CENTRAL RESERVE LIFE CORP, 10-K/A, 1998-05-12

CENTRAL RESERVE LIFE CORP
10-K/A, 1998-05-12
LIFE INSURANCE

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------

FORM 10-K/A

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMM. FILE NO. 0-8483

CENTRAL RESERVE LIFE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Ohio
---------------------------
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
34-1017531
---------------------------------
I.R.S. EMPLOYER IDENTIFICATION NUMBER

<TABLE>
<S> <C>
17800 Royalton Road, Strongsville, Ohio 44136
------------------------------------------- ---------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

(440) 572-2400
------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Shares, without par value
-------------------------------------
(TITLE OF CLASS)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]

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

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant.

$27,268,618 computed based on the closing price of the
Common Shares on March 26, 1998.

The number of Common Shares, without par value, outstanding as of March 26,
1998: 4,195,172.
- --------------------------------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE:

None
- --------------------------------------------------------------------------------
<PAGE> 2

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

<TABLE>
<S> <C>
CENTRAL RESERVE LIFE CORPORATION

By: /s/ FRED LICK, JR.
-----------------------------------------------------
Fred Lick, Jr., President
</TABLE>

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
DATE SIGNATURE AND CAPACITY
---- ----------------------
<S> <C>

May 11, 1998 By: /s/ FRED LICK, JR.
-----------------------------------------------------
Fred Lick, Jr., Chairman of the Board of Directors
President, and Principal Executive Officer

May 11, 1998 By: /s/ FRANK W. GRIMONE
-----------------------------------------------------
Frank W. Grimone, Senior Executive Vice President
and Principal Financial and Accounting Officer

May 11, 1998 By: /s/ ANDREW A. BOEMI
-----------------------------------------------------
Andrew A. Boemi, Director

May 11, 1998 By: /s/ MICHAEL A. CAVATAIO
-----------------------------------------------------
Michael A. Cavataio, Director

May 11, 1998 By:
-----------------------------------------------------
John L. McKean, Director

May 11, 1998 By: /s/ JOHN F. NOVATNEY, JR.
-----------------------------------------------------
John F. Novatney, Director

May 11, 1998 By: /s/ VAL RAJIC
-----------------------------------------------------
Val Rajic, Director

May 11, 1998 By: /s/ DAVID L. ROSSIO
-----------------------------------------------------
David L. Rossio, Director

May 11, 1998 By: /s/ THOMAS D. SCHULTE
-----------------------------------------------------
Thomas D. Schulte, Director

May 11, 1998 By: /s/ ROBERT E. BRUCE
-----------------------------------------------------
Robert E. Bruce, Director
</TABLE>

1
<PAGE> 3

<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO
REGISTRATION OR FORM OR EXHIBIT
EXHIBITS FILE NUMBER REPORT DATE NUMBER
-------- --------------- ------- ---------- -------
<C> <C> <S> <C> <C> <C> <C>
(2) Plan of acquisition, reorganization,
arrangement, liquidation, or succession
(1) Stock Purchase Agreement, dated as of 0-8483 8-K Dec. 1997 2.1
November 26, 1997, by and between
Strategic Partners and Central Reserve.
(2) Amendment No. 1 to Stock Purchase 0-8483 8-K Dec. 1997 2.1
Agreement, dated as of December 16,
1997, by and between Strategic Partners
and Central Reserve.
(3) Amended and Restated Stock Purchase 0-8483 10-K Mar. 1998 2.2
Agreement, dated March 30, 1998, by and
among Strategic Partners, Insurance
Partners, L.P., Insurance Partners
Offshore (Bermuda), L.P. and Central
Reserve.
(3) Articles of Incorporation and By-laws
(1) Amended Articles of Incorporation 0-8483 10-K Mar. 1992 3(a)
(2) Code of Regulations 0-8483 10-K Mar. 1992 3(b)
(3) Amended Articles of Incorporation 0-8483 10-K Mar. 1998 3(c)
(10) Material Contracts
(1) Incentive Stock Option Plan 0-8483 10-K Mar. 1992 10(b)
(2) Agreement of Lease 0-8483 10-K Mar. 1992 10(c)
(3) Mortgage Note 0-8483 10-K Mar. 1992 10(d)
(4) Mortgage 0-8483 10-K Mar. 1992 10(e)
(5) Employment Contract 0-8483 10-K Mar. 1993 10(a)
(6) Credit Agreement, dated as of December 0-8483 8-K Dec. 1997 10.1
16, 1997, by and between Central
Reserve and Strategic Partners.
(7) Pledge Agreement, dated as of December 0-8483 8-K Dec. 1997 10.2
16, 1997, by and between Central
Reserve and Strategic Partners
(8) Promissory Note, dated as of December 0-8483 8-K Dec. 1997 10.3
16, 1997, by Central Reserve in favor
of Strategic Partners.
(9) Warrant to purchase Common Shares, 0-8483 8-K Dec. 1997 10.4
dated December 16, 1997, by Central
Reserve in favor of Peter W. Nauert.
(10) Warrant to purchase Common Shares, 0-8483 8-K Dec. 1997 10.5
dated December 16, 1997, by Central
Reserve in favor of the Turkey Vulture
Fund XIII, Ltd.
(11) Employment Agreement, dated December 0-8483 8-K Dec. 1997 10.6
15, 1997, by and between Fred Lick, Jr.
and Central Reserve
(12) Employment Agreement, dated December 0-8483 8-K Dec. 1997 10.7
15, 1997, by and between Fred Lick, Jr.
and CRL.
(13) Employment Agreement, dated December 0-8483 8-K Dec. 1997 10.8
16, 1997, by and between Frank Grimone
and Central Reserve and CRL.
</TABLE>

2
<PAGE> 4

<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO
REGISTRATION OR FORM OR EXHIBIT
EXHIBITS FILE NUMBER REPORT DATE NUMBER
-------- --------------- ------- ---------- -------
<C> <C> <S> <C> <C> <C> <C>
(14) The Central Reserve Life Insurance 0-8483 8-K Dec. 1997 10.9
Company Severance Benefit Plan.
(15) Reinsurance Agreement between Central 0-8483 10-K Mar. 1998 10.10
Reserve Life Insurance Company and
Reassurance Company of Hannover.
(16) Amendment No. 1 to Credit Agreement, 0-8483 10-K Mar. 1998 10.11
dated as of March 25, 1998 by and
between Central Reserve and Strategic
Partners.
(17) Administrative Services Agreement, *
dated March 25, 1998 by and between
Mutual Management Company, Inc. and
Central Reserve Life Insurance Company.
(18) Amendment No. 1 to Warrant to purchase 0-8483 10-K Mar. 1998 10.13
Common Shares, dated March 30, 1998 by
Central Reserve in favor of Peter
Nauert.
(19) Amendment No. 1 to Warrant to purchase 0-8483 10-K Mar. 1998 10.14
Common Shares, dated March 30, 1998 by
Central Reserve in favor of the Turkey
Vulture Fund XIII, Ltd.
(16) Letter re: change in certifying accountant
(1) Letter regarding change in certifying 0-8483 10-K Mar. 1993 16
accountant.
(21) Subsidiaries of the registrant
(1) Subsidiaries 0-8483 10-K Mar. 1992 21
(27) Financial Data Schedule
(1) Financial Data Schedule 0-8483 10-K Mar. 1998 27
(99) Additional Exhibits
(1) Intent and Release 0-8483 8-K Oct. 1997 99.1
(2) Press Release dated November 13, 1997 0-8483 8-K Nov. 1997 99
(3) Letter from Strategic Partners to 0-8483 8-K Dec. 1997 99.1
Central Reserve outlining the terms for
the Interim Loan.
(4) Press Release dated December 2, 1997 0-8483 8-K Dec. 1997 99.2
(5) Form of Meeting Voting Agreement, dated 0-8483 8-K Dec. 1997 99.1
December 16, 1997.
(6) Press Release dated December 17, 1997. 0-8483 8-K Dec. 1997 99.2
</TABLE>
* Filed herewith.
3

<PAGE> 1
Exhibit 10(17)

- --------------------------------------------------------------------------------
Certain portions of this Exhibit 10(17) have been omitted pursuant to a request
for confidential treatment under Rule 24b-2. The omitted portions have been
filed separately with the Securities and Exchange Commission. The omitted
portions of Exhibit 10(17) are marked with an asterisk [*].
- --------------------------------------------------------------------------------

ADMINISTRATIVE SERVICES AGREEMENT
REGARDING INFORMATION SERVICES

This Administrative Services Agreement regarding Information Services (the
"Agreement") is between Mutual Management Company, Inc., an Ohio corporation and
subsidiary of Medical Mutual of Ohio ("Administrator"), and Central Reserve Life
Insurance Company, an Ohio corporation ("Central Reserve").

BACKGROUND
----------

These recitals are representations of fact that form the basis for and are an
integral part of this Agreement.

A. Central Reserve operates as a life and health insurance company. For purposes
of this Agreement, all lines of business shall be referred to as the "Business".

B. Central Reserve desires the assistance of Administrator to provide
administrative support services for the Business as described herein, and
Administrator desires to provide such services for the compensation stated
herein.

C. Administrator possesses experience with regard to the management of
information systems and the capacity as well as the expertise to operate
computer systems for the Business.

D. The parties desire to reduce their agreements and understandings to writing.

PROVISIONS
----------

In consideration of the mutual promises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

I. TERM.

A. The initial term of this Agreement (the "Initial Term") shall begin on
March 30, 1998 (the "Effective Date") and end on March 31, 2003, unless
terminated earlier pursuant to Section I.B. After the Initial Term, this
Agreement shall automatically extend for successive periods of five (5) years
unless a party gives the other party written notice of its intention not to
renew, one (1) year before renewal (each a "Renewal Term.")

<PAGE> 2

B. TERMINATION. This Agreement shall terminate prior to the expiration of
the Initial Term or any Renewal Term hereof if Central Reserve and Administrator
mutually agree to do so or upon notice of termination pursuant to paragraphs 1
or 2 below:

1. ADMINISTRATOR'S OPTIONS:

(a) Administrator shall have the right to terminate this
Agreement upon sixty (60) days' written notice if Central Reserve fails to pay
the compensation stated in Section V (if the breach is cured within the sixty
(60) day period, then no termination shall occur);

(b) At any time within [*] after the earlier to occur of (1) a
Change in Control of Central Reserve or (2) receipt of written notice of a
proposed Change in Control of Central Reserve, Administrator shall have the
right to terminate this Agreement upon [*] written notice of termination to
Central Reserve. As used herein, "Change in Control of Central Reserve" shall
mean the transfer of a majority of the stock of Central Reserve's parent
company, Central Reserve Life Corporation ("CRLC") to any one entity through one
transaction or a series of related transactions after September 1, 1998;

(c) Administrator shall have the right to terminate with thirty
(30) days written notice if the Ohio Department of Insurance revokes, suspends
or terminates Central Reserve's license to operate as a health insurance company
in Ohio.

2. CENTRAL RESERVE'S OPTIONS:

(a) Central Reserve shall have the option to terminate if
Administrator commits a material breach of the Agreement and fails to cure the
breach within sixty (60) days after Central Reserve notifies Administrator of
such breach (if the breach is cured within the sixty (60) day period, then no
termination shall occur);

(b) At any time within [*] after a Change in Control of Central
Reserve, Central Reserve shall have the right to terminate this Agreement upon
one (1) year prior written notice of termination to Administrator, or, at any
time within [*] after a change in control of Administrator or Medical Mutual of
Ohio.

(c) Central Reserve shall have the right to terminate this
Agreement after one year without cause, subject to the following termination fee
schedule:

(1) If Central Reserve terminates between April 1, 1999
through March 31, 2000, Central Reserve shall pay to Administrator [*] if annual
Premium and Premium Equivalent (as defined in Section V) is less than [*];
Central Reserve shall pay

<PAGE> 3

[*] if annual Premium and Premium Equivalent are between [*] and [*]; Central
Reserve shall pay [*] if annual Premium and Premium Equivalent are between [*]
and [*]; Central Reserve shall pay [*] if annual Premium and Premium Equivalent
equal or exceed [*];

(2) If Central Reserve terminates between April 1, 2000
through March 31, 2001, Central Reserve shall pay to Administrator [*] if annual
Premium and Premium Equivalent is less than [*]; Central Reserve shall pay [*]
if annual Premium and Premium Equivalent are between [*] and [*]; Central
Reserve shall pay [*] if annual Premium and Premium Equivalent are between [*]
and [*]; Central Reserve shall pay [*] if annual Premium and Premium Equivalent
equal or exceed [*];

(3) If Central Reserve terminates between April 1, 2001
and March 31, 2002 Central Reserve shall pay to Administrator [*] if annual
Premium and Premium Equivalent is less than [*]; Central Reserve shall pay [*]
if annual Premium and Premium Equivalent are between [*] and [*]; Central
Reserve shall pay [*] if annual Premium and Premium Equivalent are between [*]
and [*]; Central Reserve shall pay [*] if annual Premium and Premium Equivalent
equal or exceed [*].

3. CENTRAL RESERVE'S RIGHTS UPON TERMINATION.

The provisions of this Section shall survive the termination of
this Agreement.

a. Upon providing or receiving notice of termination of this
Agreement for any reason, Administrator shall cooperate fully with Central
Reserve in effecting a smooth transition of the Administrator's responsibilities
under this Agreement so that Central Reserve can operate independently as of the
effective date of termination. As soon as reasonably practical during the notice
period, and continuing after the effective date of termination as necessary,
Administrator shall provide to Central Reserve any and all information, data,
files and reports that are necessary to enable Central Reserve to operate the
Business independently of Administrator, including but not limited to the
original records and data relating to the operation of Central Reserve's
Business, including but not limited to all historical data, books of account,
enrollment records, group service records, provider records, patient records and
claims information. Administrator shall also provide in machine readable form
all of the above described records and data, in a format reasonably acceptable
to Central Reserve.

b. Upon written notice from Central Reserve, Administrator
shall, at the written direction of Central Reserve, either transfer to Central
Reserve or its designee or destroy (and

<PAGE> 4

certify as to such destruction) all records and information relating solely to
the Business, including all written agreements, customer lists, correspondence,
documents, data, files, client premium data and rates, brochures, pamphlets, and
promotional materials after the regulatory period for record retention has
passed. Central Reserve agrees to allow Administrator access to all such
returned materials in the event such access is requested by Administrator for
any reasonable and legitimate purpose.

4. ADMINISTRATOR'S RIGHTS UPON TERMINATION

The provisions of this section shall survive the termination of
this Agreement. Upon written notice from Administrator, Central Reserve, shall,
at the written direction of Administrator either transfer to Administrator or
its designee or destroy (and certify as to such destruction) all records and
information relating solely to the Administrator's business and information
systems, including all written agreements, correspondence, documents, data and
files after the regulatory period for record retention has passed. Administrator
agrees to allow Central Reserve access to all such returned materials in the
event such access is requested by Central Reserve for any reasonable and
legitimate purpose.

II. [*]
4

<PAGE> 5

C. MAINTENANCE OF RECORDS. Administrator shall maintain records of all
Central Reserve claims paid or denied in sufficient detail so that adequate
financial statements and regulatory reports can be prepared for Central Reserve
and for Central Reserve management purposes. The nature and scope of the
information shall be determined and agreed upon by both parties. Administrator
will make available the reports presently available to Central Reserve through
its systems and assist Central Reserve in the development and publication of
additional reports based upon the capabilities of Administrator's systems.

D. ADMINISTRATOR IS NOT A GUARANTOR. The parties acknowledge that
Administrator is functioning only as a third party administrator under this
Agreement. The parties further acknowledge that Administrator is not a surety,
guarantor or in any way liable for any of Central Reserve's debts, liabilities,
benefits payable or other obligations.

E. SUPERVISION. The Administrator shall perform the Services under the
direction of a Central Reserve employee designated in writing by Central
Reserve.

III. SPECIAL COVENANTS

A. PERFORMANCE STANDARDS. Administrator shall perform each and every one
of its duties under this Agreement (1) in accordance with all federal and state
laws and regulations; (2) in such a way as to meet or exceed contractual
standards set forth in Central Reserve's and/or Administrator's contracts with
health care providers and practitioners, employers and other groups, and members
and other beneficiaries (including meeting the highest level of performance set
forth in any performance standards.) In addition, in the performance of its
duties under this Agreement, Administrator shall preserve, maintain, enhance and
promote Central Reserve's identity and reputation.

B. AUDITS.

1. Administrator shall provide Central Reserve or its designee with
access to its business offices during normal business hours, upon receipt from
Central Reserve of at least seven (7) days' advance written notice.
Administrator shall provide Central Reserve or its designee with complete access
to its books and records relating to Administrator's performance under this
Agreement and permit Central Reserve or its designee to make such copies as
Central Reserve or its designee deem appropriate. Administrator shall cooperate
fully with the audit and shall provide Central Reserve or its designee with an
opportunity to interview

<PAGE> 6

Administrator's personnel who are providing or supervising the provision of
Services under this Agreement. Administrator shall also cooperate fully with any
audit or investigation required or requested by any governmental agency with
jurisdiction over Central Reserve's Business.

2. Central Reserve shall provide Administrator or its designee with
access to its business offices during normal business hours, upon receipt from
Administrator of at least seven (7) days' advance written notice. Central
Reserve shall provide Administrator or its designee with complete access to its
books and records relating to Central Reserve's performance under this Agreement
and permit Administrator or its designee to make such copies as Administrator or
its designee deem appropriate. Central Reserve shall cooperate fully with the
audit and shall provide Administrator or its designee with an opportunity to
interview Central Reserve's personnel who are providing or supervising the
provision of Services under this Agreement. Central Reserve shall also cooperate
fully with any audit required or requested by any governmental agency with
jurisdiction over Administrator's businesses.

C. YEAR 2000. Administrator warrants and represents that its information
systems that Central Reserve will have access to, except for certain peripheral
systems will be fully compliant with the requirements of functioning in the Year
2000 and beyond by December 31, 1998 and by December 31, 1999 all systems will
be Year 2000 compliant.

D. LICENSES. Administrator hereby represents and warrants to Central
Reserve that it has secured all licenses, permits, and other authorizations
required under the laws of the state of Ohio and any other state or federal laws
that may apply, from all governmental authorities necessary to permit
Administrator and its employees and agents, including any subcontractors, to
perform its obligations under this Agreement.

IV. INDEMNIFICATION.

A. INDEMNIFICATION OF ADMINISTRATOR. Central Reserve agrees to indemnify
and hold harmless Administrator and its affiliates and their respective
officers, directors, employees and agents, and any persons controlling
Administrator or any of its affiliates (Administrator and each such other person
or entity being referred to herein as an "Administrator Indemnified Person"),
from and against all claims, demands, suits, liabilities, losses or damages (or
actions in respect thereof) or other expenses that are related to or arise out
of (1) any acts or omissions (including any untrue statement made or any
statements not made) by Central Reserve or its affiliates, or their respective
officers, directors, employees or agents, or (2) acts or omissions by an
Administrator Indemnified Person with the consent or in conformity with the
directions given by the person designated in writing by Central Reserve pursuant
to subsection II.D. Central Reserve will not be responsible, however, for any
losses, claims, damages, liabilities or expenses pursuant to clause (2) of the
preceding sentence which are finally judicially determined

<PAGE> 7

to have resulted primarily from such Administrator Indemnified Person's gross
negligence or willful misconduct. In addition, Central Reserve agrees to
reimburse each Administrator Indemnified Person for reasonable out-of-pocket
expenses (including fees and expenses of counsel) as they are incurred by such
Administrator Indemnified Person in connection with investigating, preparing,
conducting or defending any such action or claim, whether or not in connection
with litigation in which any Administrator Indemnified Person is a named party,
provided that (1) it reasonably appears that such Administrator Indemnified
Person is entitled to indemnification and (2) Administrator provides an
unconditional undertaking to repay amounts advanced in the event that it is
finally determined that the Administrator Indemnified Person is not entitled to
indemnification hereunder. In addition, if any Administrator Indemnified Person
is required to pursue a claim against Central Reserve in connection with
enforcing the rights of such Indemnified Person under this Agreement, if such
claim is successful, then Central Reserve shall also pay reasonable
out-of-pocket expenses (including fees and expenses of counsel) as they are
incurred by such Administrator Indemnified Person in connection with
investigating, preparing, conducting or defending any such action or claim to
enforce the rights of the Administrator Indemnified Person.

B. INDEMNIFICATION OF CENTRAL RESERVE. Administrator agrees to indemnify
and hold harmless Central Reserve and its affiliates and their respective
officers, directors, employees and agents, and any persons controlling Central
Reserve or any of its affiliates (Central Reserve and each such other person or
entity being referred to herein as a "Central Reserve Indemnified Person"), from
and against all claims, liabilities, losses or damages (or actions in respect
thereof) or other expenses that are related to or arise out of (1) any acts or
omissions (including any untrue statement made or any statements not made) by
Administrator or its affiliates, or their respective officers, directors,
employees or agents in connection with Administrator's or any subcontractor's
activities under this Agreement (including but not limited to, claim or
infringement of any patent, copyright, trade secret or other proprietary right)
or (2) acts or omissions by a Central Reserve Indemnified Person with the
consent or in conformity with acts or omissions of Administrator or its
affiliates, or their respective officers, directors, employees or agents.
Administrator will not be responsible, however, for any losses, claims, damages,
liabilities or expenses pursuant to clause (2) of the preceding sentence which
are finally judicially determined to have resulted primarily from such Central
Reserve Indemnified Person's gross negligence or willful misconduct. In
addition, Administrator agrees to reimburse each Central Reserve Indemnified
Person for reasonable out-of-pocket expenses (including fees and expenses of
counsel) as they are incurred by such Central Reserve Indemnified Person in
connection with investigating, preparing, conducting or defending any such
action or claim, whether or not in connection with litigation in which any
Central Reserve Indemnified Person is a named party, provided that (1) it
reasonably appears that such Central Reserve Indemnified Person is entitled to
indemnification and (2) Central Reserve provides an unconditional undertaking to
repay amounts advanced in the event that it is finally determined that the
Central Reserve Indemnified

<PAGE> 8

Person is not entitled to indemnification hereunder. In addition, if any Central
Reserve Indemnified Person is required to pursue a claim against Administrator
in connection with enforcing the rights of such Central Reserve Indemnified
Person under this Agreement, if such claim is successful, then Administrator
shall also pay reasonable out-of-pocket expenses (including fees and expenses of
counsel) as they are incurred by such Central Reserve Indemnified Person in
connection with investigating, preparing, conducting or defending any such
action or claim to enforce the rights of the Central Reserve Indemnified Person.

C. DEFENSE OF CLAIMS.

1. If any party entitled to be indemnified under this Agreement (an
"Indemnitee") receives notice of assertion or commencement of any claim, action
or proceeding made or brought by any person or entity who or which is not a
party to this Agreement or an affiliate of a party to this Agreement (a "Third
Party Claim") against such Indemnitee with respect to which any person or entity
required to provide indemnification under this Agreement (an "Indemnifying
Party") is obligated to provide indemnification under this Agreement, the
Indemnitee will give such Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than (30) calendar days after receipt of
such Third Party Claim. Such notice will describe the Third Party Claim in
reasonable detail, will include copies of all material written evidence thereof
and will indicate the estimated amount, if reasonably practicable, of the
indemnifiable loss that has been or may be sustained by the Indemnitee. The
Indemnifying Party will have the right to participate in, or, by giving written
notice to the Indemnitee, to assume, the defense of any Third Party Claim at
such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel (reasonably satisfactory to the Indemnitee), and the Indemnitee will
cooperate in good faith in such defense.

2. If, within (ten) calendar days after giving notice of a Third
Party Claim to an Indemnifying Party, an Indemnitee receives written notice from
the Indemnifying Party that the Indemnifying Party has elected to assume the
defense of such Third Party Claim, the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within ten calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps or
if the Indemnifying Party has not undertaken fully to indemnify the Indemnitee
in respect of all indemnifiable losses relating to the matter, the Indemnitee
may assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith. Without
the prior written consent of the Indemnitee, the Indemnifying Party will not
enter into any settlement of any Third Party Claim which would lead to liability
or create any financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder. If

<PAGE> 9

a firm offer is made to settle a Third Party Claim without leading to liability
or the creation of a financial or other obligation on the part of the Indemnitee
for which the Indemnitee is not entitled to indemnification hereunder and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party will give written notice to the Indemnitee to that effect. If the
Indemnitee fails to consent to such firm offer within ten calendar days after
its receipt of such notice, the Indemnitee may continue to contest or defend
such Third Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will not exceed the amount of
such settlement offer, plus costs and expenses paid or incurred by the
Indemnitee through the end of such ten calendar day period.

3. A failure to give timely notice or to include any specified
information in any notice will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a results of such failure, any
party which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was otherwise
damaged as a result of such failure.

4. The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an indemnifiable loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee.

D. SURVIVAL OF OBLIGATIONS. The provisions of this Section shall be in
addition to any liability any party may have to any Indemnified Person at common
law or otherwise, and shall survive the termination of this Agreement for any
reason.

V. COMPENSATION

A. INTERIM PAYMENT. For the period prior to March 30, 1998, for the
management consulting services provided by Administrator, Central Reserve shall
pay [*] to Administrator upon receipt of invoice.

B. COMPENSATION FOR ADMINISTRATIVE SERVICE

1. For the period April 1, 1998 through March 31, 2000, Central
Reserve shall pay Administrator a total of [*] percent [*] of Central
Reserve's Premium and Premium Equivalent (as defined below).

2. For the period April 1, 1998 through September 30, 1999, Central
Reserve shall

<PAGE> 10

receive an administrative credit in the amount of [*] per month, which
may adjusted by agreement of the parties.

3. Beginning April 1, 2000, Central Reserve shall pay Administrator
[*] of Central Reserve's Premium and Premium Equivalent until such Premium and
Premium Equivalent total [*], annualized, as determined on a monthly basis. So
long as annualized Premiums and Premium Equivalent exceed [*], Central Reserve
shall pay Administrator [*] of Premium and Premium Equivalent.

4. For purposes of compensation calculations under this Agreement,
"Premium and Premium Equivalent" shall mean periodic health insurance premium as
collected from Central Reserve policyholders excluding policy fees, association
fees or dues or similar charges. Central Reserve will provide notice to
Administrator of the amount of cash collected in the prior month for Premium and
Premium Equivalent billed, within five (5) business days of the end of the prior
month. Payment will be due on the last business day of each month. If and when
Central Reserve modifies its accounting methods to accommodate such calculation,
payment will be made based on Premium and Premium Equivalent billed, adjusted
for prior month non-payments.

C. TIMING OF PAYMENT. Central Reserve's payment obligations shall begin on
the Effective Date of this Agreement and continue until the calendar month
during which this Agreement is terminated. Payment shall be made on the last day
of the month following the month during which services are rendered under this
Agreement.

VI. SUBCONTRACTING.

Central Reserve understands that Administrator may subcontract for the
Services with a parent, affiliate or subsidiary of the Administrator or with a
another outside party, provided that no more than [*] of the total Services
under this Agreement are outsourced to an outside party. Central Reserve shall
consent to such subcontracting arrangement; provided, that the subcontractor
agrees to be bound by the terms of this Agreement; that Central Reserve is named
as a third party beneficiary with respect to the subcontract; and that
Administrator is not relieved of liability by virtue of subcontract.

VII. RUNOUT.

The parties acknowledge that this Agreement includes Administrator's
agreement to provide all Services under this Agreement relating to claims for
Services rendered prior to the termination of this Agreement for a period not to
exceed six (6) months.

<PAGE> 11

VIII. CONFIDENTIALITY OF RECORDS.

The provisions of this Section shall survive the termination of this
Agreement.

A. CENTRAL RESERVE'S PROPRIETARY INFORMATION AND MATERIALS. All business
and medical records relating to the operation of Central Reserve, including but
not limited to all historical data, books of account, agent agreements,
enrollment records, general administrative records, group service records,
provider records, fee schedules, patient records and claims information shall be
and remain the sole property of Central Reserve. Administrator agrees to use
such business and medical records solely for the purposes of performing its
duties under this Agreement and Administrator covenants and agrees that it will
utilize information it receives under this Agreement regarding Central Reserve's
agents and policyholders only for the purpose of performing its duties under
this Agreement. Administrator will take such steps as are necessary to prevent
information regarding its agents and policyholders from becoming available for
any use by its sales personnel or its agents or brokers, unless specifically
agreed to in writing by Central Reserve.

B. ADMINISTRATOR CONFIDENTIALITY DUTIES. Administrator will maintain the
confidentiality of any and all records of Central Reserve, including without
limitation, all information, patient records and data concerning Central
Reserve's products and its enrollees, and protect such records from unauthorized
disclosure in accordance with applicable federal, state and local laws, and
medical ethical standards.

C. ADMINISTRATOR'S PROPRIETARY INFORMATION AND MATERIALS. All information
systems and computer software utilized or developed by Administrator to provide
Services to Central Reserve pursuant to this Agreement shall remain the sole
property of Administrator. Administrator represents and warrants to Central
Reserve that the performance of its obligations under this Agreement will not
infringe on any patents, copyrights, trade secrets or other proprietary rights
of third parties and that Administrator has received no claims or charges of any
such infringement. Administrator further represents and warrants to Central
Reserve that it has full authority, including any required grant of license or
other rights, to use all data, documentation, information, hardware and software
that will be furnished to Central Reserve in connection with this Agreement.
Nothing herein shall be construed to grant Central Reserve a license to use any
such information systems, or software, outside the scope of this Agreement.

D. CENTRAL RESERVE CONFIDENTIALITY DUTIES Central Reserve acknowledges
that Administrator and Medical Mutual of Ohio have a strong interest in
preserving the confidentiality of all trade secret information, including but
not limited to provider contracting arrangements and discount information. The
confidentiality policy is essential to meet the needs of its customers and is in
accordance with responsible business practices. Therefore, Central Reserve
agrees

<PAGE> 12

to keep confidential all information and material relating to the business of
Administrator and Medical Mutual of Ohio including but not limited to, claims
system information, computer systems information, and provider agreement and
discount information, either during or after this Agreement. Central Reserve
covenants and agrees that it will utilize information it receives under this
Agreement only for the purpose of performing its duties under this Agreement.

IX. INSURANCE.

A. CENTRAL RESERVE'S INSURANCE. During the term of this Agreement, Central
Reserve shall maintain, at its expense, errors and omissions insurance coverage,
including stop-loss insurance in scope and amount customary and reasonable for
the Business. Such insurance policies relating hereto shall name Administrator
as an additional insured. Certificates of insurance and such other supporting
documentation and information as Administrator may reasonably request shall be
provided to Administrator upon request.

B. ADMINISTRATOR'S INSURANCE. During the term of this Agreement,
Administrator shall maintain, at its expense, errors and omissions insurance
coverage, and fidelity bonds, in scope and amount customary and reasonable for
the conduct of its activities under this Agreement. Such insurance policies and
bonds shall name Central Reserve as an additional insured. Certificates of
insurance and such other supporting documentation and information as Central
Reserve may reasonably request shall be provided by Central Reserve upon
request.

X. NOTICE OF DEVELOPMENTS.

Both parties shall give the other prompt written notice of any material
adverse development affecting the Business.

XI. COMPLIANCE WITH LAW.

Both parties shall comply with all applicable federal, state, and local
laws in connection with the performance of their respective duties under this
Agreement. During the term of this Agreement, Administrator will maintain all
licenses, franchises, permits, approvals, and other authorizations necessary for
it to provide the Services required by it hereunder.

XII. FURTHER ASSURANCES.

The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement. Central
Reserve agrees to cooperate with and assist Administrator and any

<PAGE> 13

employees or agents of Administrator necessary to allow Administrator to fulfill
its obligations under this Agreement.

XIII. SUCCESSION, ASSIGNMENT.

This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his, her or its rights,
interest, or obligations hereunder, provided that Administrator may assign its
rights, interest and obligations hereunder to any affiliate controlled by or
that controls Administrator with the appropriate licenses to perform its
obligations under this Agreement and Central Reserve may assign its rights,
interest and obligations hereunder in connection with a Change in Control,
subject to Administrator's right to terminate this Agreement pursuant to Section
II.B.

XIV. NOTICES.

Any notice or other communication required or which may be given hereunder
shall be in writing and shall be delivered personally, or sent by facsimile, or
by certified, registered or express mail, postage prepaid, and shall be deemed
given when so delivered personally, sent by facsimile, or if mailed, two (2)
days after the date of mailing, to the address set forth below or to such other
address as the parties may designate by notice given pursuant to this Section:

If to Administrator, to:

MUTUAL MANAGEMENT COMPANY, INC.
1220 Huron, 10th Floor
Cleveland, OH 44115
Attention: Edward J. Hartzell
Telephone: (216) 687-7708
Facsimile: (216) 687-6690

with a copy to:

John S. Dorrell, Esq., General Counsel
MEDICAL MUTUAL OF OHIO
2060 East Ninth Street
Cleveland, OH 44115
Telephone: (216) 687-6264
Facsimile: (216) 687-2623

<PAGE> 14

if to Central Reserve, to:

CENTRAL RESERVE LIFE INSURANCE COMPANY
17800 Royalton Road
Strongsville, OH 44136
Attention: President
Telephone: (440) 572-2400
Facsimile: (440) 572-4501

with a copy to:

Billy B. Hill, Jr. Esq.
1750 E. Golf Road, Suite 210
Schaumburg, Illinois 60173

XV. DISPUTE RESOLUTION.

Except for disputes with respect to matters which may be cause for
termination pursuant to Section I or with respect to the indemnification
obligations of the parties hereunder, the parties agree to resolve all disputes
relating to matters arising under this Agreement pursuant to the dispute
resolution mechanism set forth herein.

A. MEDIATION. Either party may, upon written notice to the other, submit
any dispute subject to this Section to mediation using the Alternative Dispute
Resolution Service of the NHLA/AAHA or any other mutually agreeable mediation
service.

B. EFFECT ON AGREEMENT. During any mediation pursuant to this Section,
this Agreement shall remain in full force and effect.

C. FURTHER ACTION. If mediation is unsuccessful then the parties may
pursue their available remedies.

XVI. ENTIRE AGREEMENT.

This Agreement contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.

XVII. WAIVERS AND AMENDMENTS.

This Agreement may be amended, modified, superseded, canceled, renewed
or extended,

<PAGE> 15

and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, the party waiving compliance.
No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any right, power or privilege hereunder, nor any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which any party may otherwise have at law or
in equity.

XVIII. GOVERNING LAW.

This Agreement shall be governed and construed in accordance with the laws
of the State of Ohio applicable to agreements made and to be performed entirely
within such State, without giving effect to the principles of conflicts of law
thereof.

XIX. RELATIONSHIP BETWEEN THE PARTIES.

A. CONDUCT OF BUSINESSES. Central Reserve and Administrator agree that
each of them are independent companies and that they are each responsible for
the conduct of their own Businesses. Neither party has any obligation with
respect to employees of the other, except as stated in Section I. Administrator
shall be solely responsible for all workers' compensation, unemployment
compensation, withholding and employment taxes and any other taxes due to
federal, state or local governments or agencies on account of itself, its
employees, representatives, or agents or by any federal, state or local
government or agency on account of wages, industrial accidents or workers'
compensation claims, withholding and employment taxes or any other actions
arising out of Administrator's relationship with its employees, representatives
or agents. Similarly, Central Reserve shall be solely responsible for all
workers' compensation, unemployment compensation, withholding and employment
taxes and any other taxes due to federal, state or local governments or agencies
on account if itself, its employees, representatives or agents or by any
federal, state or local government or agency on account of wages, industrial
accidents or workers' compensation claims, withholding and employment taxes or
any other actions arising out of Central Reserve's relationship with its
employees, representatives or agents.

B. INDEPENDENT BUSINESS. Central Reserve and Administrator further agree
that Central Reserve and Administrator are separate entities and nothing in this
Agreement affects the separate identify of each party. This Agreement does not
create a partnership, nor is it intended to limit the parties' conduct of their
respective Businesses.

<PAGE> 16

C. LIMITED AGENCY. Central Reserve and Administrator further agree that
Administrator shall be the agent of Central Reserve solely for purposes of
performing its duties under this Agreement. Administrator acknowledges the
limited nature of its agency authority and agrees to abide by the Central
Reserve's coverage documents, policies and procedures, as well as the
limitations set forth in this Agreement.

XX. COUNTERPARTS.

This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.

XXI. HEADINGS.

The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the interpretation of this Agreement.

XXII. FAIR MEANING.

This Agreement shall be construed according to its fair meaning and as if
prepared jointly by Central Reserve and Administrator.

XXIII. FORCE MAJEURE.

The parties understand that performance by either party may be interrupted
or delayed by an occurrence outside of that party's control including, but not
limited to, the following: Act of God, war, riot sovereign conduct or the
conduct of third parties. Administrator shall take such reasonable actions as is
prudent to protect itself and Central Reserve against such occurrences,
including but not limited to, assuring back-up copies of data, and back-up
ability with respect to all Services performed under this Agreement within two
(2) days. Subject to the foregoing, if such acts occur, the affected party will
be excused from complete performance for as long as it is reasonably necessary,
so long as such affected party uses its best efforts to perform.

XIV. PRIVACY. Administrator and Central Reserve agree not to disclose any of the
terms of this Agreement to any person without written permission of the other
party, except pursuant to the requirements of state or federal law.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the dates

<PAGE> 17

indicated below.
<TABLE>
<CAPTION>
CENTRAL RESERVE LIFE MUTUAL MANAGEMENT COMPANY, INC.
INSURANCE COMPANY
<S> <C>
By:
------------------------------------------
By:
------------------------------------------

Printed Name: Printed Name: Edward J. Hartzell

Title: Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
--------------------------------------- ---------------------------------------------

Date:
----------------------------------------
Date:
----------------------------------------

By:
------------------------------------------

Printed Name: Robert N. Trombly

Title: CHAIRMAN
---------------------------------------------

Date:
----------------------------------------

</TABLE>

18
<PAGE> 18

NETWORK ADDENDUM TO ADMINISTRATIVE SERVICES AGREEMENT
REGARDING INFORMATION SERVICES

This Network Addendum (the "Network Addendum") to Administrative Services
Agreement Regarding Information Services (the "I.S. Agreement") is between
Mutual Management Company, Inc., an Ohio corporation and subsidiary of Medical
Mutual of Ohio ("Administrator"), and Central Reserve Life Insurance Company, an
Ohio corporation ("Central Reserve").

BACKGROUND
----------

These recitals are representations of fact that form the basis for and are an
integral part of this Network Addendum.

A. Central Reserve operates as a life and health insurance company. For purposes
of this Network Addendum, all lines of business shall be referred to as the
"Business".

B. Central Reserve desires the assistance of Administrator to provide access to
Medical Mutual of Ohio's Ohio Provider Networks.

C. Central Reserve and Administrator have also entered the I.S. Agreement and
this Network Addendum relates to the I.S. Agreement, incorporated herein by
reference.

D. The parties desire to reduce their agreements and understandings to writing.

PROVISIONS
----------

In consideration of the mutual promises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

I. TERM.

A. The initial term of this Network Addendum (the "Initial Term") shall
begin on July 1, 1998 (the "Effective Date") and end on March 31, 2003, unless
terminated earlier pursuant to Section I.B. After the Initial Term, this Network
Addendum shall automatically extend for successive periods of five (5) years
unless a party gives the other party written notice of its intention not to
renew, one (1) year before renewal (each a "Renewal Term").

<PAGE> 19

B. TERMINATION. This Network Addendum shall terminate prior to the
expiration of the Initial Term or any Renewal Term hereof if Central Reserve and
Administrator mutually agree to do so or upon notice of termination pursuant to
paragraphs 1, 2 or 3 below:

1. If the I.S. Agreement terminates, this Network Addendum shall
automatically and immediately terminate.

2. ADMINISTRATOR'S OPTIONS:

(a) Administrator shall have the right to terminate this
Network Addendum upon sixty (60) days' written notice if Central Reserve fails
to pay the compensation stated in Section V (if the breach is cured within the
sixty (60) day period, then no termination shall occur);

(b) At any time within [*] after the earlier to
occur of (1) a Change in Control of Central Reserve or (2) receipt of written
notice of a proposed Change in Control of Central Reserve, Administrator shall
have the right to terminate this Network Addendum upon [*] written
notice of termination to Central Reserve. As used herein, "Change in Control of
Central Reserve" shall mean the transfer of a majority of the stock of Central
Reserve's parent company, Central Reserve Life Corporation ("CRLC") to any one
entity through one transaction or a series of related transactions after
September 1, 1998.

3. CENTRAL RESERVE'S OPTIONS. [*]

4. CENTRAL RESERVE'S RIGHTS UPON TERMINATION.

The provisions of this Section shall survive the termination of
this Network Addendum.

(a) Upon providing or receiving notice of termination of this
Network Addendum for any reason, Administrator shall cooperate fully with
Central Reserve in effecting a smooth transition of the Administrator's
responsibilities under this Network Addendum so that Central Reserve can operate
independently as of the effective date of termination. As soon as reasonably
practical during the notice period, and continuing after the effective date of
termination as necessary, Administrator shall provide to Central Reserve any and
all information, data, files and reports that are necessary to enable Central
Reserve to operate the Business independently of Administrator, including but
not limited to the original records and data relating to the operation of
Central Reserve's Business, including but not limited to all historical data,
books of account, enrollment records, group service records, provider records,
patient records and claims information. Administrator shall also provide in
machine readable form all of the

<PAGE> 20

above described records and data, in a format reasonably acceptable to Central
Reserve.

(b) Upon written notice from Central Reserve, Administrator
shall, at the written direction of Central Reserve either transfer to Central
Reserve or its designee or destroy (and certify as to such destruction) all
records and information relating solely to the Business, including all written
agreements, customer lists, correspondence, documents, data, files, client
premium data and rates, brochures, pamphlets, and promotional materials after
the regulatory period for record retention has passed. Central Reserve agrees to
allow Administrator access to all such returned materials in the event such
access is requested by Administrator for any reasonable and legitimate purpose.

5. ADMINISTRATOR'S RIGHTS UPON TERMINATION

Upon written notice from Administrator, Central Reserve shall, at
the written direction of Administrator, either transfer to Administrator or its
designee or destroy (and certify as to such destruction) all records and
information relating solely to Administrator's business, including all written
agreements, all Provider Agreements and provider rates, correspondence,
documents, data, files, and Provider information after the regulatory period for
record retention has passed. Administrator agrees to allow Central Reserve
access to all such returned materials in the event such access is requested by
Central Reserve for any reasonable and legitimate purpose.

II. [*]
3

<PAGE> 21

III. SPECIAL COVENANTS

A. OTHER ADMINISTRATIVE SERVICES. Administrator may provide other services
as requested from time to time by Central Reserve's management and agreed to by
Administrator at an agreed upon acceptable fee.

B. PERFORMANCE STANDARDS. Administrator shall perform each and every one
of its duties under this Network Addendum (1) in accordance with all federal and
state laws and regulations; (2) in such a way as to meet or exceed contractual
standards set forth in Central Reserve's and/or Administrator's contracts with
health care providers and practitioners, employers and other groups, and members
and other beneficiaries (including meeting the highest level of performance set
forth in any performance standards.) In addition, in the performance of its
duties under this Network Addendum, Administrator shall preserve, maintain,
enhance and promote Central Reserve's identity and reputation.

C. AUDITS.

1. Administrator shall provide Central Reserve or its designee with
access to its business offices during normal business hours, upon receipt from
Central Reserve of at least seven (7) days' advance written notice.
Administrator shall provide Central Reserve or its designee with complete access
to its books and records relating to Administrator's performance under this
Network Addendum and permit Central Reserve or its designee to make such copies
as Central Reserve or its designee deem appropriate. Administrator shall
cooperate fully with

<PAGE> 22

the audit and shall provide Central Reserve or its designee with an opportunity
to interview Administrator's personnel who are providing or supervising the
provision of services under this Network Addendum. Administrator shall also
cooperate fully with any audit required or requested by any governmental agency
with jurisdiction over Central Reserve's Business.

2. Central Reserve shall provide Administrator or its designee with
access to its business offices during normal business hours, upon receipt from
Administrator of at least seven (7) days' advance written notice. Central
Reserve shall provide Administrator or its designee with complete access to its
books and records relating to Central Reserve's performance under this Network
Addendum and permit Administrator or its designee to make such copies as
Administrator or its designee deem appropriate. Central Reserve shall cooperate
fully with the audit and shall provide Administrator or its designee with an
opportunity to interview Central Reserve's personnel who are providing or
supervising the provision of services under this Network Addendum. Central
Reserve shall also cooperate fully with any audit required or requested by any
governmental agency with jurisdiction over Administrator's businesses.

IV. INDEMNIFICATION.

A. INDEMNIFICATION OF ADMINISTRATOR. Central Reserve agrees to indemnify
and hold harmless Administrator and its affiliates and their respective
officers, directors, employees and agents, and any persons controlling
Administrator or any of its affiliates (Administrator and each such other person
or entity being referred to herein as an "Administrator Indemnified Person"),
from and against all claims, demands, suits, liabilities, losses or damages (or
actions in respect thereof) or other expenses that are related to or arise out
of (1) any acts or omissions (including any untrue statement made or any
statements not made) by Central Reserve or its affiliates, or their respective
officers, directors, employees or agents, or (2) acts or omissions by an
Administrator Indemnified Person with the consent or in conformity with the
directions given by the person designated in writing by Central Reserve pursuant
to subsection II.F. Central Reserve will not be responsible, however, for any
losses, claims, damages, liabilities or expenses pursuant to clause (2) of the
preceding sentence which are finally judicially determined to have resulted
primarily from such Administrator Indemnified Person's gross negligence or
willful misconduct. Administrator provides an unconditional undertaking to repay
amounts advanced in the event that it is finally determined that the Indemnified
Person is not entitled to indemnification hereunder. In addition, Central
Reserve agrees to reimburse each Administrator

<PAGE> 23

Indemnified Person for reasonable out-of-pocket expenses (including fees and
expenses of counsel) as they are incurred by such Administrator Indemnified
Person in connection with investigating, preparing, conducting or defending any
such action or claim, whether or not in connection with litigation in which any
Administrator Indemnified Person is a named party, provided that (1) it
reasonably appears that such Administrator Indemnified Person is entitled to
indemnification and (2) Administrator provides an unconditional undertaking to
repay amounts advanced in the event that it is finally determined that the
Administrator Indemnified Person is not entitled to indemnification hereunder.
In addition, if any Administrator Indemnified Person is required to pursue a
claim against Central Reserve in connection with enforcing the rights of such
Indemnified Person under this Network Addendum, if such claim is successful,
then Central Reserve shall also pay reasonable out-of-pocket expenses (including
fees and expenses of counsel) as they are incurred by such Administrator
Indemnified Person in connection with investigating, preparing, conducting or
defending any such action or claim to enforce the rights of the Administrator
Indemnified Person.

B. INDEMNIFICATION OF CENTRAL RESERVE. Administrator agrees to indemnify
and hold harmless Central Reserve and its affiliates and their respective
officers, directors, employees and agents, and any persons controlling Central
Reserve or any of its affiliates (Central Reserve and each such other person or
entity being referred to herein as a "Central Reserve Indemnified Person"), from
and against all claims, liabilities, losses or damages (or actions in respect
thereof) or other expenses that are related to or arise out of (1) any acts or
omissions (including any untrue statement made or any statements not made) by
Administrator or its affiliates, or their respective officers, directors,
employees or agents in connection with Administrator's or any subcontractor's
activities under this Network Addendum (including but not limited to, claim or
infringement of any patent, copyright, trade secret or other proprietary right)
or (2) acts or omissions by a Central Reserve Indemnified Person with the
consent or in conformity with acts or omissions of Administrator or its
affiliates, or their respective officers, directors, employees or agents.
Administrator will not be responsible, however, for any losses, claims, damages,
liabilities or expenses pursuant to clause (2) of the preceding sentence which
are finally judicially determined to have resulted primarily from such Central
Reserve Indemnified Person's gross negligence or willful misconduct. In
addition, Administrator agrees to reimburse each Central Reserve Indemnified
Person for reasonable out-of-pocket expenses (including fees and expenses of
counsel) as they are incurred by such Central Reserve Indemnified Person in
connection with investigating, preparing, conducting or defending any such
action or claim, whether or not in connection with litigation in which any
Central Reserve Indemnified Person is a named party, provided that (1) it
reasonably appears that such Central Reserve Indemnified Person is entitled to
indemnification and (2) Central Reserve provides an unconditional undertaking to
repay amounts advanced in the event that it is finally determined that the
Central Reserve Indemnified Person is not entitled to indemnification hereunder.
In addition, if any Central Reserve Indemnified Person is required to pursue a
claim against Administrator in

<PAGE> 24

connection with enforcing the rights of such Central Reserve Indemnified Person
under this Network Addendum, and if such claim is successful, then Administrator
shall also pay reasonable out-of-pocket expenses (including fees and expenses of
counsel) as they are incurred by such Central Reserve Indemnified Person in
connection with investigating, preparing, conducting or defending any such
action or claim to enforce the rights of the Central Reserve Indemnified Person.

C. DEFENSE OF CLAIMS.

1. If any party entitled to be indemnified under this Network
Addendum (an "Indemnitee") receives notice of assertion or commencement of any
claim, action or proceeding made or brought by any person or entity who or which
is not a party to this Network Addendum or an affiliate of a party to this
Network Addendum (a "Third Party Claim") against such Indemnitee with respect to
which any person or entity required to provide indemnification under this
Network Addendum (an "Indemnifying Party") is obligated to provide
indemnification under this Network Addendum, the Indemnitee will give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
not later than (30) calendar days after receipt of such Third Party Claim. Such
notice will describe the Third Party Claim in reasonable detail, will include
copies of all material written evidence thereof and will indicate the estimated
amount, if reasonably practicable, of the indemnifiable loss that has been or
may be sustained by the Indemnitee. The Indemnifying Party will have the right
to participate in, or, by giving written notice to the Indemnitee, to assume,
the defense of any third party claim at such Indemnifying Party's own expense
and by such Indemnifying Party's own counsel (reasonably satisfactory to the
Indemnitee), and the Indemnitee will cooperate in good faith in such defense.

2. If, within 10 (ten) calendar days after giving notice of a Third
Party Claim to an Indemnifying Party, an Indemnitee receives written notice from
the Indemnifying Party that the Indemnifying Party has elected to assume the
defense of such Third Party Claim, the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third party claim
within ten (10) calendar days after receiving written notice from the Indemnitee
that the Indemnitee believes the Indemnifying Party has failed to take such
steps or if the Indemnifying Party has not undertaken fully to indemnify the
Indemnitee in respect of all indemnifiable losses relating to the matter, the
Indemnitee may assume its own defense, and the Indemnifying Party will be liable
for all reasonable costs or expenses paid or incurred in connection therewith.
Without the prior written consent of the Indemnitee, the Indemnifying Party will
not enter into any settlement of any Third Party Claim which would lead to
liability or create any financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder. If a firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a

<PAGE> 25

financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party will
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten calendar days after its receipt of such
notice, the Indemnitee may continue to contest or defend such Third Party Claim
and, in such event, the maximum liability of the Indemnifying Party as to such
Third Party Claim will not exceed the amount of such settlement offer, plus
costs and expenses paid or incurred by the Indemnitee through the end of such
ten calendar day period.

V. COMPENSATION.

A. TIMING OF PAYMENT. Central Reserve's payment obligations shall begin on
the effective date of this Network Addendum and continue until the calendar
month during which this Network Addendum is terminated. Payment shall be made on
the last day of the month following the month during which services are rendered
under this Network Addendum.

B. PROVIDER NETWORK ACCESS FEE. Central Reserve shall pay a fee to
Administrator for access to Medical Mutual of Ohio's Ohio Provider Networks. The
access fee shall be determined as follows:

<PAGE> 26

1. Central Reserve shall pay Administrator [*] of "Savings"
generated in excess of [*].

2. As used herein, "Savings" is the difference between the amount
the Provider billed for Covered Services, as defined in the insureds'
Certificates of Coverage, and the amount the Provider accepts as payment in full
pursuant to the Provider's Agreement with Medical Mutual of Ohio adjusted for
Coordination of Benefits. "Savings" does not include any adjustments or
settlements resulting from most favored nations violations, maximum charge
increase limitation violations, guaranteed discount corridor provisions, prompt
payment discounts, or any settlement, incentive, allowances or adjustment that
does not accrue to specific claims at the time of adjudication.

VI. SUBCONTRACTING.

Central Reserve understands that Administrator may subcontract for the
services with a parent, affiliate or subsidiary of the Administrator or with a
another outside party, provided that no more than [*] of the total services
under this Network Addendum are outsourced to an outside party. Central Reserve
shall consent to such subcontracting arrangement; provided, that the
subcontractor agrees to be bound by the terms of this Network Addendum; that
Central Reserve is named as a third party beneficiary with respect to the
subcontract; and that Administrator is not relieved of liability by virtue of
subcontract.

VII. RUNOUT.

The parties acknowledge that this Network Addendum includes
Administrator's agreement to provide all services under this Network Addendum
relating to claims for services rendered prior to the termination of this
Network Addendum for a period not to exceed six months.

VIII. CONFIDENTIALITY OF RECORDS.

The provisions of this Section shall survive the termination of this
Network Addendum.

A. CENTRAL RESERVE'S PROPRIETARY INFORMATION AND MATERIALS. All business
and medical records relating to the operation of Central Reserve, including but
not limited to all historical data, books of account, agent agreements,
enrollment records, general administrative records, group service records,
provider records, fee schedules, patient records and claims information shall be
and remain the sole property of Central Reserve. Administrator agrees to use
such business and medical records solely for the purposes of performing its
duties under this Network Addendum and Administrator covenants and agrees that
it will utilize information it receives under this Network Addendum only for the
purpose of performing its duties under this Network

<PAGE> 27

Addendum.

C. ADMINISTRATOR'S PROPRIETARY INFORMATION AND MATERIALS. All information
systems and computer software utilized or developed by Administrator to provide
services to Central Reserve pursuant to this Network Addendum shall remain the
sole property of Administrator. Administrator represents and warrants to Central
Reserve that the performance of its obligations under this Network Addendum will
not infringe on any patents, copyrights, trade secrets or other proprietary
rights of third parties and that Administrator has received no claims or charges
of any such infringement. Administrator further represents and warrants to
Central Reserve that it has full authority, including any required grant of
license or other rights, to use all data, documentation, information, hardware
and software that will be furnished to Central Reserve in connection with this
Network Addendum. Nothing herein shall be construed to grant Central Reserve a
license to use any such information systems, or software, outside the scope of
this Network Addendum.

D. CENTRAL RESERVE CONFIDENTIALITY DUTIES. Central Reserve acknowledges
that Administrator and Medical Mutual of Ohio have a strong interest in
preserving the confidentiality of all trade secret information, including but
not limited to provider contracting arrangements and discount information. The
confidentiality policy is essential to meet the needs of its customers and is in
accordance with responsible business practices. Therefore, Central Reserve
agrees to keep confidential all information and material relating to the
business of Administrator and Medical Mutual of Ohio including but not limited
to, claims system information, computer systems information, and provider
agreement and discount information, either during or after this Network
Addendum. Central Reserve covenants and agrees that it will utilize information
it receives under this Network Addendum regarding Administrative Systems and
Provider Networks only for the purpose of performing its duties under this
Network Addendum.

IX. INSURANCE.

A. CENTRAL RESERVE'S INSURANCE. During the term of this Network Addendum,
Central Reserve shall maintain, at its expense, errors and omissions insurance
coverage, including stop-loss insurance in scope and amount customary and
reasonable for the Business. Such insurance policies relating hereto shall name
Administrator as an additional insured. Certificates of insurance and such other
supporting documentation and information as Administrator may

<PAGE> 28

reasonably request shall be provided to Administrator upon request.

B. ADMINISTRATOR'S INSURANCE. During the term of this Network Addendum,
Administrator shall maintain, at its expense, errors and omissions insurance
coverage, and fidelity bonds, in scope and amount customary and reasonable for
the conduct of its activities under this Network Addendum. Such insurance
policies and bonds shall name Central Reserve as an additional insured.
Certificates of insurance and such other supporting documentation and
information as Central Reserve may reasonably request shall be provided by
Central Reserve upon request.

X. NOTICE OF DEVELOPMENTS.

Both parties shall give the other prompt written notice of any material
adverse development affecting the Business.

XI. COMPLIANCE WITH LAW.

Both parties shall comply with all applicable federal, state, and local
laws in connection with the performance of their respective duties under this
Network Addendum. During the term of this Network Addendum, Administrator will
maintain all licenses, franchises, permits, approvals, and other authorizations
necessary for it to provide the Services required by it hereunder.

XI. FURTHER ASSURANCES.

The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Network Addendum.
Central Reserve agrees to cooperate with and assist Administrator and any
employees or agents of Administrator necessary to allow Administrator to fulfill
its obligations under this Network Addendum.

XII. SUCCESSION, ASSIGNMENT.

This Network Addendum shall be binding upon and inure to the benefit of
the parties named herein and their respective successors and permitted assigns.
No party may assign either this Network Addendum or any of his, her or its
rights, interest, or obligations hereunder, provided that Administrator may
assign its rights, interest and obligations hereunder to any affiliate
controlled by or that controls Administrator with the appropriate licenses to
perform its obligations under this Agreement and Central Reserve may assign its
rights, interest and obligations hereunder in connection with a Change in
Control, subject to Administrator's right to terminate this Network Addendum
pursuant to Section II.B.

<PAGE> 29

XIII. NOTICES.

If to Administrator, to:

MUTUAL MANAGEMENT COMPANY, INC.
1220 Huron, 10th Floor
Cleveland, OH 44115
Attention: Edward J. Hartzell
Telephone: (216) 687-7708
Facsimile: (216) 687-6690

with a copy to:

John S. Dorrell, Esq., General Counsel
MEDICAL MUTUAL OF OHIO
2060 East Ninth Street
Cleveland, OH 44115
Telephone: (216) 687-6264
Facsimile: (216) 687-2623

if to Central Reserve, to:

CENTRAL RESERVE LIFE INSURANCE COMPANY
17800 Royalton Road
Strongsville, OH 44136
Attention: President
Telephone: (440) 572-2400
Facsimile: (440) 572-4501

with a copy to:

Billy B. Hill, Jr. Esq.
1750 E. Golf Road, Suite 210
Schaumburg, Illinois 60173

<PAGE> 30

XIV. DISPUTE RESOLUTION.

Except for disputes with respect to matters which may be cause for
termination pursuant to Section I, or with respect to the Indemnification
obligations of the parties hereunder the parties agree to resolve all disputes
relating to matters arising under this Network Addendum pursuant to the dispute
resolution mechanism set forth herein.

B. EFFECT ON NETWORK ADDENDUM. During any mediation pursuant to this
Section, the Network Addendum shall remain in full force and effect.

C. FURTHER ACTION. If mediation is unsuccessful then the parties may
pursue their available remedies.

XV. ENTIRE NETWORK ADDENDUM.

This Network Addendum contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.

XVI. WAIVERS AND AMENDMENTS.

This Network Addendum may be amended, modified, superseded, canceled,
renewed or extended, and the terms and conditions hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder,
nor any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which any party may
otherwise have at law or in equity.

XVII. GOVERNING LAW.

This Network Addendum shall be governed and construed in accordance with
the laws of the State of Ohio applicable to agreements made and to be performed
entirely within such State, without giving effect to the principles of conflicts
of law thereof.

<PAGE> 31

XVIII. RELATIONSHIP BETWEEN THE PARTIES.

A. CONDUCT OF BUSINESSES. Central Reserve and Administrator agree that
each of them are independent companies and that they are each responsible for
the conduct of their own businesses. Neither party has any obligation with
respect to employees of the other. Administrator shall be solely responsible for
all workers' compensation, unemployment compensation, withholding and employment
taxes and any other taxes due to federal, state or local governments or agencies
on account of itself, its employees, representatives, or agents or by any
federal, state or local government or agency on account of wages, industrial
accidents or workers' compensation claims, withholding and employment taxes or
any other actions arising out of Administrator's relationship with its
employees, representatives or agents. Similarly, Central Reserve shall be solely
responsible for all workers' compensation, unemployment compensation,
withholding and employment taxes and any other taxes due to federal, state or
local governments or agencies on account if itself, its employees,
representatives or agents or by any federal, state or local government or agency
on account of wages, industrial accidents or workers' compensation claims,
withholding and employment taxes or any other actions arising out of Central
Reserve's relationship with its employees, representatives or agents.

B. INDEPENDENT BUSINESS. Central Reserve and Administrator further agree
that Central Reserve and Administrator are separate entities and nothing in this
Network Addendum affects the separate identity of each party. This Network
Addendum does not create a partnership, nor is it intended to limit the parties'
conduct of their respective businesses.

C. LIMITED AGENCY. Central Reserve and Administrator further agree that
Administrator shall be the agent of Central Reserve solely for purposes of
performing its duties under this Network Addendum. Administrator acknowledges
the limited nature of its agency authority and agrees to abide by the Central
Reserve's coverage documents, policies and procedures, as well as the
limitations set forth in this Network Addendum.

XIX. COUNTERPARTS.

This Network Addendum may be executed in two (2) or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.

XX. HEADINGS.

The headings in this Network Addendum are intended solely for convenience
of reference and shall be given no effect in the interpretation of this Network
Addendum.

<PAGE> 32

XXI. FAIR MEANING.

This Network Addendum shall be construed according to its fair meaning and
as if prepared jointly by Central Reserve and Administrator.

XXII. FORCE MAJEURE.

The parties understand that performance by either party may be interrupted
or delayed by an occurrence outside of that party's control including, but not
limited to, the following: Act of God, war, riot sovereign conduct or the
conduct of third parties. Administrator shall take such reasonable actions as is
prudent to protect itself against and Central Reserve such occurrences,
including but not limited to, assuring back-up copies of data, and back-up
ability with respect to all services performed under this Network Addendum
within two (2) days. Subject to the foregoing, if such acts occur, the affected
party will be excused from complete performance for as long as it is reasonably
necessary, so long as such affected party uses its best efforts to perform.

XIV. PRIVACY.

Administrator and Central Reserve agree not to disclose any of the terms
of this Network Addendum to any person without written permission of the other
party, except as required by state or federal law.

<PAGE> 33

IN WITNESS WHEREOF, the Parties hereto have executed this Network Addendum on
the dates indicated below.
<TABLE>
<CAPTION>
<S> <C>
CENTRAL RESERVE LIFE MUTUAL MANAGEMENT COMPANY, INC.
INSURANCE COMPANY

By:
------------------------------------------
By:
------------------------------------------

Printed Name: Printed Name: Edward J. Hartzell

Title: Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
--------------------------------------- ---------------------------------------------

Date:
----------------------------------------
Date:
----------------------------------------

By:
------------------------------------------

Printed Name: Robert N. Trombly

Title: CHAIRMAN
--------------------------------------------

Date:
----------------------------------------

</TABLE>

<PAGE> 34

CLAIMS ADDENDUM TO ADMINISTRATIVE SERVICES AGREEMENT
REGARDING INFORMATION SERVICES

This Claims Addendum ("Claims Addendum") to Administrative Services Agreement
regarding Information Services (the "I.S. Agreement") is between Mutual
Management Company, Inc., an Ohio corporation and subsidiary of Medical Mutual
of Ohio ("Administrator"), and Central Reserve Life Insurance Company, an Ohio
corporation ("Central Reserve").

BACKGROUND
----------

These recitals are representations of fact that form the basis for and are an
integral part of this Claims Addendum.

A. The parties have entered into the I.S. Agreement, incorporated herein by
reference pertaining to provision by Administrator of information services with
respect to the health insurance "Business" as defined therein. All defined terms
in the I.S. Agreement shall have the same meaning in this Claims Addendum.

B. Administrator possesses experience with regard to the processing of claims
and the capacity as well as the expertise to administer the Business.

C. The parties desire to enter into this Claims Addendum with respect to
provision by Administrator of claims and other administrative services.

PROVISIONS
----------

In consideration of the mutual promises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

I. TERM.

A. The initial term of this Claims Addendum (the "Initial Term") shall
begin on March 30, 1998 (the "Effective Date") and end on March 31, 2003, unless
terminated earlier pursuant to Section I.B. After the Initial Term, this Claims
Addendum shall automatically extend for successive periods of five (5) years
unless a party gives the other party written notice of its intention not to
renew, one (1) year before renewal (each a "Renewal Term.")

<PAGE> 35

B. TERMINATION. This Claims Addendum shall terminate prior to the
expiration of the Initial Term or any Renewal Term hereof if Central Reserve and
Administrator mutually agree to do so or upon notice of termination pursuant to
paragraph 1 or 2 below:

1. ADMINISTRATOR'S TERMINATION:

If Administrator terminates the I.S. Agreement pursuant to its
terms, then such termination shall also constitute termination of this Claims
Addendum. Otherwise Administrator will not terminate this Claims Addendum,
unless pursuant to Section II.A.8.c

2. CENTRAL RESERVE'S OPTIONS:

a. Central Reserve shall have the option to terminate this
Agreement if Administrator commits a material breach of the Claims Addendum and
fails to cure the breach within sixty (60) days after Central Reserve notifies
Administrator of such breach (if the breach is cured within the sixty (60) day
period, then no termination shall occur);

b. At any time within [*] after a Change in Control of Central
Reserve, Central Reserve shall have the right to terminate this Claims Addendum
upon [*] prior written notice of termination to Administrator, or, at any time
within [*] after a Change in Control of Administrator or Medical Mutual of Ohio.

c. Central Reserve shall have the right to terminate this
Claims Addendum after December 31, 1999 without cause, subject to the following:
Central Reserve will reimburse Administrator for the direct costs associated
with the termination. Administrator will determine its direct costs and provide
Central Reserve with an itemization and accounting detail with respect to such
direct costs within sixty (60) days after termination.

3. CENTRAL RESERVE'S RIGHTS UPON TERMINATION.

The provisions of this Section shall survive the termination of
this Claims Addendum.

a. Upon providing or receiving notice of termination of this
Claims Addendum for any reason, Administrator shall cooperate fully with Central
Reserve in effecting a smooth transition of the Administrator's responsibilities
under this Claims Addendum so that Central Reserve can operate independently as
of the effective date of termination. As soon as reasonably practical during the
notice period, and continuing after the effective date of termination as
necessary, Administrator shall provide to Central Reserve any and all
information, data, files and reports that are necessary to enable Central
Reserve to operate the Business

<PAGE> 36

independently of Administrator, including but not limited to the original
records and data relating to the operation of Central Reserve's Business,
including but not limited to all historical data, books of account, enrollment
records, group service records, provider records, patient records and claims
information. Administrator shall also provide in machine readable form all of
the above described records and data, in a format reasonably acceptable to
Central Reserve.

b. Upon written notice from Central Reserve, Administrator
shall, at the written direction of Central Reserve either transfer to Central
Reserve or its designee or destroy (and certify as to such destruction) all
records and information relating solely to the Business, including all written
agreements, customer lists, correspondence, documents, data, files, premium data
and rates, brochures, pamphlets, and promotional materials after the regulatory
period for record retention has passed. Central Reserve agrees to allow
Administrator access to all such returned materials in the event such access is
requested by Administrator for any reasonable and legitimate purpose.

4. ADMINISTRATOR'S RIGHTS UPON TERMINATION. The provisions of this section
shall survive the termination of this Claims Addendum. Upon written notice from
Administrator, Central Reserve, shall, at the written direction of Administrator
either transfer to Administrator or its designee or destroy (and certify as to
such destruction) all records and information relating solely to the
Administrator's business and information systems, including all written
agreements, correspondence, documents, data and files. Administrator agrees to
allow Central Reserve access to all such returned materials in the event such
access is requested by Central Reserve for any reasonable and legitimate
purpose.

II. CLAIMS AND ADMINISTRATIVE SERVICE

At agreed upon times during the term of this Claims Addendum,
Administrator shall provide to Central Reserve the following administrative
services (the "Claims Services"):

A. CLAIMS SERVICE ADMINISTRATION

1. Administrator will be responsible for all back room processing
for Central Reserve including the services specified in paragraphs 2-7 below,
with respect to Business designated by Central Reserve. [*]

<PAGE> 37
[*]
<PAGE> 38

8. DEPOSIT AND DISBURSEMENT OF FUNDS.

a. Administrator shall establish (with such banks as Central
Reserve designates) trust fund accounts in the name of Central Reserve ("Central
Reserve Accounts") from which Central Reserve or Administrator may withdraw
funds for the deposit of all premiums collected on behalf of Central Reserve.
Administrator shall bill and collect premiums for, on behalf of, and in the name
of Central Reserve and shall promptly deposit such premiums into the Central
Reserve Accounts. All funds held by Administrator will be held in a fiduciary
capacity, and Administrator shall perform all duties required to comply with
applicable fiduciary accounting laws. Nothing herein shall limit any right of
Central Reserve against Administrator resulting from Administrator's failure to
make payments to Central Reserve, to any insured, or to any Provider.

b. PAYMENT OF CLAIMS AND OTHER EXPENSES. Administrator shall
pay claims for covered services and other expenses designated by Central
Reserve, solely from Central Reserve's funds as deposited in the Central Reserve
Account.

c. FAILURE TO MAKE FUNDS AVAILABLE. If Central Reserve fails to
make available sufficient funds to pay claims and other expenses as they become
due, then Administrator may suspend performance of its services until such a
time that Central Reserve makes the required funds available and, in addition,
Administrator may terminate this Claims Addendum upon thirty (30) days' written
notice to Central Reserve unless the breach by Central Reserve is cured within
the thirty (30) day period.

d. ADMINISTRATOR IS NOT A GUARANTOR. The parties acknowledge
that Administrator is functioning only as a third party administrator under this
Claims Addendum. The parties further acknowledge that Administrator is not a
surety, guarantor or in any way liable for any of Central Reserve's debts,
liabilities, benefits payable or other obligations.

B. GRIEVANCE PROCEDURES. Administrator will establish or utilize and
maintain such mechanisms, as required by law, to receive and respond to
complaints and grievances of members in accordance with Central Reserve's
policies and procedures and keep appropriate records of such complaints.
Administrator will process and make the initial decision on all grievances
subject to applicable state laws; provided, however, that Central Reserve shall
have the sole authority to decide appeals.

<PAGE> 39

C. SUPERVISION. The Administrator shall perform the services under the
direction of a Central Reserve employee designated in writing by Central Reserve
and Central Reserve shall have final authority over all claims policies. All
services to be provided by Administrator under this Claims Addendum shall be
rendered upon the written criteria, standards and guidelines of Central Reserve
(as such may be amended or revised at any time and from time to time).

D. PERFORMANCE STANDARDS. Administrator shall perform each and every one
of its duties under this Claims Addendum (1) in accordance with all federal and
state laws and regulations; (2) in such a way as to meet or exceed contractual
standards set forth in Central Reserve's and/or Administrator's contracts with
health care providers and practitioners, employers and other groups, and members
and other beneficiaries (including meeting the highest level of performance set
forth in any performance standards.) In addition, in the performance of its
duties under this Claims Addendum, Administrator shall preserve, maintain,
enhance and promote Central Reserve's identity and reputation.

E. AUDITS.

The parties shall have the rights and responsibilities set forth
in the I.S. Agreement.

[*]

IV. INDEMNIFICATION.

The provisions of the I.S. Agreement regarding Indemnification are
incorporated herein by reference.

V. COMPENSATION.

A. CALCULATION. For purposes of this Claims Addendum, "Premium and Premium
Equivalent" shall have the meaning set forth in Section V. B. 3 of the
I.S. Agreement.

B. COMPENSATION FOR CLAIMS SERVICE Beginning April 1, 1998 for all
business covered by this Claims Addendum, Central Reserve shall pay
Administrator [*] of Central Reserve's Premium and Premium Equivalent
with respect to such business. This fee is in addition to the fee paid under
the I.S. Agreement.

<PAGE> 40

C. COMPENSATION FOR CARE MANAGEMENT SERVICES

1. For purposes of this section the term "Care Management Services"
shall have the meaning as set forth in Section II.A.6.

[*]

D. TIMING OF PAYMENT. Central Reserve's payment obligations shall begin on
the effective date of this Claims Addendum and continue until the calendar month
during which this Claims Addendum is terminated. Payment shall be made on the
last day of the month following the month during which services are rendered
under this Claims Addendum.

VI. RUNOUT.

The parties acknowledge that this Claims Addendum includes Administrator's
agreement to provide all services under this Claims Addendum relating to claims
for services rendered prior to the termination of this Claims Addendum, for a
period not to exceed six (6) months.

VII. CONFIDENTIALITY OF RECORDS.

The provisions of the I.S. Agreement regarding confidentiality are
incorporated herein by reference.

VIII. INSURANCE.

The provisions of the I.S. Agreement regarding Insurance are incorporated
herein by reference.

IX. SUCCESSION, ASSIGNMENT.

This Claims Addendum shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Claims Addendum or any of his, her or its rights,
interest, or obligations hereunder, provided that Administrator may assign its
rights, interest and obligations hereunder to any affiliate controlled

<PAGE> 41

by or that controls Administrator with the appropriate licenses to perform its
obligations under this Agreement and Central Reserve may assign its rights,
interest and obligations hereunder in connection with a Change in Control.

X. NOTICES.

If to Administrator, to:

MUTUAL MANAGEMENT COMPANY, INC.
1220 Huron, 10th Floor
Cleveland, OH 44115
Attention: Edward J. Hartzell
Telephone: (216) 687-7708
Facsimile: (216) 687-6690

with a copy to:

John S. Dorrell, Esq., General Counsel
MEDICAL MUTUAL OF OHIO
2060 East Ninth Street
Cleveland, OH 44115
Telephone: (216) 687-6264
Facsimile: (216) 687-2623

if to Central Reserve, to:

CENTRAL RESERVE LIFE INSURANCE COMPANY
17800 Royalton Road
Strongsville, OH 44136
Attention: President
Telephone: (440) 572-2400
Facsimile: (440) 572-4501

<PAGE> 42

with a copy to:

Billy B. Hill, Jr. Esq.
1750 E. Golf Road, Suite 210
Schaumburg, Illinois 60173

XI. DISPUTE RESOLUTION.

Except for disputes with respect to matters which may be cause for
termination pursuant to Section I and the Indemnification provisions of this
Claims Addendum, the parties agree to resolve all disputes relating to matters
arising under this Claims Addendum pursuant to the dispute resolution mechanism
set forth herein.

B. EFFECT ON CLAIMS ADDENDUM. During any mediation pursuant to this
Section, the Claims Addendum shall remain in full force and effect.

C. FURTHER ACTION. If mediation is unsuccessful then the parties may
pursue their available remedies.

XII. ENTIRE CLAIMS ADDENDUM.

This Claims Addendum contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.

XIII. WAIVERS AND AMENDMENTS.

This Claims Addendum may be amended, modified, superseded, canceled,
renewed or extended, and the terms and conditions hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder,
nor any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which any party may
otherwise have at law or in equity.

<PAGE> 43

XIV. GOVERNING LAW.

This Claims Addendum shall be governed and construed in accordance with
the laws of the State of Ohio applicable to agreements made and to be performed
entirely within such State, without giving effect to the principles of conflicts
of law thereof.

XV. RELATIONSHIP BETWEEN THE PARTIES.

B. INDEPENDENT BUSINESS. Central Reserve and Administrator further agree
that Central Reserve and Administrator are separate entities and nothing in this
Claims Addendum affects the separate identify of each party. This Claims
Addendum does not create a partnership, nor is it intended to limit the parties'
conduct of their respective businesses.

C. LIMITED AGENCY. Central Reserve and Administrator further agree that
Administrator shall be the agent of Central Reserve solely for purposes of
performing its duties under this Claims Addendum. Administrator acknowledges the
limited nature of its agency authority and agrees to abide by the Central
Reserve's coverage documents, policies and procedures, as well as the
limitations set forth in this Claims Addendum.

XVI. COUNTERPARTS.

This Claims Addendum may be executed in two (2) or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.

<PAGE> 44

XVII. HEADINGS.

The headings in this Claims Addendum are intended solely for convenience
of reference and shall be given no effect in the interpretation of this Claims
Addendum.

XVIII. FAIR MEANING.

This Claims Addendum shall be construed according to its fair meaning and
as if prepared jointly by Central Reserve and Administrator.

XIX. FORCE MAJEURE.

The parties understand that performance by either party may be interrupted
or delayed by an occurrence outside of that party's control including, but not
limited to, the following: Act of God, war, riot sovereign conduct or the
conduct of third parties. Administrator shall take such reasonable actions as is
prudent to protect itself and Central Reserve against such occurrences,
including but not limited to, assuring back-up copies of data, and back-up
ability to process claims within two (2) days. Subject to the foregoing, if such
acts occur, the affected party will be excused from complete performance for as
long as it is reasonably necessary, so long as such affected party uses its best
efforts to perform.

XX. PRIVACY. Administrator and Central Reserve agree not to disclose any of the
terms of this Claims Addendum to any person without written permission of the
other party, except pursuant to the requirements of state or federal law.

<PAGE> 45

IN WITNESS WHEREOF, the Parties hereto have executed this Claims Addendum on the
dates indicated below.
<TABLE>
<CAPTION>
<S> <C>
CENTRAL RESERVE LIFE MUTUAL MANAGEMENT COMPANY, INC.
INSURANCE COMPANY

By:
-----------------------------------------
By:
-----------------------------------------

Printed Name: Printed Name: Edward J. Hartzell

Title: Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------- ----------------------------------------------

Date:
---------------------------------------
Date:
---------------------------------------

By:
-----------------------------------------

Printed Name: Robert N. Trombly

Title: CHAIRMAN
-----------------------------------------------

Date:
---------------------------------------
</TABLE>