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Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: October 13, 1997
(Date of earliest event reported)
Central Reserve Life Corporation
(Exact Name of Registrant as specified in its charter)
Ohio 0-8483 34-1017531
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(State or other jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification Number)
17800 Royalton Road, Strongsville, Ohio 44136
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(Address of Principal Executive Offices) (Zip Code)
(216) 572-2400
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
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On October 8, 1997, Standard Management Corporation, an Indiana
corporation ("SMC") and Central Reserve Life Corproation, an Ohio corporation
("Central Reserve"), announced that they had signed a letter of intent and that
they were engaged in discussions for a proposed merger.
See attached Letter of Intent and News Release.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 13, 1997 CENTRAL RESERVE LIFE CORPORATION
By: Frank W. Grimone
Frank W. Grimone, Chief Financial Officer
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DATE: 10/08/97
TO: All Media
FROM: Kevin L. Wedmore
Standard Management Corporation
Indianapolis, IN 46240
Phone: 317-574-5221
Fred Lick
Central Reserve Life Corporation
Strongsville, OH
Phone: 1-800-321-3997
SUBJECT: SMC/Central Reserve sign letter of intent
STANDARD MANAGEMENT CORPORATION, CENTRAL
RESERVE LIFE CORPORATION SIGN LETTER OF INTENT
Standard Management Corporation ("SMC" or the "Company"; NASDAQ: SMAN)
(Indianapolis, IN) and Central Reserve Life Corporation, ("CRLC" or "Central
Reserve"; NASDAQ: CRLC) (Strongsville, OH) announced today that they had signed
a letter of intent and were engaged in discussions for a proposed merger under
which SMC would acquire all the outstanding shares of CRLC common stock.
Under the terms of the proposed merger, SMC would acquire all outstanding shares
of Central Reserve through a tax-free exchange and merge CRLC into a wholly
owned subsidiary of SMC. The proposed exchange ratio would be $7.00 in value of
SMC common stock for each outstanding share of CRLC common stock. The proposed
merger is subject to various conditions including approval by SMC's lenders,
execution of a definitive agreement, regulatory approval and approval of the
merger by the boards of directors and shareholders of both SMC and CRLC. There
can be no assurance that all conditions will be satisfied to complete a proposed
merger.
Ronald D. Hunter, SMC Chairman, stated, "This proposed merger supports SMC's
strategic plan of growing both internally through the sale and distribution of
uniquely qualified products and externally by being a part of the consolidation
of the financial services industry through acquisition. The proposed transaction
reflects our continued commitment to long-term shareholder value, with the
Company seeking acquisitions and alliances that meet our objectives of
developing and expanding niche markets in the insurance industry."
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Central Reserve Chairman Fred Lick added, "As a member of the Standard Group of
Companies, this proposed strategic alliance would allow us to continue our
mission to become a leader in the small group/employee benefit marketplace. We
believe that Central Reserve exhibits a strong allegiance with its field force,
which would become an important part of the Standard team under the proposed
merger."
Standard Management Corporation markets life insurance, annuities, specialized
health insurance (via its Critical Choice policy) and unit-linked life assurance
policies both domestically and worldwide through its four subsidiaries and a
base of approximately 8,000 licensed agents. Products are distributed through
individual sales and worksite marketing programs. The Company is licensed to
conduct business in 48 states.
Central Reserve Life sells life insurance, annuities, short-term major medical,
long-term disability and small employer group health polices through a base of
approximately 15,000 agents. CRL is licensed to conduct business in 34 states.
SMC reported total assets of $628 million at December 31, 1996. For the year
ended December 31, 1996, SMC reported total revenues of $40.3 million and total
earnings of $4.3 million, or $.93 per share. For the first six months of 1997,
SMC reported revenues of $23.3 million and earnings of $1.3 million, or $.25 per
share. Total assets had climbed to $654 million at June 30, 1997.
Central Reserve has approximately $119 million in total assets. For the year
ending December 31, 1996, CRLC reported revenues of $265 million and a loss of
($9.3) million, or ($2.20) per share. For the six months ended June 30, 1997,
CRLC reported revenues of $135 million and a loss of ($5.4) million or ($1.26)
per share.
SMC is an international financial services holding company headquartered in
Indianapolis, IN. The Company operates two insurance companies in the U.S. and
two companies overseas. Its assets have climbed from $198 million in December
1992 to over $654 million at June 30, 1997. The Company expects assets to exceed
$750 million following the completion of its acquisition of Savers Life
Insurance Company of Winston-Salem, NC, expected to close in late October 1997.
Central Reserve Life Corporation, through its Ohio-domiciled life insurance
company, Central Reserve Life Insurance Company, specializes in meeting the
insurance needs of small to mid-size businesses and individuals. Among the
products CRL offers are life insurance, annuities, accident and health
insurance, short-term major medical and long-term disability.
Standard Management Corporation's common stock is traded on the NASDAQ National
Market System under the symbol SMAN. Central Reserve Life Corporation's common
stock is traded on the NASDAQ National Market System under the symbol CRLC.
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[Standard Management Corporation Logo]
STANDARD
MANAGEMENT
CORPORATION Ronald D. Hunter
Chairman and C.E.O.
October 7, 1997 VIA FACSIMILE
(216) 572-4500
Board of Directors
Central Reserve Life Corporation
CRL Plaza
17800 Royalton Road
Strongsville, OH 44136
Gentlemen:
This letter of intent (the "Letter of Intent") sets forth the terms
upon which Standard Management Corporation, an Indiana corporation ("SMC") would
acquire all of the outstanding capital stock of Central Reserve Life Corporation
("CRL") owned by its shareholders. CRL shall collectively refer to Central
Reserve Life Corporation and Central Reserve Life Insurance Company. Such terms
are as follows:
1. TERMS OF MERGER. After receipt of all required regulatory approvals,
a wholly-owned subsidiary of SMC ("Sub"), would undertake a Merger (the
"Merger"), pursuant to which each share of CRL Common Stock ("CRL Common Stock")
issued and outstanding immediately prior to the Merger would receive $7.00 (the
"Share Value") in value of shares of SMC Common Stock ("SMC Common Stock"), the
number of such shares (the "Conversion Number") to be rounded to the nearest
thousandth of a share, determined by dividing $7.00 by the average of the
closing trading prices as reported by the NASDAQ National Market (the "Average
Closing Price") of SMC Common Stock for the ten (10) consecutive trading days
ending on the fifth calendar day prior to the earlier of the SMC Stockholders
Meeting or the CRL Stockholders Meeting, (the "Purchase Price").
2. COLLAR. If the Average Closing Price shall be less than or equal to
$6.50, the Conversion Number shall be 1.0769. If the Average Closing Price shall
be greater than or equal to $8.50, the Conversion Number shall be .8235.
3. CONVERSION OF CRL STOCK OPTIONS. Each CRL Stock Option which is
outstanding at the time of the Merger, would be converted to options convertible
into SMC Common Stock on an equivalent basis to the Conversion Number.
4. DEFINITIVE AGREEMENT. After the execution of this Letter of Intent,
CRL and SMC will enter into the negotiation of a Definitive Merger Agreement
(the "Merger Agreement"), which will provide for a transaction structured so as
to assure that SMC Common Stock would be received by the shareholders of CRL on
a tax deferred basis. The Merger Agreement will contain usual and customary
representations and warranties with respect both to CRL and SMC including
representations and warranties relating to, among other matters; (i) due
900 Keystone Crossing Indianapolis, Indiana 46240 317-574-6213
(Fax) 317-574-6278
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Board of Directors
Central Reserve Life Corporation
October 7, 1997
Page 2
organization and existence, qualification as a foreign corporation and
capitalization, (ii) due authorization of the Merger, (iii) accuracy of
financial statements, including, without limitation, a representation and
warranty as to the absence of material undisclosed liabilities and the accuracy
in material respects of CRL's and SMC's statutory and GAAP balance sheets as of
December 31, 1996 and September 30, 1997 and the results of operations and cash
flows for each of the three (3) years and nine (9) months preceding such dates,
(iv) absence of material undisclosed liabilities, (v) title to properties, (vi)
pending or threatened litigation and administrative proceedings, (vii) status of
contracts, agreements, leases or other commitments, (viii) tax liabilities, (ix)
adequacy of insurance, (x) employee benefit matters, (xi) compliance with
applicable laws and regulations.
Execution and delivery of the definitive Merger Agreement (in the case
of clauses (b), (c), (d), (j) and (k) below) and consummation of the Merger (in
the case of the remaining clauses) will be subject to the satisfaction of the
following conditions:
(a) Negotiation of mutually acceptable definitive documentation
in the form of a Merger Agreement and related documents and schedules
thereto.
(b) Confirmation by SMC or its duly appointed agents,
accountants, attorneys and representatives as to certain aspects of the
business, financial condition and affairs of CRL and its subsidiaries.
(c) SMC's lenders shall have consented to the Merger and shall
have agreed to loan to SMC the sum of $15,000,000 upon terms and
conditions satisfactory to SMC.
(d) The respective Boards of Directors of SMC and CRL shall
have approved the Merger.
(e) The respective shareholders of SMC and CRL shall have
approved the Merger.
(f) All required regulatory approvals of the Merger shall have
been obtained and become final and binding, including the filing by SMC
within thirty (30) business days after execution of the Merger
Agreement, of a Form A with and receipt of approval from the State of
Ohio Department of Insurance and other appropriate regulatory
authorities.
(g) Since the date of the definitive Merger Agreement, there
shall not have occurred any material adverse change in the business,
assets, operations or financial condition of CRL or SMC, respectively.
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Board of Directors
Central Reserve Life Corporation
October 7, 1997
Page 3
(h) Central Reserve Life Insurance Company ("Central") shall
have adjusted minimum statutory capital and surplus ("SAP Adjusted
Capital and Surplus") at December 31, 1997 equal to at least 93% of the
September 30, 1997 balances which shall in no event be less than
$13,000,000. In the event the SAP Adjusted Capital and Surplus of
Central (exclusive of mutually agreed adjustments) shall be less than
93% of the September 30, 1997 SAP Adjusted Capital and Surplus, the
Share Value shall be reduced by $.05 for every $200,000 reduction in
September 30, 1997 SAP Adjusted Capital and Surplus. If the Share Value
adjustment is greater than 2.14%, then SMC may elect to terminate the
Merger.
(i) There shall be no uncured defaults on any debt of CRL or
any subsidiary at the closing, except for such indebtedness which is to
be repaid at closing.
(j) SMC shall have received a fairness opinion from an
investment banker in form and substance satisfactory to SMC.
(k) CRL shall have received a fairness opinion from an
investment banker in form and substance satisfactory to CRL.
The Merger Agreement shall contain other mutually agreeable terms
including customary conditions and covenants.
5. OPERATIONS. Central Reserve Life Insurance Company operations and
home office would remain at Strongsville, Ohio.
6. EXPENSES. CRL and SMC will each pay its own expenses incident to the
transactions contemplated hereby.
7. ACCESS AND CONFIDENTIALITY. SMC shall have such access to the books
and records of CRL and other information pertaining to the business and assets
of CRL necessary in connection with the proposed transaction, it being agreed
that SMC will hold all such information in confidence and will not disclose the
same except to persons participating in this transaction, including actuaries,
attorneys and accountants, or to potential investors and lenders, except that
nothing herein shall prevent disclosure or use of any information as may be
required by applicable law or that is at the date hereof or hereafter becomes
public other than by reason of a breach of the obligations under this paragraph.
8. EXPIRATION. This Proposal shall expire automatically at 8:00 P.M.,
Eastern Standard Time, October 7, 1997, if not accepted by CRL with written
notification to SMC.
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Board of Directors
Central Reserve Life Corporation
October 7, 1997
Page 4
9. BREAK-UP FEE. The definitive Merger Agreement shall provide for a
customary break-up fee of $500,000.
10. NATURE Of OBLIGATIONS. It is understood that this is merely a
Letter of Intent subject to the execution by CRL and SMC of a definitive Merger
Agreement and, except for the provisions of paragraphs 6, 7, 8, 10, 11 and 12
above, which shall be binding upon and inure to the benefit of CRL and SMC and
their respective successors and assigns, does not constitute a binding
obligation on either CRL or SMC.
Notwithstanding the foregoing, this Letter of Intent is intended to
evidence the preliminary understandings which we have reached regarding the
proposed transaction and our mutual intent to negotiate in good faith to enter
into a definitive Merger Agreement in accordance with the terms contained
herein.
11. PUBLICITY. SMC and CRL agree that press releases and other
announcements to be made by any of them with respect to, or any other disclosure
to a third party of the terms of, the transactions contemplated hereby shall be
subject to prior mutual agreement.
12. GOVERNING LAW. The Letter of Intent shall be governed by, and
construed in accordance with, the laws of the State of Ohio.
The parties hereto now execute this Proposal by affixing their
signatures as follows:
"CRL" "SMC"
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Central Life Insurance Corporation Standard Management Corporation
By: /s/ Fred Lick, Jr. By: /s/ Ronald D. Hunter
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Fred Lick, Jr. Ronald D. Hunter
Chairman Chairman
Dated: October 7, 1997 Dated: October 7, 1997
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