<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CENTRAL RESERVE LIFE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
[CENTRAL RESERVE LIFE CORPORATION LOGO]
CENTRAL RESERVE LIFE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1997
Notice is hereby given that the Annual Meeting of Shareholders of Central
Reserve Life Corporation will be held at the Holiday Inn - Westlake, 1100
Crocker Road, Westlake, Ohio, on Tuesday, May 6, 1997, at 10:00 a.m., local
time, for the following purposes:
1. To elect three directors, each to serve for a term of three years;
2. To consider and act upon a proposal to amend the Company's Amended
Articles of Incorporation to increase by 5,000,000 the authorized
number of Common Shares.
3. To consider and transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 31, 1997,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof.
By order of the Board of Directors.
/s/LINDA S. STANDISH
LINDA S. STANDISH, Secretary
April 14, 1997
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3
CENTRAL RESERVE LIFE CORPORATION
CRL PLAZA
17800 ROYALTON ROAD
STRONGSVILLE, OHIO 44136
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Shareholders of Central Reserve Life
Corporation, an Ohio corporation (the "Company"), to be held on Tuesday, May 6,
1997, at 10:00 a.m., local time, at the Holiday Inn - Westlake, 1100 Crocker
Road, Westlake, Ohio, and at any adjournment thereof. This Proxy Statement and
the accompanying form of proxy ("proxy card"), together with the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996, will
first be sent to shareholders on or about April 14, 1997.
The close of business on March 31, 1997, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting. At that date, the Company had outstanding 4,145,172 Common Shares,
without par value, each of which will be entitled to one vote.
PROPOSAL ONE: ELECTION OF DIRECTORS
The number of directors has been fixed pursuant to the Code of Regulations
of the Company at nine (9), and nine (9) directors are currently in office. At
the meeting, shares represented by proxies, unless otherwise specified, will be
voted for the election of the three (3) nominees, hereinafter named, to serve
for a term of three (3) years and, in each case, until their respective
successors are duly elected and qualified. If, by reason of death or other
unexpected occurrence, any nominee should not be available for election, the
proxies will be voted for such substitute nominee as the Board of Directors may
propose.
If notice in writing is given by any shareholder to the President, a Vice
President or the Secretary not less than forty-eight (48) hours before the time
fixed for holding the meeting that he desires that voting for the election of
directors shall be cumulative, and if an announcement of the giving of such
notice is made upon the convening of such meeting by the Chairman or Secretary
or by or on behalf of the shareholder giving such notice, each shareholder shall
have the right to cumulate such voting power as he possesses at such election
and to give one (1) nominee a number of votes equal to the number of directors
to be elected multiplied by the number of shares he holds, or to distribute his
votes on the same basis among two (2) or more nominees, as he sees fit. If
voting for the election of directors is cumulative, the persons named in the
enclosed proxy will vote the shares represented thereby and by other proxies
held by them so as to elect as many of the three (3) nominees named below as
possible. In the election of directors, the three (3) nominees receiving the
greatest number of votes will be elected. Abstentions and broker non-votes will
not count in favor of or against election of any nominee.
The following information is set forth with respect to each person
nominated for election as a director (each of whom is currently a director of
the Company) and with respect to the directors of the Company whose terms of
office will continue after the meeting:
1
<PAGE> 4
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
NOMINATED
DIRECTOR FOR TERM
NAME AGE PRINCIPAL OCCUPATION (1) SINCE EXPIRING
---- --- ------------------------ ----- --------
<S> <C> <C> <C> <C>
Robert K. Smith 53 President, R.K. Smith & Associates, Inc. 1986 2000
(Certified Public Accountants)
David L. Rossio 60 President, Rossio Jewelry, Inc. 1992 2000
Thomas D. Schulte 62 Retired (Formerly Director, Academic,
Education and Industrial Studies, Great
Oaks Joint Vocational School) 1994 2000
</TABLE>
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
<TABLE>
<CAPTION>
CURRENT
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION (1) SINCE EXPIRES
---- --- ------------------------ ----- -------
<S> <C> <C> <C> <C>
E. Lawrence Hendershot, M.D. 71 Retired, President, E.N.T. Group 1986 1998
of Cleveland, Inc. (Otologists)
Robert E. Bruce (2) 75 President, Bruce and Bruce Company 1987 1998
(Consulting Actuaries)
William E. Gerstenslager 51 Partner, Gerstenslager & Obert Co. 1990 1998
(Attorneys)
Fred Lick, Jr. 64 Chairman of the Board, President and 1976 1999
Chief Executive Officer of the Company
and of Central Reserve Life
Insurance Company
John F. Novatney, Jr. 66 General Counsel, Central Reserve Life 1976 1999
Insurance Company; Vice Chairman of
the Board of the Company
John L. McKean (3) 72 President, Jack McKean Agency, Inc. 1989 1999
(Life Insurance Agency)
</TABLE>
(1) Each director or nominee for election as a director, except Mr. Novatney
and Mr. Gerstenslager, has held the position shown for more than five (5)
years. Prior to joining Central Reserve Life Insurance Company in June,
1996 as General Counsel, Mr. Novatney was a partner in the law firm of
Baker & Hostetler LLP. Prior to his present position, Mr. Gerstenslager was
with the law firm of Robert E. Sweeney, Co., L.P.A. from 1986 through 1995.
(2) Bruce and Bruce Company provided actuarial services to the Company in 1996
and will continue to provide such services in 1997.
(3) Jack McKean Agency, Inc. served as a licensed General Agent with the
Company's principal operating subsidiary, Central Reserve Life Insurance
Company, in 1996 and was paid commissions of $368,761 in 1996. The agency
will continue to serve as an agent in 1997.
2
<PAGE> 5
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company has standing executive, audit,
investment and employee relations committees, as described below:
Executive Committee. The Executive Committee has all powers of the Board in
the management of the business and affairs of the Company between Board meetings
except the power to fill vacancies on the Board or its committees. The Executive
Committee also functions as a nominating committee. In functioning as a
nominating committee, the Executive Committee seeks qualified persons to serve
as directors of the Company and makes recommendations to the Board of Directors.
The Executive Committee will consider nominees for the Board of Directors
recommended by shareholders, provided that the names of such persons are
submitted by January 30 for the next succeeding annual shareholders' meeting.
Such recommendations should be submitted only on behalf of persons willing to
serve as directors and should include a resume of their business experience and
qualifications. The Executive Committee also serves as a compensation committee
responsible for determining the compensation of the Company's executive
officers. Members of the Executive Committee are Mr. Lick, Mr. Novatney and Dr.
Hendershot. The Executive Committee met once during 1996.
Audit Committee. The Audit Committee recommends to the Board of Directors
the firm of independent accountants to serve the Company and reviews the scope,
performance and results of the annual audit of the Company. Its members are
Messrs. Smith, Gerstenslager and Rossio. The Audit Committee met seven (7) times
during 1996.
Investment Committee. The Investment Committee establishes policy for and
monitors management of the Company's investments. Its members are Mr. Bruce, Mr.
Novatney and Dr. Hendershot. Frank W. Grimone, Senior Executive Vice President
and Chief Financial Officer of the Company, participates in all meetings of the
Investment Committee. The Investment Committee met five (5) times during 1996.
Employee Relations Committee. The Employee Relations Committee, working
with employee-relations personnel of Central Reserve Life Insurance Company
("CRL"), the company's principal operating subsidiary, serves to structure,
review and update CRL's employee-relations policies and practices, including
CRL's firm commitment to equal employment opportunity. Its members are Messrs.
Novatney, McKean, and Schulte. The Committee met four (4) times during 1996.
The Board of Directors met five (5) times during 1996. Each director
attended all of the meetings held by the Board of Directors and the committees
of the Board of Directors on which he served.
During 1996, the directors of the Company were paid $2,000 per quarter plus
$1,000 per Board meeting attended and $1,000 per committee meeting attended plus
expenses of attendance. Mr. Lick received no compensation as a director, and Mr.
Novatney received no compensation as a director after he became an employee of
CRL in June, 1996.
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following information is set forth with respect to the only persons
known to management to be beneficial owners of more than five percent (5%) of
the Company's Common Shares:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
<S> <C> <C>
Fred Lick, Jr. 545,000 (1) 12.4
17800 Royalton Road
Strongsville, Ohio 44136
Dimensional Fund Advisors Inc. 258,300 (2) 6.2
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
</TABLE>
(1) Amount held as of March 31, 1997. Also, see footnote 4 to the table on page
5 herein.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 258,300 shares of
Central Reserve Life Corporation stock as of December 31, 1996, all of
which shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, for all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional disclaims beneficial ownership of
all such shares.
4
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following information is set forth with respect to the Company's Common
Shares beneficially owned as of March 31, 1997, by all directors and nominees
for election as directors of the Company, by all executive officers of the
Company and by all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
<S> <C> <C>
Robert E. Bruce ............................ 12,000 *
William E. Gerstenslager ................... 1,600 *
Frank W. Grimone ........................... 125,000 3.0
E. Lawrence Hendershot, M.D. ............... 16,600(2) *
Glen A. Laffoon ............................ 86,650(3) 2.1
Fred Lick, Jr. ............................. 545,000(4) 12.4
John L. McKean ............................. 3,000(5) *
John F. Novatney, Jr. ...................... 13,000 *
David L. Rossio ............................ 1,000 *
Thomas D. Schulte .......................... 2,097(6) *
Robert K. Smith ............................ 5,725(7) *
James A. Weisbarth ......................... 14,075 *
Robert S. Zarick ........................... 1,000(8) *
All executive officers
and directors as a group (13 persons) .... 826,747 18.9
</TABLE>
* Less than one percent of the outstanding Common Shares of the Company
(1) Unless otherwise indicated, the persons named have sole voting and
investment power with respect to all Common Shares shown as being
beneficially owned by them.
(2) Includes 800 Common Shares held by Dr. Hendershot's spouse.
(3) Includes 41,150 Common Shares held by Mr. Laffoon's spouse and 3,000 Common
Shares held jointly with his spouse.
(4) Includes options to purchase 235,000 Common Shares, exercisable at any time
prior to August 6, 1997, and 37,500 Common Shares owned by Mid American
Asset Management Corporation, of which Mr. Lick is the sole shareholder.
(5) These Common Shares are held by Jack McKean Agency, Inc. of which Mr.
McKean is the sole shareholder.
(6) These Common Shares are held jointly with Mr. Schulte's spouse.
(7) Includes 1,500 Common Shares held by the R.K. Smith & Associates, Inc.,
Profit Sharing Plan, of which Mr. Smith is the sole beneficiary, and 4,225
Common Shares held jointly with his spouse.
(8) These Common Shares are held jointly with Mr. Zarick's spouse.
5
<PAGE> 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In order to comply with certain state insurance regulatory requirements
which prohibit providing group life insurance unless at least ten (10) lives are
insured, the Company formed CRL Preferred Group, Inc., International
Professional Group, Inc., North America Preferred Employers, Inc., and Keystone
Employers Group, Inc. to serve as trustees of trusts established to provide
group life insurance to employers with less than ten (10) employees (such
corporations the "Trustee Corporations"). In compliance with state regulations
which require that the Trustee Corporations' shareholders be natural persons,
Mr. Lick and Mr. Grimone hold, for the benefit of the Company, all of the
outstanding shares of the Trustee Corporations and are directors of the Trustee
Corporations. Mr. Weisbarth holds the office of President of the Trustee
Corporations. None of the officers or directors of the Trustee Corporations
receives any compensation for serving in such capacity.
For a discussion of the employment contracts the Company has with Mr. Lick
and Mr. Grimone, see "Executive Committee Report on Executive Compensation"
beginning on page 9.
See footnotes 2 and 3 to the table under "Election of Directors" on page 2
with respect to certain other transactions involving directors of the Company.
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return to the cumulative total return of the University of Chicago Center for
Research in Security Prices ("CRSP") Nasdaq Stock Market Index and the CRSP
Nasdaq Insurance Stocks Index. (Assumes $100 invested on December 31, 1991, in
each of three indices and dividends reinvested.)
[GRAPH]
LEGEND
<TABLE>
<CAPTION>
Index Description 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Central Reserve Life Corporation 100.0 184.5 144.2 182.1 221.0 190.0
CRSP Index for Nasdaq Insurance Stocks 100.0 135.3 144.8 136.3 193.6 220.6
CRSP Index for Nasdaq Stock Market (US Companies) 100.0 116.4 133.6 130.6 184.7 227.2
</TABLE>
6
<PAGE> 9
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation paid by Central
Reserve Life Insurance Company ("CRL"), the principal operating subsidiary of
the Company, with respect to the calendar years ended December 31, 1996, 1995,
and 1994, to the Chief Executive Officer and all other executive officers of the
Company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION($)(1)
- --------------------------- ---- ---------- ------------------
<S> <C> <C> <C>
FRED LICK, JR. 1996 966,994 23,671
Chairman of the Board, President 1995 871,166 19,305
and Chief Executive Officer of the 1994 784,834 19,305
Company and CRL
FRANK W. GRIMONE 1996 258,000 20,755
Senior Executive Vice President 1995 258,000 19,305
and Chief Financial Officer of the 1994 215,000 19,305
Company and CRL
GLEN A. LAFFOON 1996 200,000 20,486
Executive Vice President, 1995 234,000 19,305
Product Development, of CRL 1994 170,000 19,305
JAMES A. WEISBARTH 1996 150,000 19,653
Treasurer and Assistant Secretary
of the Company and Executive Vice
President, Treasurer and Assistant
Secretary of CRL
ROBERT S. ZARICK 1996 144,350 18,945
Executive Vice President,
Administration, of CRL
</TABLE>
(1) For years 1995 and 1994, represents CRL's contribution under a
defined-contribution, money-purchase, pension plan. For 1996, includes
CRL's contribution under a defined-contribution, money-purchase, pension
plan of $19,305 for each officer, except $18,554 for Mr. Zarick, and the
following amounts equal to the full-dollar economic value of the premiums
paid by CRL in connection with life insurance policies issued pursuant to
the Split-Dollar Life Insurance Agreements between CRL and the following
executive officers: Mr. Lick: $4,366; Mr. Grimone: $1,450; Mr. Laffoon:
$1,181; Mr. Weisbarth: $348; and Mr. Zarick: $391. The premiums paid by CRL
in connection with the life insurance policies issued pursuant to such
Split-Dollar Life Insurance Agreements will be recovered in full by CRL
upon the payment of any death benefits under any such life insurance
policy.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides information for each of the executive officers
concerning the exercise of options during 1996 and the number and value of
options held at year-end for the Company's Common Shares.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY
NAME EXERCISE (#) REALIZED($)(1) OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(2)
---- ------------ --------------- --------------------- -----------------------
Exercisable / Unexercisable Exercisable / Unexercisable
<S> <C> <C> <C> <C>
Fred Lick, Jr. 20,000 83,340 235,000/0 1,155,495/0
James A. Weisbarth 0 0 5,000/0 5,000/0
</TABLE>
(1) Represents the difference between the aggregate exercise price of the
options and the aggregate closing price of the Company's Common Shares on
the date of exercise.
(2) Represents the difference between the aggregate exercise price of the
options and the closing price of the Company's Common Shares on December
31, 1996.
8
<PAGE> 11
EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Committee is responsible for determining the compensation of
the Company's executive officers. The executive officers are Fred Lick, Jr.,
Chairman of the Board, President and Chief Executive Officer of the Company and
of Central Reserve Life Insurance Company ("CRL"), the principal operating
subsidiary of the Company; Frank W. Grimone, Senior Executive Vice President and
Chief Financial Officer of the Company and of CRL; Glen A. Laffoon, Executive
Vice President, Product Development, of CRL; James A. Weisbarth, Treasurer and
Assistant Secretary of the Company and Executive Vice President, Treasurer and
Assistant Secretary of CRL; and Robert S. Zarick, Executive Vice President,
Administration, of CRL.
The Company is somewhat different from most other public companies in that
it does not have a large pool of executive officers and does not have
complicated long-term-compensation arrangements for its executive officers.
Instead, the Company has particularized its compensation policies for each
executive officer based on the officer's role in the Company and the Company's
expectations for the officer.
CRL entered into an employment agreement with Mr. Lick effective January 1,
1982, pursuant to which he serves as Chairman of the Board, President and Chief
Executive Officer of CRL. The current term of the agreement expires on December
31, 2001. The agreement provides for automatic renewals for successive terms of
five (5) years each unless notice of non-renewal is given by either party
twenty-four (24) months in advance. The agreement provides for increases in Mr.
Lick's salary of eleven percent (11%) per year for the years 1991 through 1996,
with no increase in salary after 1996.
Under his employment agreement, Mr. Lick is entitled to six (6) weeks
vacation annually, cumulative from year to year; an automobile and its
operational expenses; reimbursement of his business expenses; continuation of
his salary during any total or partial disability; and certain other fringe
benefits.
Mr. Lick's employment agreement provides that in the event of a change of
control of CRL or the Company which is not approved by Mr. Lick, he may elect to
resign, in which event he will be entitled, thirty (30) days after such
resignation, to a lump sum payment equal to his full annual salary for the
unexpired term of his employment agreement and the continuation of his fringe
benefits throughout the unexpired term. Mr. Lick's employment agreement may not
be terminated by CRL. If CRL does terminate the agreement, or if Mr. Lick
terminates the agreement because of a material breach by CRL, he is entitled to
the same payment and benefits provided for in the event of a change of control.
Mr. Lick has an employment agreement with the Company which provides that
if CRL terminates or is unable to fulfill any of its obligations under its
employment agreement with Mr. Lick, then the obligations of CRL under his
employment agreement become the responsibility of the Company. Mr. Lick's
employment agreement with the Company was entered into on January 1, 1982, and
the current term of the agreement expires on December 31, 2001. Renewal of the
CRL agreement results in automatic renewal of the Company agreement. This
employment agreement may not be terminated by the Company.
The Executive Committee believes that an employment contract for a chief
executive officer is important to secure continuity of leadership and to avoid
the time-consuming interruption of yearly contract and salary negotiation
between a company and its chief executive officer. The Executive Committee
continues to believe, more specifically, that the health industry's complexity,
its competitiveness, and the significance of government intervention mandate
arrangements designed to secure continuity of leadership and continued focus on
the Company's business. The Executive Committee also continues to believe that
the Company's overall, long-term success can be largely attributed to Mr. Lick's
ability to anticipate trends in the industry and to identify opportunities
before they are recognized by competitors. The Executive Committee believes that
the retention of Mr. Lick as Chief Executive Officer is of vital importance to
the Company.
Effective January 1, 1984, the Company and CRL entered into employment
agreements with Mr. Grimone. The agreements are automatically renewed on an
annual basis unless Mr. Grimone is given written
9
<PAGE> 12
notice of intention not to renew thirty (30) days prior to the end of a contract
year. Under the agreement, Mr. Grimone is also entitled to an automobile and its
operational expenses, the reimbursement of business expenses and certain other
fringe benefits. Mr. Grimone's agreement with the Company provides that if CRL
is unable or unwilling to meet its obligations under its employment agreement
with Mr. Grimone, such obligations become the obligations of the Company.
As Chief Financial Officer, Mr. Grimone has overall responsibility for the
Company's financial policies and its investment income. Since 1996, Mr. Grimone
has also devoted much of his time to efforts to raise capital and to merger and
acquisition matters. The factors considered in the yearly renewal of Mr.
Grimone's employment agreements are the general profitability of the Company's
investments and, on an essentially equal basis, his overall performance in all
of his duties. The investment income of the Company in 1996 increased 4% from
1995 through the sound and safe investments made under Mr. Grimone's guidance.
Mr. Grimone was paid a salary of $258,000 for 1996. The Executive Committee has
renewed Mr. Grimone's employment agreement.
Mr. Laffoon receives compensation in the form of an annual salary. Until
May, 1996, Mr. Laffoon's areas of responsibility as Chief Administrative Officer
included the CRL claim and administrative teams and the Actuarial and Quality
Assurance Departments, which comprise a majority of CRL's employees. In May,
1996, in order to respond to the need for new and innovative insurance plans and
to address on a company-wide basis the new federal health insurance law (Health
Insurance Portability and Accountability Act of 1996), Mr. Laffoon's
responsibilities were shifted to the development of new insurance plans and his
title was changed accordingly from Executive Vice President and Chief
Administrative Officer to Executive Vice President, Product Development. As
Chief Administrative Officer, his annual compensation was based upon
underwriting profitability, improvement of operating procedures, retention of
business and the overall individual performance of his duties. As Executive Vice
President, Product Development, his annual compensation is based upon the
successful development and introduction of new products and the overall
performance of his duties. Mr. Laffoon was paid a salary of $200,000 in 1996,
which reflects the importance to CRL of the development of quality products but
takes into account that Mr. Laffoon no longer has responsibility for the
majority of CRL's employees.
Mr. Weisbarth, who has been with CRL since 1980, primarily as controller,
was promoted to Executive Vice President and Treasurer in May, 1996. Mr.
Weisbarth is responsible for preparing the Company's budget and the consolidated
financial reports and statements, overseeing the Company's information systems
and purchasing, handling risk management matters, developing cost controls and
reviewing large capital expenditures. He also holds the office of Assistant
Secretary. Mr. Weisbarth receives compensation in the form of an annual salary.
Mr. Weisbarth was paid $150,000 in 1996.
Mr. Zarick, who has been with CRL since 1981, primarily as head of the
Human Resources Department, was promoted to Executive Vice President,
Administration in May 1996. At that time, he assumed certain of the
responsibilities of Mr. Laffoon, those being the CRL claim and administrative
teams and the Quality Assurance Department, which comprise a majority of CRL's
employees (see paragraph above concerning Mr. Laffoon). Mr. Zarick also oversees
the facilities management of CRL's home office and serves as CRL's Equal
Employment Opportunity officer directing policies and standards in employee
relations, evaluations and wage and salary administration. Mr. Zarick receives
compensation in the form of an annual salary. Mr. Zarick was paid $144,350 in
1996.
The Executive Committee
Fred Lick, Jr., Chairman
John F. Novatney, Jr.
E. Lawrence Hendershot, M.D.
10
<PAGE> 13
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lick, Mr. Novatney and Dr. Hendershot serve on the Executive Committee,
which serves as a compensation committee responsible for determining the
compensation of the Company's executive officers.
Mr. Lick is President and Chief Executive Officer of the Company and of its
principal operating subsidiary, Central Reserve Life Insurance Company. While
Mr. Lick serves on the Company's Executive Committee, he abstains in any action
affecting his own compensation as an executive officer. See "Certain
Relationships and Related Transactions" on page 6 with respect to transactions
between Mr. Lick and the Company.
During the first half of 1996, Mr. Novatney was a partner in the law firm
of Baker & Hostetler LLP, which serves as general counsel for the Company and
its subsidiaries.
PROPOSAL TWO: AMENDMENT OF THE AMENDED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED COMMON SHARES
The Board of Directors of the Company has recommended an amendment to
Article FOURTH, Section 1 of the Amended Articles of Incorporation to increase
by 5,000,000 the authorized number of Common Shares. The following is the full
text of Article FOURTH, Section 1 reflecting this amendment:
FOURTH: Section 1. Authorized Shares. The aggregate number of shares which
the corporation shall have authority to issue is 17,000,000 shares,
consisting of 2,000,000 Non-Voting Preferred Shares, without par value, and
15,000,000 Common Shares, without par value.
The Board of Directors has determined that the number of authorized Common
Shares should be increased to make additional shares available for issuance from
time to time for share splits, share dividends, equity financing, acquisitions,
and other general corporate purposes. The Board of Directors has no present
agreement, understanding or plan to issue any of the additional shares for which
approval is sought. If the amendment is approved by the shareholders, the Board
of Directors will have authority to issue the additional authorized Common
Shares without first seeking or obtaining further shareholder approval, except
as may be required by applicable law or the rules of any stock exchange on which
the Company's Common Shares may be listed, such as the Nasdaq Stock Market.
The additional Common Shares to be authorized would have rights identical
to the current outstanding Common Shares. Approval of the amendment by the
shareholders will not have any immediate effect on the rights of existing
shareholders. To the extent that the additional authorized Common Shares are
issued in the future, they would decrease the existing shareholders' relative
percentage equity ownership and, depending on the price at which the shares are
issued, could be dilutive to the existing shareholders. The holders of the
Company's Common Shares do not have preemptive rights, which means that the
shareholders do not have a prior right to purchase any newly issued shares in
order to preserve their proportionate ownership interest in the Company.
The affirmative vote of the holders of a majority of the outstanding Common
Shares is required to adopt Proposal Two.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR PROPOSAL
TWO.
11
<PAGE> 14
SELECTION OF INDEPENDENT AUDITORS
The Audit Committee selected KPMG Peat Marwick LLP to serve as the
independent auditors for the Company and its subsidiaries for the year 1996. A
representative of KPMG Peat Marwick LLP is expected to be present at the Annual
Meeting of Shareholders and will be available to answer questions.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 1998 Annual
Meeting of Shareholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Company at its principal executive offices not later than December 6, 1997. The
Company will not be required to include in its proxy statement or form of proxy
a shareholder proposal which is received after that date or which otherwise
fails to meet requirements for shareholder proposals established by regulations
of the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent (10%) of the Company's Common Shares, to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based on a review of the copies of such forms furnished to the Company and
written representation from the Company's executive officers and directors, the
Company believes that all forms were filed in a timely manner during 1996, with
the following exceptions: Messrs. Bruce, McKean, Novatney, Schulte and Smith
purchased 4,000; 2,500; 5,050; 1,000; and 2,500 Common Shares, respectively, in
a private placement of Common Shares made available to select general agents of
CRL and directors of the Company in December, 1996. The purchases were reported
to the SEC in January using Form 5; however, the filings were a number of days
late. Additionally, Mr. Bruce purchased 2,000 Common Shares in 1996 (not part of
the private placement) and inadvertently failed to file a Form 4. Mr. Bruce
reported the purchase in January, 1997, on a Form 5.
OTHER MATTERS
The solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation will be borne by the Company, including
the reasonable expenses of brokerage firms or other nominees for forwarding
proxy materials to beneficial owners. In addition to solicitation by mail,
proxies may be solicited by telephone, telegraph or personally. The Company has
engaged Regan & Associates, Inc., New York, New York, to assist it in the
solicitation of proxies at an estimated cost of $3,750. Proxies may also be
solicited by directors, officers and employees of the Company without additional
compensation.
If the enclosed form of proxy is executed and returned, the shares
represented thereby will be voted in accordance with any specification made by
the shareholder. In the absence of any such specification, proxies will be voted
FOR the election of the three (3) nominees as set forth under "Election of
Directors" on page 1.
The presence of any shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked
12
<PAGE> 15
at any time, insofar as it has not been exercised, (1) by a later-dated proxy;
(2) by giving written notice to the Company; or (3) in open meeting.
If any other matters shall properly come before the meeting, the persons
named in the proxy, or their substitutes, will vote thereon in accordance with
their judgment. The Board of Directors does not know of any other matters which
will be presented for action at the meeting.
By order of the Board of Directors.
/s/ Fred Lick, Jr.
-------------------------------------
Fred Lick, Jr.
Chairman of the Board,
President and Chief Executive Officer
Date: April 14, 1997
13
<PAGE> 16
DETACH CARD
- --------------------------------------------------------------------------------
P CENTRAL RESERVE LIFE CORPORATION
R PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
O FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 6, 1997.
X
Y The undersigned hereby constitutes and appoints Fred Lick, Jr., and Frank
W. Grimone, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the
Annual Meeting of Shareholders of Central Reserve Life Corporation to be held
at the Holiday Inn - Westlake, 1100 Crocker Road, Westlake, Ohio, on Tuesday,
May 6, 1997, and at any adjournment thereof, on all matters coming before
said meeting.
<TABLE>
<CAPTION>
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSAL 2.
<S> <C>
1. Election of Directors, Nominees: 2. Amendment of the Amended Articles
Robert K. Smith of Incorporation to increase by
David L. Rossio 5,000,000 the number of authorized
Thomas D. Schulte Common Shares
FOR WITHHELD FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ]
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
-------------------------------------------------------
</TABLE>
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 17
DETACH CARD
- --------------------------------------------------------------------------------
PROXY NO. SHARES
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
Dated ____________, 1997
-------------------------
Signature
-------------------------
Signature
-------------------------
Title
NOTE: Please sign as name
appears hereon. Joint
owners should each sign.
When signing as attorney,
executor, administrator,
trustee or guardian,
please give full title as
such.
