Agreement, the Trust Company
need not take notice of or enforce any other document or relationship,
including, without limiting the generality of the foregoing, any contract,
settlement, arrangement, plan, assignment, pledge, release, decree or the
like, but its duties shall be solely as set out in the Agreement.

- - The Parties to the Agreement (other than the Trust Company) hereby agree,
jointly and severally, to indemnify and save harmless the Trust Company from
and against any loss, liability or expense reasonably incurred, without
negligence or bad faith on its part, arising out of or in connection with the
Agreement, including the expense of defending itself against any claim or
liability in the premises. This indemnity agreement shall survive the
termination of the Agreement.

<PAGE> 1

EXHIBIT 10.34

COINSURANCE AGREEMENT

THIS COINSURANCE AGREEMENT is made and entered into by and between SAVERS
LIFE INSURANCE COMPANY, a North Carolina domestic health insurance company of
Winston-Salem, North Carolina, referred to herein as "Savers" or the "Ceding
Company" and WORLD INSURANCE COMPANY, a Nebraska domestic health insurance
company of Omaha, Nebraska, referred to herein as "World".

WHEREAS, Savers has issued certain individually underwritten health and
accident insurance policies, which are more specifically described hereinafter
in Exhibit A; and

WHEREAS, subject to the terms and conditions hereinafter set forth, Savers
desires to cede and reinsure to World, and World desires to coinsure from
Savers, the Ceding Company, on a 100% coinsurance basis the policies referred to
in Exhibit A, attached hereto and by reference made a part hereof.

NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties hereto, they hereby covenant and agree as follows.

ARTICLE 1

EFFECTIVE DATE

1.1 DATE. This Coinsurance Agreement shall be effective as of 12:01 a.m. on
July 1, 1997, which time and date shall be referred to herein as the "Effective
Date".

ARTICLE 2

COINSURED POLICIES/REPRESENTATIONS OF PARTIES

2.1 DESCRIPTION OF COINSURED POLICIES. Subject to the provisions of
Paragraph 5.1 below, the Ceding Company hereby assigns, transfers, sets over,
cedes and reinsures to World, and World hereby reinsures on a 100% coinsurance
basis from the Ceding Company, together with all rights, duties, risks,
liabilities and obligations relating thereto and all reserves and unpaid claims
existing at the Effective Date, those policies described in Exhibit A hereof,
referred to herein as the "Coinsured Policies".

2.2 REPRESENTATION OF POLICIES BY CEDING COMPANY. Ceding Company represents
to the best of its knowledge and belief that the Coinsured Policies described in
the attached Exhibit A are the only policies to be covered by this Coinsurance
Agreement plus any policies reinstated by the Ceding Company before the
Effective Date. The parties hereto agree that they shall make appropriate
adjustments between themselves with respect to any such reinstated policies.

2.3 OTHER REPRESENTATIONS OF CEDING COMPANY. The Ceding Company represents
to the best of its knowledge and belief, that the representations below are true
and correct as of the Effective Date and shall also be true and correct as of
the Closing Date:

a. Except for any outstanding and effective reinsurance treaties, no
person, firm or corporation has any claims, liens, judgments or right of
action, legal or equitable, against or in any assets transferred to World
under the terms of this Coinsurance Agreement.

b. The Coinsured Policies/Forms as set forth in Exhibit A attached
hereto are in force.

c. The Ceding Company is a corporation duly organized and validly
existing in good standing under the laws of the State of North Carolina and
is in good standing as an authorized insurer in each jurisdiction where it
requires such qualification. Ceding Company has the corporate power and
authority to carry on its business substantially as it is now being
conducted.

d. The Coinsured Policies/Forms set forth in Exhibit A hereof were
written, issued and maintained in full compliance with state and federal
laws and regulations.

1
<PAGE> 2

e. The Ceding Company has the requisite corporate power and authority
and has taken all corporate action necessary to execute and deliver this
Coinsurance Agreement and to consummate the transactions contemplated
hereby. This Coinsurance Agreement has been validly executed and delivered
by the Ceding Company and is a valid and binding agreement of the Ceding
Company, enforceable against the Ceding Company in accordance with its
terms.

2.4 REPRESENTATIONS OF WORLD. World represents to the best of its knowledge
and belief, that the representations below are true and correct as of the
Effective Date and shall also be true and correct as of the Closing Date:

a. World is a corporation duly organized and validly existing in good
standing under the laws of the State of Nebraska and is in good standing as
an authorized insurer in each jurisdiction where it requires such
qualification. World has the corporate power and authority to carry on its
business substantially as it is now being conducted.

b. World has the requisite corporate power and authority and has taken
all corporate action necessary to execute and deliver this Coinsurance
Agreement and to consummate the transactions contemplated hereby. This
Coinsurance Agreement has been validly executed and delivered by World and
is a valid and binding agreement of World, enforceable against World in
accordance with its terms.

2.5 COINSURANCE BASIS. Savers and World acknowledge and agree that the
reinsurance provided herein is on a 100% coinsurance basis. World agrees to
assume, carry out and perform all of the duties, obligations and liabilities
under the Coinsured Policies, subject, however, to the same rights, offsets,
counter-claims, cross-actions and defenses that are or may be possessed by
Savers, the Ceding Company. It is expressly understood that no such offsets,
counter-claims, cross-actions or defenses are or shall be waived, but that the
same are expressly preserved and that World shall be duly subrogated thereto,
whether the same be known to exist or are hereafter discovered.

2.6. PREMIUM PAYMENT, NEGOTIATION OF CHECKS. Upon and after the Effective
Date, (i) all premium payments under the Coinsured Policies shall be the sole
property of World and not of any liquidator, rehabilitator, receiver or other
statutory successor of Savers; and (ii) any premium payment received by Savers
shall be promptly remitted to World without diminution on account of the
insolvency of Savers. After the Effective Date, World shall be authorized to
endorse for payment all checks, drafts and money orders payable to Savers with
respect to premiums payable on the Coinsured Policies. After the Effective Date,
Savers hereby assigns to World all of its rights and privileges to draft or
debit the accounts of any policyholders for premiums due under the Coinsured
Policies pursuant to existing pre-authorized bank draft or electronic fund
transfer arrangements between Savers and such policyholders.

ARTICLE 3

CLAIMS

3.1 HANDLING OF CLAIMS. As of the Effective Date and subject to the
provisions hereof, World does hereby assume all the rights, liabilities and
obligations of the Ceding Company, including, but not limited to, claims and
obligations of the Ceding Company as to the Coinsured Policies. At and after the
Effective Date, the Ceding Company shall have no liability except to the extent
otherwise specifically set forth herein, of any kind or character with respect
to the Coinsured Policies. Prior to the Effective Date, the Ceding Company is
responsible to investigate and pay, deny or settle and bear the expense
(including legal expenses) of all claims and any and all liability incurred
under the Coinsured Policies. World assumes no responsibility for any liability
of any kind, including claims, for actions taken by the Ceding Company prior to
the Effective Date.

2
<PAGE> 3

ARTICLE 4

LIABILITY

4.1 PRIOR TO EFFECTIVE DATE. The Ceding Company agrees to retain control of
and responsibility for any item of liability of itself or its agents or brokers
arising from any litigation, unfair practices complaints, insurance department
complaints or regulatory proceeding relating to any of the Coinsured Policies,
which was filed, asserted, alleged or arose prior to the Effective Date. Such
responsibility includes the Ceding Company being liable for all legal expenses
incurred after the Effective Date and all amounts payable in settlement of such
litigation or dispute or any judgment arising from the prosecution of such
litigation or dispute. The Ceding Company does hereby retain full obligation for
all agent commissions, production, persistency and other bonuses earned or
claims prior to the Effective Date with respect to the Coinsured Policies.
Similarly, the Ceding Company does hereby also retain all dividend obligations,
if any, related to the Coinsured Policies. Exhibit B contains all known claims
of this type.

4.2 AFTER EFFECTIVE DATE. World will be responsible for all payments to
agents due or to become due with respect to the Coinsured Policies generated or
earned subsequent to the Effective Date. This responsibility shall include, but
not be limited to, the calculation of commissions due, bonuses, payment thereof,
record-keeping, withholding and/or reporting as may be necessary and any and all
other acts required to properly pay, account for and report all payments to
agents. The Ceding Company and World shall cooperate with each other in the
exchange of information necessary for the payment and reporting of any such
payments.

4.3 RESOLUTION OF DISPUTES. The Ceding Company agrees as part of any
settlement of any such litigation or regulatory proceeding, to issue, reinstate,
continue, or place any policy in force, which policy would have been covered by
this Coinsurance Agreement. Such policy will be reinsured under this Coinsurance
Agreement when the litigation or regulatory proceeding has been resolved, the
parties have mutually agreed upon the appropriate reserve, if any, for such
policy to be transferred, and the appropriate reserve, if any, for such policy
has been transferred by the Ceding Company to World.

4.4 ACTIONS ON OR AFTER EFFECTIVE DATE. If any legal or regulatory actions
are threatened or filed in connection with any of the Coinsured Policies on or
after the Effective Date, the parties agree to provide each other with prompt
notice thereof, within such time period as would allow the appropriate party the
opportunity to answer, appear or to take any action necessary or to avoid a
default judgment. The parties agree to cooperate with each other with respect to
any legal or regulatory actions, whether threatened or actual.

4.5 TAXES. World shall have full responsibility for any tax liability
relating to the Coinsured Policies for all taxable periods or portions thereof
beginning after the Effective Date. World further agrees to maintain on and
after the Closing Date all reserves and liabilities on the Coinsured Policies as
required by the laws of the states which have jurisdiction over the Coinsured
Policies.

The Ceding Company shall be responsible for and shall pay all premium taxes
on the Coinsured Policies which accrue prior to the Effective Date. World shall
reimburse Ceding Company for all premium taxes paid by the Ceding Company on the
Coinsured Policies which accrued on or after the Effective Date and which were
paid by the Ceding Company.

The Ceding Company also agrees to provide necessary financial data to World
with regard to the Coinsured Policies, as of the Effective Date, to support
Federal Income Tax filing needs and requirements of World. Such information
should be consistent with information comparable to that used in Ceding
Company's 1995 and 1996 Federal Income Tax returns.

ARTICLE 5

ERRORS AND OVERSIGHTS

5.1 PROCEDURE. Each party to this Coinsurance Agreement will act reasonably
to comply with its terms. Clerical errors and oversights occasioned in good
faith in carrying out this Coinsurance Agreement will not prejudice either
party, and will be rectified promptly on an equitable basis.

3
<PAGE> 4

ARTICLE 6

TRANSFER OF FILES

6.1 CURRENT FILES. All original customer policy files and all policy
approval and medical review files or suitable copies thereof (in the form of
paper copies or on microfiche or in the form of electronically stored computer
data) relating to the Coinsured Policies, including but not limited to, files
containing information concerning sales, policyowner service, reinsurance
contracts, policy and form approval information, underwriting, policy issue
information, premiums, unearned premiums, return premiums, reserves and, if
requested by World, closed claims, shall be delivered by the Ceding Company to
World before the date the administration of the Coinsured Policies transfers
from the Ceding Company to World or at such other time and place as may be
mutually agreed to by the parties. All other claim files or all necessary claim
information shall be transferred to World by the Ceding Company on an as needed,
and as requested, basis.

6.2 CLOSED FILES. Copies of all closed claim files may be retained by the
Ceding Company and it agrees that World may copy, at its expense, any of the
files so retained or World may request that the Ceding Company provide to World
copies of such transferred files at World's expense. The retention of these
files by the Ceding Company shall be not less than four (4) years from the
Effective Date of this Agreement.

ARTICLE 7

ARBITRATION

7.1 DUTY OF ARBITRATOR. All differences between the Ceding Company and
World on which agreement cannot be reached will be settled by arbitration. The
arbitrator will determine the interpretation of this Coinsurance Agreement in
accordance with usual business and reinsurance practices rather than on a strict
technical and legal basis.

7.2 SELECTION OF ARBITRATOR. Unless otherwise agreed upon in writing by the
parties, an independent arbitrator will be appointed by the American Arbitration
Association or its successor organization. Rules and procedures of any such
arbitration shall be according to the latest rules of the American Arbitration
Association for commercial arbitration. The place of meeting will be Omaha,
Nebraska, unless otherwise agreed by the parties. Upon request from either
party, the arbitrator will issue his decision and the basis for such decision in
writing. There will be no appeal from the decision of the arbitrator.

7.3 GOVERNING LAW. The provisions of this article relate to all aspects of
this Coinsurance Agreement, including its formation and execution, and shall
survive the termination of this Coinsurance Agreement. The laws of the State of
Nebraska will govern all questions regarding the interpretation and application
of this Coinsurance Agreement in the event of arbitration.

7.4 EXPENSES. Each party will pay its own expenses of arbitration,
including the expenses of any outside attorney fee. The parties will share
equally the expenses of the arbitrator. Any other costs of the arbitration
proceedings will be paid by the party incurring such expenses unless otherwise
determined in writing by the arbitrator.

ARTICLE 8

COINSURANCE ALLOWANCE FOR COINSURED POLICIES

8.1 NET FINANCIAL TRANSFER AS OF JUNE 30, 1997. The closing and wire
transfer of proceeds for June 30, 1997 will occur no later than September 1,
1997 as follows:

1. Claim Reserve plus Claim Expense Reserve; plus

2. Active Life Reserve; plus

3. Eighty-eight percent (88%) of the Unearned Premium Reserve;

plus

4
<PAGE> 5

4. Interest Due (7%); plus

5. Advance Premium; less

6. Due Premiums (30 Days or Less Past Due)

Savers will pay World interest of seven percent (7%) per annum on the net cash
transferred (at closing) from the Effective Date to the Closing Date.

8.2 CLOSING DATE. The Closing Date is expected to be no later than
September 1, 1997. In the event the closing does not occur on September 1, 1997,
interest will continue to accrue at seven percent (7%) per annum.

8.3 SHORT TERM PROFIT/LOSS SHARING. World and Savers will share equally in
profits/losses for incurred loss ratios above or below seventy-five percent
(75%). The profit/loss agreement will be for six months from the effective date
of our agreement (July, 1997 through December 1997). A final settlement will be
made on the Profit/Loss sharing agreement in July of 1998.

a. Included in incurred claims used in the profit/loss sharing
agreement referenced above are paid claims for the reporting period, plus
the change in claim reserve, plus outside claim litigation expenses, plus
any cost of pre-certification or PPO services, plus any extra contractual
settlements or damages incurred from claims subject to the following
provisions:

1) Any extra contractual settlements or benefits paid out of
contract as a result of actions relating to claims with a date of loss
prior to the effective date of the Coinsurance Agreement and which were
handled by the Ceding Company would be the full responsibility of the
Ceding Company.

Items 2) through 5) relate to and define extra contractual settlements or
benefits paid out of contract relating to actions after the Effective Date
of the Coinsurance Agreement.

2) Any extra contractual settlements or benefits paid out of
contract which involve representations as to how the policy was sold or
serviced by a Savers agent would be included in the definition of
incurred claims used in the profit/loss sharing agreement.

3) Any extra contractual settlements or benefits paid out of
contract which involve erroneous handling of the claim or claim payment
procedures of World which are not considered reasonable will be the
responsibility of World. These extra contractual settlements or benefits
paid out of contract will not be included as incurred claims in the
profit/loss sharing agreement.

4) Any extra contractual settlements or benefits paid out of
contract which does not fall into 2) or 3) above and for which World did
follow procedures considered reasonable within the practices of the
medical insurance industry will be included as an incurred claim used in
the profit/loss sharing agreement.

5) In the event the Ceding Company and World cannot agree in which
category the extra contractual settlement or benefits reside, a single
arbitrator will be selected pursuant to Article 7 hereof.

b. Premiums and claims will be adjusted for all costs of reinsurance.

c. The claim reserve transferred at the Effective Date will be based
on a mutually agreed amount derived from claim run offs and claim histories
using an incurred date definition outlined in (f) below. Six months
following the Effective Date, the parties will agree on what the actual
claim reserve should have been and settle that difference along with
interest at seven percent (7%) per annum on the amount. This adjusted
reserve will be used in the calculation of the second quarterly profit/loss
sharing settlement.

d. The Ceding Company agrees to use its best efforts to allow World to
use the Savers PPO network currently in use for these blocks of business.

5
<PAGE> 6

e. Because of the ongoing profit/loss sharing arrangement, World
encourages any input by the Ceding Company regarding the management of
these blocks of business.

f. For purposes of setting the claim reserves, the definition of
incurred dates is the first date of service except for a continuous
hospital stay and in that case it is the first day of hospital confinement
for as long as hospitalization or its equivalent is required or
recommended. This incurred date definition applies to all claims and is not
limited to hospital stays.

g. The Ceding Company will assist in the conversion of the
administration and claims system to World's administration and claims
system.

h. In the event that the administration of these blocks of business is
transferred to World after the Effective Date of the Coinsurance Agreement,
World agrees to pay the Ceding Company $50,000 per month to administer the
block of business.

ARTICLE 9

CLOSING DATE

9.1 DATE. The Closing Date shall be as mutually agreed upon by the parties
hereto, but in no event, beyond sixty (60) days after the Effective Date of this
Coinsurance Agreement.

ARTICLE 10

TERMINATION

10.1 FAILURE TO OBTAIN APPROVALS. Termination of this Coinsurance Agreement
shall occur upon the failure of either party hereto to obtain the necessary
approvals of any appropriate state insurance departments. Also, if more than one
hundred twenty (120) days from the Effective Date of this Coinsurance Agreement
has elapsed without obtaining the necessary state insurance department
approvals, this Coinsurance Agreement shall terminate.

10.2 COSTS OF TERMINATION. Neither party shall be liable to the other for
any costs, expenses, causes of actions, fees or claims of any type due to
termination of this Coinsurance Agreement.

ARTICLE 11

APPROVALS BY PARTIES

11.1 APPROVAL OF PROCEEDINGS. All proceedings to be taken and all documents
to be executed and delivered by either party in connection with the consummation
of the financial transactions contemplated hereby shall be reasonably
satisfactory in form and substance to World and its counsel. All proceedings to
be taken and all documents to be executed and delivered by all parties at the
closing shall be deemed to have been taken and executed simultaneously and no
proceeding shall be deemed taken nor any documents executed or delivered until
all have been taken, executed and delivered. At the closing, each party shall
deliver to the other party any payments contemplated and agreed to and described
in this Agreement.

11.2 SAVERS ANNUAL STATEMENT. Within ninety (90) days following the Closing
Date, Savers shall have delivered to World a copy of Savers's NAIC Statutory
Annual Statements for the year ended December 31, 1997. World agrees that the
delivery thereof by Savers to World shall constitute Savers's representation and
warranty that such Annual Statements (i) have been prepared in accordance with
statutory accounting principles applied on a consistent basis during the periods
reflected therein, (ii) are in accordance with the books and records of Savers,
and (iii) fairly present the income, assets and liabilities of Savers as at and
for the year ended December 31, 1997.

11.3 WORLD ANNUAL STATEMENT. Within ninety (90) days following the Closing
Date, World shall have delivered to Savers World's NAIC Statutory Annual
Statement for the year ended December 31, 1997. Savers

6
<PAGE> 7

agrees that the delivery thereof by World to Savers shall constitute World's
representation and warranty that such Annual Statements (i) have been prepared
in accordance with statutory accounting principles applied on a consistent basis
during the periods reflected therein, (ii) are in accordance with the books and
records of World, and (iii) fairly present the income, assets and liabilities of
World as at and for the year ended December 31, 1997.

11.4 OTHER AGREEMENTS. The Ceding Company represents that there are no
contracts and agreements to which Savers is a party and which have a material
effect on the Coinsured Policies, except: National Health Services
(pre-certification and utilization review), Managed Care USA (preferred provider
organization), PMSC (policy administration system), PCS (prescription drug card
administration), and Medicode (outpatient U&C claims edit).

ARTICLE 12

REGULATORY APPROVALS

12.1 COMPLIANCE. The parties hereto agree to comply with all laws,
regulations or directions of insurance departments of their domiciled states
with regard to the content, description, timing or other such requirements with
regard to the notification to policyholders, the Coinsurance Agreement and all
service requirements to policyholders.

12.2 REGULATORY APPROVALS. If applicable, the Ceding Company shall obtain
any necessary regulatory approval of this 100% coinsurance transaction and the
Coinsurance Agreement from the State of North Carolina, and World shall obtain
any necessary regulatory approval of this Coinsurance Agreement from the State
of Nebraska. The parties agree that where formal approval is required by any
other state insurance regulatory agency, this Coinsurance Agreement shall not be
effective as to any and all Coinsured Policies in effect in such state until
such approval is obtained.

12.3 EFFECT OF NON-CONSENT OR NON-APPROVAL. In the event that a state
insurance regulatory agency disapproves this Coinsurance Agreement, then the
Ceding Company requests and World agrees that World will administer such
policies until such time as approval is obtained, but not longer than December
31, 1998.

ARTICLE 13

CONFIDENTIALITY

13.1 INFORMATION AFFECTED. The Ceding Company and World acknowledge that
they possess or will have access to confidential and proprietary information
concerning the manner in which the parties conduct their business, which
information is not readily available to the public, and acknowledge that the
parties have taken reasonable action to ensure such information is not disclosed
to the public. The parties agree that they will not at any time (during the term
hereof or thereafter) disclose to any person, corporation, partnership or other
entity whatsoever (except to one another and their affiliates and the officers,
directors, employees, and outside counsel of both parties and their affiliates,
and except as required by subpoena), directly or indirectly, any confidential
information or trade secrets relating to the business affairs of the parties,
including the identity of and/or the compensation arrangements with, any agents,
affiliates and subsidiaries of the parties so long as such information remains
confidential as required by applicable federal or state privacy laws.

ARTICLE 14

RELATIONSHIP OF PARTIES

14.1 NO EMPLOYMENT RELATIONSHIP. The relationships between the parties
hereto shall be that of independent contractors. Nothing herein shall be
construed to create the relationship of employer and employee between World, the
Ceding Company or any of their respective agents or home office employees.

7
<PAGE> 8

ARTICLE 15

NON-REPLACEMENT

15.1 TERM. The Ceding Company agrees for five (5) years following the
Effective Date of this Coinsurance Agreement that there will be no effort by the
Ceding Company to replace the Coinsured Policies. To the extent reasonably
possible the Ceding Company further agrees that it will discourage its agents
and brokers from replacing the Coinsured Policies.

ARTICLE 16

INDEMNIFICATION

16.1 BY CEDING COMPANY. Any indemnification rights of the Ceding Company
herein shall be subject to and in addition to the provisions of Article 4,
Liability, herein. The Ceding Company shall indemnify, defend and hold harmless
World and its affiliates and their directors, officers, employees and agents
from and against any and all claims (exclusive of any contractual benefits under
any Coinsured Policy), demands, actions, proceedings, damages, including
punitive, consequential or extra-contractual damages, losses, costs or expenses,
including reasonable attorneys' fees, relating thereto or otherwise arising out
of any act, error or omission resulting from the negligence, deceptive trade
practices, intentional misconduct or willful wrongdoing of Savers, its
directors, officers, agents or employees arising out of any of their performance
under this Coinsurance Agreement or in their administration of the Coinsured
Policies. The foregoing indemnification and hold harmless clause applies to any
liabilities, losses, fines, penalties, damages, costs and expenses, including
reasonable attorneys' fees, incurred by World resulting from Savers's failure to
administer the Coinsured Policies in compliance with Article 4 and Article 12
herein or as a result of any of the Coinsured Policies being found to be not in
compliance with a law or regulation prior to the Effective Date or prior to the
actual transfer of the administration of the Coinsured Policies from Savers to
World.

16.2 BY WORLD. World shall indemnify, defend and hold harmless Savers and
its affiliates and their directors, officers, employees and agents from and
against any and all claims, demands, actions, proceedings, damages, including
punitive, consequential or extra-contractual damages, losses, costs or expenses,
including reasonable attorneys' fees, relating thereto or otherwise arising out
of any act, error or omission resulting from the negligence, deceptive trade
practices, intentional misconduct or willful wrongdoing of World, its directors,
officers, agents or employees or arising out of their performance under this
Coinsurance Agreement. The foregoing indemnification and hold harmless clause
applies to any liabilities, losses, fines, penalties, damages, costs and
expenses, including reasonable attorneys' fees, incurred by Savers resulting
from World's administration of the Coinsured Policies subsequent to the actual
transfer of the administration of the Coinsured Policies from Savers to World.

ARTICLE 17

OTHER PROVISIONS

17.1 PARAGRAPH HEADINGS. The headings of the provisions of this Coinsurance
Agreement are for reference purposes and have no legal force or effect.

17.2 ENTIRE AGREEMENT. This Coinsurance Agreement embodies the entire
agreement between the parties. No modification, variation, amendment or change
will be binding on either party unless reduced to writing and signed by a duly
authorized officer of each of the parties.

This Coinsurance Agreement was made between the parties based upon the
attached Letter of Intent dated April 18, 1997, and addendum thereto dated May
30, 1997.

17.3 GOVERNING LAW. This Coinsurance Agreement shall be construed and
interpreted according to the laws of the State of Nebraska.

8
<PAGE> 9

17.4 OTHER ACTIONS. The Ceding Company and World will use their best
efforts to cause the reinsurance contemplated under this Coinsurance Agreement
to be consummated and approved by all necessary regulatory bodies, and to do
such further acts, matters and deeds, and execute any and all additional
instruments and agreements that may be mutually agreed as necessary or
reasonably required in order to carry this Coinsurance Agreement into full
effect.

17.5 NOTICES. Until otherwise notified, all formal notices, requests,
demands, and other communications between the parties shall be directed to the
parties at their respective addresses as follows:

<TABLE>
<CAPTION>
"SAVERS" "WORLD"
CEDING COMPANY REINSURING COMPANY
-------------- ------------------
<S> <C>
Mr. Jerry Stoltz, President Mr. George Gehringer
Savers Life Insurance Company Vice President, Special Projects
8064 North Point Blvd. World Insurance Company
Winston-Salem, NC 27106 11808 Grant Street
Omaha, NE 68164
</TABLE>

<TABLE>
<CAPTION>
Copy to: Copy to:
-------- --------
<S> <C>
Mr. Zeb E. Barnhardt, Jr. Mr. Philip M. Bowen
Womble, Carlyle, Sandridge & Rice Vice President & General Counsel
Attorneys at Law World Insurance Company
200 West Second Street 11808 Grant Street
Winston-Salem, NC 27102 Omaha, NE 68164
</TABLE>

17.6 ASSIGNMENT. This Coinsurance Agreement is not assignable by either
party without prior written consent of the other party, and the prior approval
of any state insurance department, where required. Such consent shall not be
unreasonably withheld by the parties hereto.

17.7 WAIVER. Failure of the Ceding Company or World to enforce any of its
rights or remedies under this Coinsurance Agreement shall not constitute a
waiver of such rights or remedies exercisable hereunder.

17.8 SEVERABILITY. If any provision of this Coinsurance Agreement should be
determined to be invalid or otherwise unenforceable under law, the remainder of
this Coinsurance Agreement shall not be affected thereby.

17.9 AGREEMENT BINDING. This Coinsurance Agreement is binding upon the
parties hereto, their respective representatives, successors and assigns.

17.10 MULTIPLE COPIES. This Coinsurance Agreement may be executed in
multiple copies and each shall have the same force and effect of the original.

IN WITNESS WHEREOF, this Coinsurance Agreement has been duly executed.

CEDING COMPANY:
SAVERS LIFE INSURANCE COMPANY

By: /s/ JERRY STOLTZ

-----------------------------------------------------

Title: President

-----------------------------------------------
Date: May 30, 1997

----------------------------------------------
REINSURING COMPANY:
WORLD INSURANCE COMPANY

By: /s/ GEORGE A. GEHRINGER

-----------------------------------------------------

Title: Vice President, Special Projects

-----------------------------------------------
Date: May 30, 1997

----------------------------------------------

9
<PAGE> 10

EXHIBIT "A"

COINSURANCE (100%) AGREEMENT

BETWEEN

WORLD INSURANCE COMPANY OF OMAHA, NEBRASKA

(REINSURING COMPANY)

AND

SAVERS LIFE INSURANCE COMPANY OF WINSTON-SALEM, NORTH CAROLINA

(CEDING COMPANY)

This Exhibit A is attached to and made a part of the Coinsurance Agreement
by and between Savers Life Insurance Company of Winston-Salem, North Carolina,
and World Insurance Company of Omaha, Nebraska.

The following individual health and accident policies constitute the
Coinsured Policies of this Coinsurance Agreement:

"Article 2, Coinsured Policies, 2.1 Description of Coinsured
Policies."

Major Medical policies of Savers to include the following plans: MM92,
MM93, MM94, MM95 and MM96.

10
<PAGE> 11

EXHIBIT "B"

COINSURANCE AGREEMENT

BETWEEN

WORLD INSURANCE COMPANY OF OMAHA, NEBRASKA

(REINSURING COMPANY)

AND

SAVERS LIFE INSURANCE COMPANY OF WINSTON-SALEM, NORTH CAROLINA

(CEDING COMPANY)

This Exhibit B is attached to and made a part of the Coinsurance Agreement
by and between Savers Life Insurance Company of Winston-Salem, North Carolina,
and World Insurance Company of Omaha, Nebraska.

The responsibility of Savers for costs and expenses of litigation and
regulatory proceedings relating to the Coinsured Policies being transferred by
Savers, as more particularly set forth in "Article 4, Liability" of the
Coinsurance Agreement, are identified below as follows:

As of June 21, 1997, there is one (1) lawsuits on the Coinsured Policies.
There are seven (7) policies currently under litigation on the Coinsured
Policies/Forms listed on Exhibit A that will not be in force as of the Effective
Date and will be Savers responsibility.

Regarding the Jeffrey Harrold case, claims will be paid according to the
contract. The expected liability on a yearly basis is $10,000.00. Any additional
liability up to to Savers current reinsurance retention amount ($100,000.00)
will be the responsibility of Savers.

11
<PAGE> 12

CLOSING AGREEMENT

COINSURANCE AGREEMENT

BY AND BETWEEN

SAVERS LIFE INSURANCE COMPANY ("CEDING COMPANY")

AND

WORLD INSURANCE COMPANY ("REINSURING COMPANY")

DATED AS OF SEPTEMBER 1, 1997

With the execution of this Closing Agreement, without waiving any rights
the parties respectively may have in the event there has been a breach of any
representation and/or warrant given by either or both parties under the
Coinsurance Agreement, the parties hereby agree that the following items have
been completed by the applicable party as required by the Coinsurance Agreement:

1. The Coinsurance Agreement has been properly executed by the
parties.

2. All conditions precedent set forth in the Coinsurance Agreement
have been met.

In Witness Hereof, the parties hereto execute the same effective the 1st
day of September, 1997.

CEDING COMPANY:

SAVERS LIFE INSURANCE COMPANY

By:

-----------------------------------------------------

Its

-------------------------------------------------

Dated

----------------------------------------------
REINSURING COMPANY:

WORLD INSURANCE COMPANY

By:

-----------------------------------------------------

Its Vice President, Special Projects

-------------------------------------------------

Dated

----------------------------------------------

<PAGE> 1

EXHIBIT 10.35

AMENDMENT I

Agreement effective as of January 1, 1997, by and between The Guardian
Insurance & Annuity Company, whose address is 3900 Burgess Place, Bethlehem,
Pennsylvania 18017 (the "Company"), and Standard Life Insurance Company of
Indiana, whose address is 9100 Keystone Crossing, Suite 600, Indianapolis, IN
46240 (the "Reinsurer").

WITNESSETH:

WHEREAS, Company and Reinsurer entered into a Modified Coinsurance
Agreement effective as of January 1, 1996, as modified by various Amendments
(the "Agreement") in which the Company agreed to reinsure with Reinsurer the
risks under the policies described therein on the terms and conditions stated in
the Agreement; and

WHEREAS, Reinsurer and Company have agreed to terminate Block I portion of
the Agreement, as described in Schedule A, according to the terms and conditions
contained herein;

NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:

1. The Company and the Reinsurer hereby agree that the Block I portion of
the Agreement is terminated effective the 1st day of January, 1997 ( the
"Termination Date"), and all liability and obligations of Reinsurer and the
Company pursuant to the Agreement arising from events occurring after the
Termination Date are terminated as of the Termination Date.

2. The Company and the Reinsurer hereby agree that as of the Termination
Date amounts due either party are as described under the provisions of Article
XIII. Further, as of the Termination Date, the Company and the Reinsurer hereby
waive any rights to a supplementary accounting and settlement otherwise
permitted under the terms of Article XIII, of the Agreement.

3. Effective as of the Termination Date, the Company and the Reinsurer
waive and release any and all right, interest, liability or claim of any kind or
nature arising under or by virtue of the Agreement by virtue of acts or events
occurring after the Termination Date.
<PAGE> 2

IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first above written.

<TABLE>
<S> <C>
REINSURER:
STANDARD LIFE INSURANCE COMPANY OF INDIANA
ATTEST:

/s/ JANET K. TAYLOR By: /s/ EDWARD T. STAHL
- -----------------------------------------------------
-----------------------------------------------------
Its: Vice President & Controller
- ----------------------------------------------------- Its: EVP & Secretary
-----------------------------------------------------
COMPANY:
THE GUARDIAN INSURANCE & ANNUITY COMPANY,
INCORPORATED
ATTEST:

/s/ FRANK HALL By: /s/ JOHN M. SMITH
- -----------------------------------------------------
-----------------------------------------------------
Its: Project Mgr.
------------------------------------------------- Its: Executive Vice President
-----------------------------------------------------
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm included under the caption
"Experts" and to the use of our report dated March 18, 1997, except for Note 20,
as to which the date is August 21, 1997, included in the Joint Proxy
Statement/Prospectus that is contained in the Registration Statement on Form S-4
of Standard Management Corporation for the registration of shares of its common
stock.

Ernst & Young LLP

Indianapolis, Indiana
September 11, 1997

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the use of our report included in the Joint Proxy
Statement/Prospectus that is contained in the Registration Statement on Form S-4
of Standard Management Corporation and to the reference to our firm under the
heading "Experts" in the prospectus.

KPMG AUDIT

Luxembourg
September 11, 1997

<PAGE> 1

EXHIBIT 23.3

INDEPENDENT AUDITOR'S CONSENT

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 7, 1997, with respect to the financial
statements of Savers Life Insurance Company, included in the Joint Proxy
Statement/Prospectus that is contained in this Registration Statement on Form
S-4 of Standard Management Corporation for the registration of shares of its
common stock.

D. E. GATEWOOD AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS

Winston-Salem, North Carolina
September 11, 1997

<PAGE> 1

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned persons whose
signature appear immediately below, does hereby constitute and appoint Ronald D.
Hunter and Stephen M. Coons, each with full power to act alone, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign on behalf of the undersigned a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the registration under the
Securities Act of the shares of Common Stock, without par value, of Standard
Management Corporation, an Indiana corporation (the "Company"), to be issued
pursuant to the terms of the Agreement and Plan of Merger dated as of December
19, 1996, as amended (the "Merger Agreement"), among the Company, Standard
Acquisition Corporation, a North Carolina corporation and a wholly-owned
subsidiary of the Company ("Sub"), and Savers Life Insurance Company, a North
Carolina domestic stock insurance company ("Savers Life"), which provides for
the merger of Sub with and into Savers Life with Savers Life surviving as a
wholly-owned subsidiary of the Company, and to execute any and all amendments to
the Registration Statement, whether filed prior or subsequent to the time the
Registration Statement becomes effective, granting unto said attorney-in-fact
and agent 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 the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agent, or his substitute lawfully do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of September
1997.

<TABLE>
<C> <C>
RONALD D. HUNTER PAUL B. PHEFFER
- ----------------------------------------------------- -----------------------------------------------------
Ronald D. Hunter Paul B. Pheffer

GERALD R. HOCHGESANG RAYMOND J. OHLSON
- ----------------------------------------------------- -----------------------------------------------------
Gerald R. Hochgesang Raymond J. Ohlson

EDWARD T. STAHL STEPHEN M. COONS
- ----------------------------------------------------- -----------------------------------------------------
Edward T. Stahl Stephen M. Coons

RAMESH H. BHAT
- ----------------------------------------------------- -----------------------------------------------------
Martial R. Knieser Ramesh H. Bhat

ROBERT A. BORNS
- ----------------------------------------------------- -----------------------------------------------------
James C. Lanshe Robert A. Borns
</TABLE>

<PAGE> 1

EXHIBIT 99.1

PROXY STANDARD MANAGEMENT CORPORATION PROXY

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 22, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder of Standard Management Corporation ( "SMC")
does hereby acknowledge receipt of Notice of said Annual Meeting and the
accompanying Proxy Statement/Prospectus and does hereby constitute and appoint
Ronald D. Hunter and Stephen M. Coons, or either of them, with full power of
substitution, to vote all shares of Common Stock of SMC that the undersigned is
entitled to vote, as fully as the undersigned could do if personally present, at
the Annual Meeting of Stockholders of SMC, to be held on Wednesday, October 22,
1997 at 9:30 a.m., local time, at the Woodland Country Club, 100 Woodland Lane,
Carmel, Indiana, and at any adjournment or postponement thereof, as follows:

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE COMMON STOCK ISSUANCE (AS DEFINED BELOW) IN PROPOSAL 1, FOR THE NOMINEES
FOR DIRECTOR LISTED IN PROPOSAL 2, FOR PROPOSAL 3 TO AMEND SMC'S AMENDED AND
RESTATED 1992 STOCK OPTION PLAN AND FOR PROPOSAL 4 TO RATIFY THE APPOINTMENT OF
ERNST & YOUNG LLP AS PRINCIPAL INDEPENDENT AUDITORS FOR SMC. IF OTHER BUSINESS
IS PRESENTED AT SAID MEETING, THIS PROXY WILL BE VOTED ON THOSE MATTERS IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE NAMED PROXIES.

PLEASE MARK BOX [ ] or [X]

1. Proposal to approve the issuance of SMC Common Stock (the "Common Stock
Issuance") in connection with the acquisition by SMC of Savers Life Insurance
Company:

[ ] FOR [ ] AGAINST [ ] ABSTAIN

2. The election of three (3) Class II directors:

[ ] FOR the nominees listed [ ] WITHHOLD AUTHORITY for the nominees listed

Stephen M. Coons Martial R. Knieser Paul B. Pheffer

INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
THAT NOMINEE'S NAME FROM THE NAMES LISTED ABOVE.

3. Proposal to amend SMC's Amended and Restated 1992 Stock Option Plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. Proposal to ratify the appointment of Ernst & Young LLP as the principal
independent auditors of SMC.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

You are urged to mark, sign, date and return your proxy without delay in
the return envelope provided for that purpose, which requires no postage if
mailed in the United States.

Dated: , 1997

- --------------------------------------
Signature

- --------------------------------------
Signature if held jointly

When signing the proxy, please take care to have the signature conform to the
stockholder's name as it appears on this side of the proxy. If shares are
registered in the names of two or more persons, each person should sign.
Executors, administrators, trustees and guardians should so indicate when
signing. Corporations and partnerships should sign in their full corporate or
partnership names by a duly authorized person.

<PAGE> 1

EXHIBIT 99.2

PROXY SAVERS LIFE INSURANCE COMPANY PROXY
8064 NORTH POINT BOULEVARD
WINSTON-SALEM, NORTH CAROLINA 27106

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS

OCTOBER 22, 1997

The undersigned stockholder of Savers Life Insurance Company ("Savers Life")
does hereby acknowledge receipt of Notice of said Special Meeting and the
accompanying Proxy Statement/Prospectus and hereby appoints Jerry D. Stoltz,
Sr., and William G. White, Jr., and either of them, with full power of
substitution, proxies to vote the shares of Savers Life Common Stock that the
undersigned could vote if personally present at the Special Meeting of
Stockholders of Savers Life to be held on Wednesday, October 22, at 11:00 a.m.,
local time, and at any adjournment or postponement thereof:

(1) To approve the Agreement and Plan of Merger, dated as of December 19,
1996, as amended, among Standard Management Corporation ("SMC"), Standard
Acquisition Corporation, a wholly-owned subsidiary of SMC ("SAC"), and Savers
Life, pursuant to which SAC would merge with and into Savers Life, all as
described in detail in the accompanying Proxy Statement/Prospectus dated
September 17, 1997.

[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN

(2) To vote, in the discretion of said proxies, upon such other business as
may properly come before the meeting.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED BY THE STOCKHOLDER.

If no choice is indicated above with respect to a matter where a ballot is
provided, this proxy will be voted FOR such matter.

DATED: , 1997

--------------------------------------
(Signature)

Please date and sign exactly as name
appears hereon. If more than one name
appears, each person should sign.

Please add Social Security number or
Zip Code, if not shown, and change of
address, if any.

--------------------------------------

<PAGE> 1

EXHIBIT 99.3

FORM OF ELECTION

PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS ON THE REVERSE SIDE

IMPORTANT: HOLDERS OF SAVERS LIFE COMMON STOCK WHO WISH TO RECEIVE SHARES OF SMC
COMMON STOCK IN LIEU OF THE $1.50 PER SHARE CASH PAYMENT CONTEMPLATED BY SECTION
2.5(C)(I) OF MERGER AGREEMENT MUST PROPERLY COMPLETE AND RETURN THIS FORM OF
ELECTION BY 5:00 P.M., LOCAL TIME, ON OCTOBER 21, 1997. HOLDERS OF SAVERS LIFE
COMMON STOCK WHO DO NOT WISH TO RECEIVE SHARES OF SMC COMMON STOCK IN LIEU OF
THE $1.50 PER SHARE CASH PAYMENT DO NOT NEED TO RETURN THIS FORM OF ELECTION.

Dear Sirs:

The undersigned, in accordance with Section 2.6 of the Agreement and Plan
of Merger dated as of December 19, 1996, as amended (the "Merger Agreement"),
among Standard Management Corporation ("SMC"), Standard Acquisition Corporation
("SAC") and Savers Life Insurance Company ("Savers Life"), hereby elects to
receive shares of Common Stock, without par value, of SMC ("SMC Common Stock")
in lieu of cash that the undersigned would otherwise be entitled to receive
pursuant to Section 2.5(c)(i) of the Merger Agreement with respect to the shares
of Common Stock, no par value, of Savers Life ("Savers Life Common Stock") set
forth in column 3 of Box A. The undersigned acknowledges that Section 2.6 of the
Merger Agreement provides that the number of shares of SMC Common Stock to be
received with respect to each share of Savers Life Common Stock to which this
Form of Election applies, rounded to the nearest hundredth of a share, will be
determined by dividing $1.50 by the average of the closing trading prices, as
reported by The Nasdaq National Market, of SMC Common Stock for the ten
consecutive trading days ending on the fifth day prior to the earlier of the SMC
Stockholders Meeting (as defined in the Merger Agreement) or the Savers
Stockholders Meeting (as defined in the Merger Agreement).

BOX A: ELECTION
- --------------------------------------------------------------------------------

<TABLE>
<S><C>
Name and Address of Holder of Record as Shown on Records of Savers Life
- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
Certificate(s) Owned
(attach separate schedule if necessary)
- --------------------------------------------------------------------------------------------------
Column 1 Column 2 Column 3
Number of Shares of Savers
Number of Shares of Savers Life Common Stock with
Life Common Stock respect to which this Form
Certificate Number(s) Represented By Certificate of Election Applies
- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------

Totals ,
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2

In order to be effective, this Form of Election must be properly completed
and returned by 5:00 p.m., local time, on October 21, 1997 to:

SAVERS LIFE INSURANCE COMPANY
8064 NORTH POINT BOULEVARD
WINSTON-SALEM, NORTH CAROLINA 27106
ATTENTION: PATRICIA G. LANDY

THIS FORM OF ELECTION MAY BE RETURNED, TOGETHER WITH A PROXY CARD, IN THE
ENCLOSED BUSINESS REPLY ENVELOPE.

The undersigned understands and agrees that the acceptance and delivery of
any Form of Election by Savers Life (or any other authorized person) will not of
itself create any right to receive SMC Common Stock in exchange for the Savers
Life Common Stock subject to any Form of Election and that such right will arise
only upon the Effective Time of the Merger (as defined in the Merger Agreement)
and only to the extent provided in the Merger Agreement. The undersigned further
understands and agrees that the election made on this form shall be irrevocable
unless it is properly revised or withdrawn in accordance with Instructions 4 or
5 to this form.

Dated: , 1997

SIGN
----------------------------------

HERE
----------------------------------
(Signature(s) of Holder(s)

Telephone Number ( )
---------------------
(Include Area Code)

(Must be signed by registered
holder(s) exactly as name(s) appear on
the certificates as Indicated in Box
A, or by person(s) authorized to
become registered holder(s). See
Instruction 2.)
<PAGE> 3

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THIS FORM OF ELECTION

RETURN DATE: EACH HOLDER OF RECORD OF SAVERS LIFE COMMON STOCK SHALL HAVE
THE RIGHT TO MAKE AN ELECTION REQUEST BY SUBMITTING THE FORM OF ELECTION,
TOGETHER WITH ANY ITEMS REQUIRED BY INSTRUCTION 3 BELOW TO SAVERS LIFE BY 5:00
P.M., LOCAL TIME, ON OCTOBER 21, 1997.

1. DELIVERY OF FORM OF ELECTION. This Form of Election should be completed
and signed by the holder or holders of record of the Savers Life Common Stock.
This Form of Election, completely filled in and signed, together with any other
documents required by Instruction 3 should be delivered by hand or sent by mail
to Savers Life at the address set forth on the reverse side. The method of
delivery of all documents is at the option and risk of the stockholder, but if
delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. For your convenience a return envelope is enclosed. DO
NOT SEND CERTIFICATES FOR SAVERS LIFE COMMON STOCK WITH THE FORM OF ELECTION.

2. SIGNATURES. This Form of Election must be signed by or on behalf of the
holder(s) of record of the certificates. In the case of joint tenants, both
should sign. If the certificates for the Savers Life Common Stock deposited are
registered in different forms of the name of any person signing this Form of
Election (e.g., "John Smith" on one certificate and "J. Smith" on another), it
will be necessary for such person either to sign this Form of Election in each
way in which the certificates are registered or to sign as many Forms of
Election as there are different registrations. When signing as agent, attorney,
administrator, executor, guardian, trustee, or in any other fiduciary or
representative capacity, or as an officer of a corporation on behalf of the
corporation, please give full title as such.

3. SUPPORTING EVIDENCE. In case any Form of Election is executed by an
agent, attorney, administrator, executor, guardian, trustee, or in any other
fiduciary or representative capacity, or by an officer of a corporation on
behalf of the corporation, there should be submitted with the Form of Election,
documentary evidence of appointment and authority to act in such capacity
(including court orders and corporate resolutions where necessary), as well as
evidence of the authority of the person making such execution to assign, sell or
transfer shares. Such documentary evidence of authority must be in form
satisfactory to Savers Life.

4. MODIFICATION OF ELECTION. The holder of any of the Savers Life Common
Stock listed on this Form of Election may at any time prior to 5:00 p.m., local
time, on October 21, 1997 revise the request made on this Form of Election by
submitting a new, subsequently dated, Form of Election identical to this Form of
Election (i) containing the new election request and (ii) signed and completed
in accordance with the Instructions on this Form of Election.

5. WITHDRAWAL OF ELECTION. The holder of the shares of Savers Life Common
Stock listed on this Form of Election may at any time prior to 5:00 p.m., local
time, on October 21, 1997 withdraw his election by written notice to Savers Life
at the address set forth herein.

6. MISCELLANEOUS. Neither SMC nor Savers Life shall be under any duty to
give notification of defects in any Form of Election, nor shall either SMC or
Savers Life incur any liability for failure to give such notification. SMC shall
have the absolute right to reject any and all Forms of Election not in proper
form or to waive any irregularities in any Form of Election. The terms and
conditions of the Merger Agreement shall be deemed to be incorporated herein by
reference and to form part of the terms and conditions of any election request
made on this Form of Election.

7. ADDITIONAL COPIES. Additional copies of the Form of Election may be
obtained from Savers Life.

In order to be effective, this Form of Election and accompanying items must
be submitted to Savers Life at its address as set forth herein prior to 5:00
p.m., local time, on October 21, 1997.

DO NOT SEND CERTIFICATES FOR SHARES OF SAVERS LIFE COMMON STOCK
WITH THIS FORM OF ELECTION.