<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CENTRAL RESERVE LIFE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
CENTRAL RESERVE LIFE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS IN LIEU OF THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 22, 1998
Notice is hereby given that a Special Meeting of Shareholders in Lieu of the
Annual Meeting of Shareholders (the "Special Meeting") of Central Reserve Life
Corporation (the "Company") will be held at the Home Offices of the Company, CRL
Plaza, 17800 Royalton Road, Strongsville, Ohio, on Thursday, October 22, 1998,
at 10:00 a.m., local time, for the following purposes:
1. To elect nine directors to hold office until the next annual election of
directors and until their successors are elected and qualified;
2. To consider and act upon a proposal to amend the Company's Amended
Articles of Incorporation to eliminate cumulative voting in the election
of directors; and
3. To consider and transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on September 17, 1998,
will be entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By order of the Board of Directors.
/s/ Linda S. Standish
LINDA S. STANDISH, Secretary
October 5, 1998
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE>
CENTRAL RESERVE LIFE CORPORATION
CRL PLAZA
17800 ROYALTON ROAD
STRONGSVILLE, OHIO 44136
---------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at a Special Meeting of Shareholders in Lieu of the Annual
Meeting of Shareholders (the "Special Meeting") of Central Reserve Life
Corporation, an Ohio corporation (the "Company"), to be held on Thursday,
October 22, 1998, at 10:00 a.m., local time, at the Home Offices of the Company,
CRL Plaza, 17800 Royalton Road, Strongsville, Ohio, and at any adjournment
thereof.
As more fully described herein, the principal business to be addressed at
the Special Meeting is the election of directors and an amendment to the
Company's Amended Articles of Incorporation (the "Articles") to eliminate
cumulative voting in the election of directors.
This Proxy Statement and the accompanying form of proxy ("proxy card"),
together with the Company's Annual Report to Shareholders on Form 10-K/A for the
fiscal year ended December 31, 1997, will first be sent to shareholders on or
about October 5, 1998.
The close of business on September 17, 1998, has been fixed as the date (the
"Record Date") for the determination of holders of record of the Company's
common shares, without par value (the "Common Shares"), entitled to notice of,
and to vote at, the Special Meeting. On September 17, 1998, the Company had
outstanding 11,495,172 Common Shares, each of which will be entitled to one
vote.
VOTING AND QUORUM
A majority of the issued and outstanding Common Shares entitled to vote
constitutes a quorum at the Special Meeting. Common Shares represented in person
or by proxy at the Special Meeting, including abstentions and "broker
non-votes," will be tabulated by the inspectors of election appointed for the
Special Meeting and will determine whether a quorum is present. A broker
non-vote occurs when a broker holding stock in "street name" indicates on the
proxy that it does not have discretionary authority to vote on a particular
matter.
With respect to the election of directors, votes may be cast in favor or
withheld. Votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specifed on all proposals (other than
the election of directors) and will be counted as shares that are present and
entitled to vote for a proposal, but will not be counted as votes in favor of
such proposal. Accordingly, an abstention from voting on a proposal by a
shareholder present in person or represented by proxy at the Special Meeting
will have the same legal effect as a vote "against" the matter even though the
shareholder or interested parties analyzing the results of the voting may
interpret the abstention differently. Broker non-votes are not shares entitled
to vote, will not be counted in the total number of votes, and therefore will
have no effect on the outcome of voting.
1
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
The number of directors has been fixed pursuant to the Code of Regulations
of the Company at nine, and nine directors are currently in office. At the
meeting, shares represented by proxies, unless otherwise specified, will be
voted for the election of the nine nominees, hereinafter named, to hold office
until the next annual election of directors and, in each case, until their
respective successors are duly elected and qualified. If, by reason of death or
other unexpected occurrence, any nominee should not be available for election,
the proxies will be voted for such substitute nominee as the Board of Directors
may propose.
If notice in writing is given by any shareholder to the President, a Vice
President or the Secretary not less than 48 hours before the time fixed for
holding the meeting that he desires that voting for the election of directors
shall be cumulative, and if an announcement of the giving of such notice is made
upon the convening of such meeting by the Chairman or Secretary or by or on
behalf of the shareholder giving such notice, each shareholder shall have the
right to cumulate such voting power as he possesses at such election and to give
one nominee a number of votes equal to the number of directors to be elected
multiplied by the number of shares he holds, or to distribute his votes on the
same basis among two or more nominees, as he sees fit. If voting for the
election of directors is cumulative, the persons named in the enclosed proxy
will vote the shares represented thereby and by other proxies held by them so as
to elect as many of the nominees named below as possible. In the election of
directors, the nine nominees receiving the greatest number of votes will be
elected. Abstentions and broker non-votes will not count in favor of or against
election of any nominee.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" MESSRS. BOEMI, CAVATAIO, COOPER, LICK, NAUERT, NOVATNEY, OSBORNE, SPASS
AND TABAK.
Based on information as of the Record Date, the following describes the age,
position with the Company, principal occupation and business experience during
the past five years, and other directorships of each person nominated for
election as a director. Each currently holds his position as Director and has
been nominated for re-election by the Board of Directors pursuant to the
provisions of a Voting Agreement between the Company and Insurance Partners,
L.P. ("IP Delaware"); Insurance Partners Offshore (Bermuda), L.P. ("IP Bermuda"
and collectively with IP Delaware, "Insurance Partners"); Strategic Acquisition
Partners, LLC ("Strategic Partners"); Turkey Vulture Fund III, Ltd. (the "Fund")
and their Assignees (the "Voting Agreement"). (See Footnote 2 starting on Page 8
herein concerning the Voting Agreement.)
2
<PAGE>
NOMINEES FOR ELECTION AT THE SPECIAL MEETING
<TABLE>
<CAPTION>
NAME: AGE / DIRECTOR SINCE: PRINCIPAL OCCUPATION:
- ------------------------ ------------------------- ---------------------------------------
<S> <C> <C>
Andrew A. Boemi 53 / 1997 Managing Director of Turnaround Capital
Partners, L. P., a company engaged in
investing in small to mid-sized public
and private companies in the early
turnaround stages. In 1997, Mr. Boemi
served as the Managing Director of
Marietta Capital Partners, a company
engaged in private investment banking
and corporate restructuring. From 1990
to 1996, Mr. Boemi was a partner of S-K
Partners, Ltd., where he specialized in
financial and operational turnarounds
of small to mid-sized companies and
crisis management.
Michael A. Cavataio 55 / 1997 Real estate developer in northern
Illinois and southern Wisconsin. Mr.
Cavataio served as a director of
Pioneer Financial Services, Inc., a
company that underwrites and markets
health insurance, life insurance and
annuities throughout the United States,
from 1986 to 1997 and served as Vice
Chairman from 1995 to 1997. Mr.
Cavataio has served as a director of
Mercantile Bank of Northern Illinois
since 1988 and as a director of AON
Funds, Inc., a subsidiary of AON Corp.,
a multi-line insurance and brokerage
company, since 1994.
Bradley E. Cooper 32 / 1998 Partner of Insurance Partners Advisors,
L. P., an investment management
company, from 1994 to the present. Mr.
Cooper served as Vice President of
International Insurance Advisors, Inc.,
an investment management company, from
1990 to 1994. Mr. Cooper is a director
of Superior National Insurance Group,
Inc. and Highlands Insurance Group,
Inc.
Fred Lick, Jr. 67 / 1976 Chairman of the Company and Chairman of
Central Reserve Life Insurance Company
("CRL"), the Company's principal
operating subsidiary. Prior to
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME: AGE / DIRECTOR SINCE: PRINCIPAL OCCUPATION:
- ------------------------ ------------------------- ---------------------------------------
<S> <C> <C>
July 3, 1998, Mr. Lick was also
President and Chief Executive Officer
of the Company and of CRL.
Peter W. Nauert 55 / 1998 President and Chief Executive Officer
of the Company since July 3, 1998. Mr.
Nauert is also the principal investor
in Strategic Partners and is Principal
of Geneva Consulting, Inc., a company
providing consulting services to small
group and life insurance companies. Mr.
Nauert served as President of Pioneer
Financial Services from 1982 to 1988
and 1991 to 1995, and served as
Chairman from 1988 to 1997. Mr. Nauert
had been employed in an executive
capacity by one or more of the
insurance subsidiaries of Pioneer
Financial Services from 1968 to 1997.
John F. Novatney, Jr. 68 / 1976 General Counsel of CRL. Prior to June,
1996, Mr. Novatney was a partner in the
law firm of Baker & Hostettler LLP.
Richard M. Osborne 53 / 1998 Chief Executive Office of OsAir, Inc.,
a company Mr. Osborne founded in 1963.
OsAir, Inc., is a manufacturer of
industrial gases for pipeline delivery
and a real property developer. Mr.
Osborne is the sole Manager of the
"Fund", which began operations in
January 1995. The Fund acquires, holds,
sells or otherwise invests in all types
of securities and other instruments.
Mr. Osborne is a director of TIS
Mortgage Investment Company, a real
estate investment trust, a director and
Chairman of Pacific Gateway Properties,
Inc., a real estate company, and a
director and Vice-Chairman of GLB
Bancorp, Inc., a bank holding company.
Robert A. Spass 42 / 1998 Managing Partner of Insurance Partners
Advisors, L. P., an investment
management company, from 1994 to the
present. Mr. Spass served as President
and Chief Executive Officer of
International Insurance Advisors, Inc.,
an investment
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME: AGE / DIRECTOR SINCE: PRINCIPAL OCCUPATION:
- ------------------------ ------------------------- ---------------------------------------
<S> <C> <C>
management company, from 1990 to 1994.
Mr. Spass is a director of Superior
National Insurance Group, Inc., MMI
Companies, a professional liability
insurer, and Highland Insurance Group,
Inc.
Mark Tabak 48 / 1998 President and Chief Executive Officer
of International Managed Care Advisors,
LLC, from 1996 to the present. Mr.
Tabak is also Chairman of AIG Managed
Care, Inc., a subsidiary of American
International Group from 1993 to 1996.
Prior to joining Group Health Plan, he
was President of Health America
Development Corporation. Mr. Tabak also
founded Clinical Pharmaceuticals, Inc.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company has standing executive, audit,
investment and compensation committees, as described below:
EXECUTIVE COMMITTEE. The Executive Committee has all powers of the Board in
the management of the business and affairs of the Company between Board meetings
except the power to fill vacancies on the Board or its committees. The Executive
Committee also functions as a nominating committee. In functioning as a
nominating committee, the Executive Committee seeks qualified persons to serve
as directors of the Company and makes recommendations to the Board of Directors.
The Executive Committee will consider nominees for the Board of Directors
recommended by shareholders, provided that the names of such persons are
submitted by January 30 for the next succeeding annual shareholders' meeting.
Such recommendations should be submitted only on behalf of persons willing to
serve as directors and should include a resume of their business experience and
qualifications. Until July 8, 1998, when a separate compensation committee was
created, the Executive Committee also served as a compensation committee
responsible for determining the compensation of the Company's executive
officers. Currently, members of the Executive Committee are Messrs. Nauert
(Chairman), Cavataio and Spass. The Executive Committee met once during 1997 and
took action in writing without a meeting four times.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
the firm of independent accountants to serve the Company and reviews the scope,
performance and results of the annual audit of the Company. Its members are
Messrs. Boemi (Chairman), Osborne and Tabak. The Audit Committee met six times
during 1997.
INVESTMENT COMMITTEE. The Investment Committee establishes policy for, and
monitors management of, the Company's investments. Its members are Messrs.
Cavataio (Chairman), Lick and Novatney. Frank W. Grimone, Senior Executive Vice
President and Chief Financial Officer of the Company, participates in all
meetings of the Investment Committee. The Investment Committee met twice during
1997.
5
<PAGE>
COMPENSATION COMMITTEE. A Compensation Committee was formed on July 8,
1998, and is now responsible for determining the compensation of the Company's
executive officers. Members of the Compensation Committee are Messrs. Cooper
(Chairman), Cavataio and Osborne. The Compensation Committee had no meetings in
1997 since it was first formed in July 1998.
The Board of Directors met 16 times during 1997 and took action in writing
without a meeting twice. Each director attended at least 75% of the meetings
held by the Board of Directors and the committees of the Board of Directors on
which he served.
DIRECTOR COMPENSATION
During 1997, the directors of the Company were paid $2,000 per quarter plus
$1,000 per Board meeting attended and $1,000 per committee meeting attended plus
expenses of attendance, except that by informal agreement of the directors, a
reduced fee of $500 was paid for four of the Board meetings. Mr. Lick and Mr.
Novatney received no compensation as directors.
6
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth at the Record Date certain information with
respect to the beneficial ownership of Common Shares by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Shares,
(ii) each Company director, (iii) each of the named executive officers and (iv)
all company executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
<S> <C> <C>
Insurance Partners, L.P. (2) 13,102,100(3) 77.5
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Insurance Partners Offshore 13,102,100(3) 77.5
(Bermuda), L.P. (2)
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Peter W. Nauert (2) 13,102,100(3) 77.5
c/o Strategic Acquisition Partners, LLC
1750 East Golf Road, Suite 210
Schaumburg, Illinois 60173
Strategic Acquisition Partners, LLC (2) 13,102,100(3) 77.5
1750 East Golf Road, Suite 210
Schaumburg, Illinois 60173
Richard M. Osborne (2) 13,102,100(3) 77.5
7001 Center Street
Mentor, Ohio 44060
Turkey Vulture Fund XIII, Ltd. (2) 13,102,100(3) 77.5
c/o Mr. Richard M. Osborne
7001 Center Street
Mentor, Ohio 44060
Medical Mutual of Ohio (2) 13,102,100(3) 77.5
1200 Huron Road
Tenth Floor
Cleveland, Ohio 44115
LEG Partners SBIC, L.P. (2) 13,102,100(3) 77.5
230 Park Avenue
19th Floor
New York, New York 10169
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
<S> <C> <C>
United Payors & United Providers, Inc. (2) 13,102,100(3) 77.5
2275 Research Boulevard
Rockville, Maryland 20850
Karon Hill (2) 13,102,100(3) 77.5
3883 Turtle Creek #1504
Dallas, Texas 75219
Val Rajic (2) 13,102,100(3) 77.5
1750 East Golf Road, Suite 210
Schaumburg, Illinois 60173
Howard R. Conant (2) 13,102,100(3) 77.5
c/o Lunn Partners
209 South La Salle
Chicago, Illinois 60604
Joseph Cusimano IRA (2) 13,102,1003 77.5
c/o Lunn Partners
209 South LaSalle
Chicago, Illinois 60604
Michael A. Cavataio (2) 13,102,100(3) 77.5
3125 Ramsgate Road
Rockford, Illinois 61114
Marc C. Krantz (2) 13,102,100(3) 77.5
1375 East 9th Street
20th Floor
One Cleveland Center
Cleveland, Ohio 44114
Krantz Family Limited Partnership (2) 13,102,100(3) 77.5
c/o Marc C. Krantz
1375 East 9th Street
20th Floor
One Cleveland Center
Cleveland, Ohio 44114
Fred Lick, Jr. 355,000(4) 2.1
John F. Novatney, Jr. 13,000 *
Andrew A. Boemi 0 0
Bradley E. Cooper 0 0
Mark H. Tabak 0 0
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
<S> <C> <C>
Robert A. Spass 0 0
Frank W. Grimone 125,000 *
Glen A. Laffoon 86,650(5) *
James A. Weisbarth 14,075 *
All executive officers and directors as a 13,694,825 81.1
group
(13 persons)
</TABLE>
* Less than one percent of the outstanding Common Shares of the Company.
(1) Unless otherwise indicated, the persons or entities named have sole voting
and investment power with respect to all Common Shares shown as being
beneficially owned by them.
(2) Each entered into a Voting Agreement which will remain in effect until July
2, 2003. The Voting Agreement provides that the parties to the Agreement
shall cause the Board to consist of nine directors, some or all, as
applicable, of whom shall consist of the following individuals: (i)(a) four
individuals designated by Insurance Partners, so long as Insurance Partners
and their officers, directors, employees and affiliates ("IP Group") owns
Common Shares equal to at least 75% of the Common Shares owned by the IP
Group on July 3, 1998, (b) three individuals designated by Insurance
Partners, so long as the IP Group owns Common Shares equal to at least 50%,
but less than 75%, of the Common Shares owned by the IP Group on July 3,
1998, (c) two individuals designated by Insurance Partners, so long as the
IP Group owns Common Shares equal to at least 25%, but less than 50%, of the
Common Shares owned by the IP Group on July 3, 1998, and (d) one individual
designated by Insurance Partners, so long as the IP Group owns Common Shares
equal to at least 10%, but less than 25%, of the Common Shares owned by the
IP Group on the Closing Date; (ii)(a) two individuals designated by
Strategic Partners, so long as the Strategic Partners and its affiliates
(the "SAP Group") owns Common Shares equal to at least 50% of the Common
Shares owned by the SAP Group on July 3, 1998, and (b) one individual
designated by Strategic Partners, so long as the SAP Group owns Common
Shares equal to at least 10%, but less than 50%, of the Common Shares owned
by the SAP Group on July 3, 1998; and (iii) one individual designated by the
Fund, so long as the Fund and its affiliates (the "Osborne Group"), owns
Common Shares equal to at least 25% of the Common shares owned by the
Osborne Group on July 3, 1998; (iv) John F. Novatney, Jr., until the earlier
to occur of (a) December 31, 1999, or (b) the first date as of which the
Company does not have a class of equity securities registered under the
Exchange Act; (v) Fred Lick, Jr., until the earlier to occur of (a) December
31, 1999, (b) the first date as of which the Company does not have a class
of equity securities registered under the Securities Exchange Act of 1934,
as amended, or (c) expiration of the remaining term of his employment
agreement with the Company, as amended.
(3) Includes (1) 2,799,466 Common Shares and warrants to purchase 1,399,733
Common Shares at $5.50 per share exercisable any time until July 2, 2005
(the "Equity Warrants") owned by IP Delaware; (2) 1,545,990 Common Shares
and 772,995 Equity Warrants owned by IP Bermuda; (3) 934,636 Common Shares,
466,818 Equity Warrants, warrants to purchase 500,000 Common Shares at $6.00
per share (the "Guarantee Warrants") and non-qualified options to purchase
500,000 Common Shares, 150,000 of which have vested at an average price of
$6.83 per share owned by Mr. Nauert; (4) 1,120,910 Common Shares, 360,455
Equity Warrants and 300,000 Guarantee Warrants owned by the Fund; (5)
363,636 Common Shares and 181,818 Equity Warrants owned by Medical Mutual of
Ohio;
9
<PAGE>
(6) 181,818 Common Shares and 90,909 Equity Warrants owned by LEG Partner
SBIC, L.P. ("LEG"); (7) 181,818 Common Shares and 90,909 Equity Warrants
owned by United Payers & United Providers, Inc. ("United"); (8) 100,000
Common Shares and 50,000 Equity Warrants owned by Karon Hill and 100 Common
Shares, 100,000 Guarantee Warrants and non-qualified options to purchase
125,000 Common Shares, 25,000 of which have vested at $5.50 per share owned
by Ms. Hill's spouse; (9)100,000 Common Shares, 50,000 Equity Warrants,
100,000 Guarantee Warrants and non-qualified options to purchase 125,000
Common Shares, 25,000 of which have vested at $5.50 per share owned by Val
Rajic; (10) 90,909 Common Shares and 45,455 Equity Warrants owned by Howard
Conant; (11) 90,909 Common Shares and 45,454 Equity Warrants owned by Joseph
Cusimano, IRA; (12) 130,316 Common Shares and 65,158 Equity Warrants owned
by Michael Cavataio; (13) 51,502 Common Shares and 25,751 Equity Warrants
owned by the Mercantile Bank of Norther Illinois, Trustee of the Conseco
Deferred Compensation Plan F/B/O Michael Cavataio ("Conseco Deferred
Compensation Plan"); (14) 5,546 Common Shares and 2,273 Equity Warrants
owned by Marc Krantz; and (14) 4,544 Common Shares and 2,272 Equity Warrants
owned by the Krantz Family Limited Partnership ("the Krantz FLP"). All of
the preceding Common Shares, Equity Warrants and Guaranteed Warrants (the
"Investor Shares") are subject to the Voting Agreement, which is described
in Footnote 2 of this table, and, as a result, each of IP Delaware, IP
Bermuda, Mr. Nauert, Strategic Partners, Mr. Osborne, the Fund, Medical
Mutual of Ohio, LEG, United, Ms. Hill, Mr. Rajic, Mr. Conant, the Joseph
Cusimano IRA, Mr. Cavataio, the Conseco Deferred Compensation Plan, Mr.
Krantz and the Krantz FLP (collectively the "Investors") may be deemed to
beneficially own, as part of a group, all of the Investor Shares. Each of
the Investors disclaims beneficial ownership of the Common Shares
beneficially owned by the other Investors, except that Mr. Cavataio does not
disclaim beneficial ownership of the Common Shares and Equity Warrants held
for his benefit by the Conseco Deferred Compensation Plan. Mr. Cavataio
shares voting and investment powers with this plan. The Company issued
Guarantee Warrants to Mr. Nauert and the Fund on December 16, 1997, and July
3, 1998, which are exercisable any time until five years from the date of
issuance.
(4) Includes 37,500 Common Shares owned by Mid American Asset Management
Corporation, of which Mr. Lick is the sole shareholder.
(5) Includes 41,150 Common Shares held by Mr. Laffoon's spouse and 3,000 Common
Shares held jointly with his spouse.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In order to comply with certain state insurance regulatory requirements
which prohibit providing group life insurance unless at least ten lives are
insured, the Company formed CRL Preferred Group, Inc., International
Professional Group, Inc., North America Preferred Employers, Inc., and Keystone
Employers Group, Inc. to serve as trustees of trusts established to provide
group life insurance to employers with less than ten employees (such
corporations the "Trustee Corporations"). In compliance with state regulations
which require that the Trustee Corporations' shareholders be natural persons,
Mr. Lick and Mr. Grimone hold, for the benefit of the Company, all of the
outstanding shares of the Trustee Corporations and are directors of the Trustee
Corporations. Mr. Weisbarth holds the office of President of the Trustee
Corporations. None of the officers or directors of the Trustee Corporations
receives any compensation for serving in such capacity.
10
<PAGE>
For a discussion of the employment contracts the Company has with Messrs.
Lick, Grimone, Laffoon and Weisbarth, see "Compensation Committee Report on
Executive Compensation" beginning on Page 12.
Mr. Val Rajic, who was a director and the acting Chief Operating Officer
during 1997 and who is currently an Executive Vice President of the Company, has
served as President of Strategic Partners since November 1997.
Also, see Footnote No. 2, starting on Page 8 herein, for a description of
the Voting Agreement.
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return to the cumulative total return of the University of Chicago Center for
Research in Security Prices ("CRSP") Nasdaq Stock Market Index and the CRSP
Nasdaq Insurance Stocks Index. (Assumes $100 invested on December 31, 1992, in
each of three indices and dividends reinvested.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CENTRAL RESERVE CRSP INDEX FOR NASDAQ CRSP INDEX FOR NASDAQ
<S> <C> <C> <C>
Life Corporation Insurance Stocks Stock Market (US Companies)
12/31/92 100.0 100.0 100.0
12/31/93 78.1 114.9 107.0
12/30/94 98.7 112.2 100.7
12/29/95 119.8 158.7 143.0
12/31/96 102.9 195.2 163.0
12/31/97 68.1 239.5 239.2
</TABLE>
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by Central
Reserve Life Insurance Company ("CRL"), the principal operating subsidiary of
the Company, with respect to the calendar years ended December 31, 1997, 1996,
and 1995, to the Chief Executive Officer and all other executive officers of the
Company who have earned more than $100,000 annually during those years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION ($) (1)
- ------------------------------------------ --------- --------------------- ---------------------
<S> <C> <C> <C>
FRED LICK, JR. 1997 966,994 20,635
Chairman of the Board of the 1996 966,994 23,671
Company and CRL 1995 871,166 19,305
FRANK W. GRIMONE 1997 258,000 20,635
Senior Executive Vice President 1996 258,000 20,755
and Chief Financial Officer of 1995 258,000 19,305
the Company and CRL
GLEN A. LAFFOON 1997 160,000 20,635
Executive Vice President of the 1996 200,000 20,486
Company and President and Chief 1995 234,000 19,305
Executive Officer of CRL
JAMES A. WEISBARTH 1997 160,000 20,635
Treasurer and Assistant Secretary 1996 150,000 19,653
of the Company and Executive Vice
President, Treasurer and Assistant
Secretary of CRL
</TABLE>
(1) For the years 1997 and 1995, represents the contribution under a
defined-contribution, money-purchase, pension plan. For 1996, includes the
contribution under a defined-contribution, money-purchase, pension plan of
$19,305 for each officer and the following amounts equal to the full-dollar
economic value of the premiums paid in connection with life insurance
policies issued pursuant to the Split-dollar Life Insurance Agreements
between CRL and the following executive officers: Mr. Lick: $4,366; Mr.
Grimone: $1,450; Mr. Laffoon: $1,181; and Mr. Weisbarth: $348. The
Split-Dollar Life Insurance Agreements were terminated in 1997.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides information for each of the executive officers
concerning the exercise of options during 1997 and the number and value of
options held at year-end for the Company's Common Shares.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY
NAME EXERCISE (#) REALIZED ($)(1) OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
- ------------- ------------- --------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Exercisable/Unexercisable Exercisable/Unexercisable
Fred Lick,
Jr......... 50,000 75,350 0/0 0/0
</TABLE>
(1) Represents the difference between the aggregate exercise price of the
options and the aggregate closing price of the Company's Common shares on
the date of exercise.
13
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1997, the Executive Committee, whose members were Fred Lick, Jr.,
John F. Novatney, Jr., and E. Lawrence Hendershot, M.D., was responsible for
determining the compensation for that year for the Company's executive officers,
Mr. Lick, Frank W. Grimone, Glen A. Laffoon and James A. Weisbarth. Val Rajic
became an executive officer December 16, 1997. In July 1998, a Compensation
Committee was formed to determine the compensation of the Company's executive
officers.
The Company is somewhat different from most other public companies in that
it does not have a large pool of executive officers. In 1997 and in past years,
the Company has not had complicated long-term compensation arrangements for its
executive officers. Instead, the Company particularized its compensation
policies for each executive officer based on the officer's role and the
Company's expectation for the officer.
CRL entered into an employment agreement with Mr. Lick effective January 1,
1982, pursuant to which he served during 1997 as Chairman of the Board,
President and Chief Executive Officer of CRL. Under that agreement, Mr. Lick
received a salary of $966,994 in 1997. On December 15, 1997, Mr. Lick and CRL
entered into an employment agreement which replaced the existing agreement as of
January 1, 1998. Under the new agreement, Mr. Lick presently serves as Chairman
and will receive a salary of $500,000 for 1998 and 1999. In accordance with the
terms of the agreement, the parties will thereafter negotiate in good faith for
Mr. Lick's continued employment for the years 2000 and 2001 on the basis of an
incentive-based compensation program.
Under his 1982 agreement, Mr. Lick received in 1997 six weeks vacation
annually, cumulative from year to year; an automobile and its operational
expenses; reimbursement of his business expenses; continuation of his salary
during any total or partial disability and certain other fringe benefits. Mr.
Lick will receive generally the same benefits under his new employment agreement
except that no vacation time prior to January 1, 1998, shall accumulate.
Mr. Lick's new employment agreement provides that in the event of a change
of control of CRL or the Company, the agreement shall inure to the benefit of
and be binding upon both parties or any purchaser or surviving corporation. Mr.
Lick's employment agreement may not be terminated by CRL. If CRL does terminate
the agreement, or if Mr. Lick terminates the agreement because of a material
breach by CRL, his annual salary shall become fixed and shall be paid in one
lump sum within 30 days.
Mr. Lick entered into an employment agreement on December 15, 1997, with the
Company which replaced an existing agreement as of January 1, 1998. The new
agreement provides that if CRL terminates or is unable to fulfill any of its
obligations under the employment agreement with Mr. Lick, then obligations of
CRL become the responsibility of the Company. Mr. Lick's new employment
agreement with the Company is for the same term as his new employment agreement
with CRL. This employment agreement may not be terminated by the Company.
Mr. Grimone received $258,000 in 1997 under employment contracts with the
Company and CRL that had been in effect since January 1, 1984. Under those
agreements, Mr. Grimone was entitled to an automobile and its operational
expenses, the reimbursement of business expenses, and certain other fringe
benefits. The Company and CRL entered into an employment agreement on December
16, 1997, with Mr. Grimone which replaced the prior agreements as of January 1,
1998. Under that new agreement, Mr. Grimone will be paid a salary for 1998 at an
annual rate of $250,000 and will receive the same fringe benefits as under the
prior agreements.
14
<PAGE>
On June 26, 1998, the Board of Directors re-elected Mr. Grimone as Senior
Executive Vice President and Chief Financial Officer. While the employment
contract entered into in December 1997 had contemplated Mr. Grimone going to a
consulting status on a part-time basis as of July 1, 1998, the Company and CRL
requested Mr. Grimone to remain as Chief Financial Officer on a full-time basis.
The Company and CRL believe the continuation of Mr. Grimone's guidance and
expertise would be of great benefit in the Company's plans for growth through
acquisitions and increased retail sales of the Company's insurance products.
Mr. Laffoon receives compensation in the form of an annual salary. During
1997, Mr. Laffoon served as Executive Vice President, Product Development. His
annual compensation was based upon the successful development and introduction
of new products and the overall performance of his duties. Mr. Laffoon was paid
a salary of $160,000 in 1997.
Mr. Laffoon and CRL entered into an employment contract on August 12, 1998,
under which Mr. Laffoon will receive a salary of $160,000 for the period of June
1, 1998 to June 1, 1999 and each renewal year. The agreement automatically
renews for one-year terms unless CRL provides 60 days advance notice of
non-renewal. In the event Mr. Laffoon should leave the employment of CRL other
than as a voluntary quit or be terminated for cause, Mr. Laffoon would be
entitled to severance pay equivalent to one year's salary. The agreement also
provides for reimbursement of business expenses and certain other fringe
benefits.
Mr. Weisbarth, who has been with CRL since 1980, served as Executive Vice
President and Treasurer in 1997. Mr. Weisbarth is responsible for preparing the
Company's budget and the consolidated financial reports and statements,
overseeing the Company's information systems and purchasing, handling risk
management matters, developing cost controls and reviewing large capital
expenditures. He also holds the office of assistant secretary. Mr. Weisbarth
receives compensation in the form of an annual salary. Mr. Weisbarth was paid
$160,000 in 1997, reflective of his operational responsibilities.
Mr. Weisbarth and CRL entered into an employment contract on August 13,
1998, under which Mr. Weisbarth will receive a salary of $160,000 for the period
of June 1, 1998 to June 1, 1999 and each renewal year. The agreement
automatically renews for one-year terms unless CRL provides 60 days advance
notice of non-renewal. In the event Mr. Weisbarth should leave the employment of
CRL other than as a voluntary quit or be terminated for cause, Mr. Weisbarth
would be entitled to severance pay equivalent to one year's salary. The
agreement also provides for reimbursement of business expenses and certain other
fringe benefits.
The Compensation Committee
Bradley E. Cooper
Michael A. Cavataio
Richard M. Osborne
15
<PAGE>
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, Mr. Lick and Mr. Novatney served on the Executive Committee, which
served as a compensation committee responsible for determining the compensation
of the Company's executive officers for that year.
In 1997, Mr. Lick was President and Chief Executive Officer of the Company
and of CRL. While Mr. Lick served on the Company's Executive Committee, he
abstained in any action affecting his own compensation as an executive officer.
See "Certain Relationships and Related Transactions" on Page 10 with respect to
transactions between Mr. Lick and the Company.
PROPOSAL TWO: AMENDMENT OF THE AMENDED ARTICLES OF
INCORPORATION TO ELIMINATE CUMULATIVE
VOTING IN THE ELECTION OF DIRECTORS
Proposal Two provides for an amendment to the Company's Amended Articles of
Incorporation (the "Articles") to eliminate cumulative voting in the election of
directors. This amendment is recommended by the Board of Directors in accordance
with the term of the Voting Agreement, which requires the Company to amend its
Articles to eliminate cumulative voting in the election of directors. Under the
proposal, the Articles would be amended to restate Article FOURTH, Section 3, as
follows:
Section 3. Common Shares Each Common Share shall entitle the holder
thereof to one vote, in person or by proxy, at any and all meetings of the
shareholders of the corporation, on all propositions before such meetings.
Notwithstanding any provision of the Ohio Revised Code, now or hereafter in
force, no shareholder may cumulate his voting power in the election of
directors. Each Common Share shall be entitled to participate equally in
such dividends as may be declared by the Board of Directors out of funds
legally available therefor, and to participate equally in all distributions
of assets upon liquidation.
VOTES REQUIRED. The Eleventh Article of the Articles provides that unless
two-thirds of the Company's directors act to approve or to recommend to the
shareholders the approval of certain matters, the affirmative vote of 75% of the
Common Shares (rather than a simple majority) is required to approve such
matters. These requirements must be satisfied in order to amend or alter the
Articles. The Board has unanimously approved the adoption of Proposal Two. Thus,
the affirmative vote of a majority of the outstanding Common Shares is required
to approve Proposal Two.
PURPOSE AND EFFECTS OF THE AMENDMENT. Under cumulative voting in an
election of directors, each share has a number of votes equal to the number of
directors to be elected, and each shareholder may cast all of his votes for a
single candidate or allocate them among as many candidates and in such
proportions as he chooses.
Thus, through cumulative voting, minority shareholders may cast all their
votes for one nominee and may elect one or more nominees to the Board of
Directors who would not otherwise have received sufficient votes to be elected.
Without cumulative voting, each shareholder would be entitled to cast one vote
per share for a candidate for director so that the holders of a majority of
shares would elect the entire Board of Directors. If the proposal to eliminate
cumulative voting is approved, the ability of minority shareholders to elect a
representative to the Board of Directors without the cooperation of the
shareholders owning a majority of the common shares would be greatly decreased
if not eliminated. Therefore, the proposal could have the effect of entrenching
incumbent management.
16
<PAGE>
Ohio law requires the following disclosure: AN EFFECT OF THE AMENDMENT TO
THE ARTICLES WILL BE TO PERMIT A MAJORITY OF A QUORUM OF THE VOTING POWER IN THE
ELECTION OF DIRECTORS TO ELECT OR REMOVE EVERY DIRECTOR AND TO PRECLUDE A
MINORITY OF A QUORUM OF THE VOTING POWER IN THE ELECTION OR REMOVAL OF DIRECTORS
FROM ELECTING OR PREVENTING THE REMOVAL OF ANY DIRECTOR.
While the elimination of cumulative voting may impact the voting rights of
certain minority shareholders, cumulative voting creates an administrative
expense and burden to administer for the Company and may affect the Company's
ability to conduct a public offering of its shares on an underwritten basis on
comercially reasonable terms. Thus, the Board of Directors believes that the
expense and burdens associated with cumulative voting outweigh its benefits to
minority shareholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" PROPOSAL TWO,
THE AMENDMENT OF THE AMENDED ARTICLES OF INCORPORATION TO ELIMINATE CUMULATIVE
VOTING IN THE ELECTION OF DIRECTORS.
CHANGE OF INDEPENDENT AUDITOR
The Company has appointed Ernst & Young LLP as its independent auditors for
the fiscal year ending December 31, 1998, to replace the firm of KPMG Peat
Marwick LLP, who were dismissed as auditors of the Company effective August 27,
1998.
The Audit Committee of the Company's Board of Directors approved the
engagement of Ernst & Young LLP as the company's independent auditors. The audit
reports of KPMG Peat Marwick LLP on the Company's consolidated financial
statements for the two fiscal years ended December 31, 1997,did not contain an
adverse opinion or a disclaimer of opinion, but were modified for going concern
uncertainties.
In connection with the audits of the Company's consolidated financial
statements for fiscal years ended December 31, 1997 and 1996, and the subsequent
interim period through August 27, 1998, no disagreements existed with KPMG Peat
Marwick LLP on any matters of accounting principles or practices, financial
statement or disclosure, or auditing scope and procedures which, if not resolved
to the satisfaction of KPMG Peat Marwick LLP would have caused KPMG Peat Marwick
LLP to make reference to the matter in their report.
No "reportable events" occurred as that term is described in Item
304(a)(1)(v) of Regulation S-K.
KPMG Peat Marwick LLP has furnished the Company with a letter addressed to
the Securities and Exchange Commission stating that it agrees with the above
statements.
The Company engaged Ernst & Young LLP as its new independent accountants
effective August 27, 1998. During the two most recent fiscal years and through
August 27, 1998, the Company has not consulted with Ernst & Young LLP regarding
(1) the application of accounting principles to any transaction; (2) the type of
audit opinion that might be rendered on the Company's financial statements; (3)
any disagreement or reportable event as those terms are described or defined in
Items 304(a)(1)(iv) and 304 (a)(1)(v) of Regulation S-K; or (4) any other
matters or events set forth in Item 304 (a)(2) of Regulation S-K.
Representatives of Ernst & Young LLP are expected to be present at the
Special Meeting and will be available to respond to appropriate questions.
17
<PAGE>
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 1999 Annual Meeting
of Shareholders for inclusion in the proxy statement and form of proxy relating
to that meeting is advised that the proposal must be received by the Company at
its principal executive offices not later than December 16, 1998. The Company
will not be required to include in its proxy statement or form of proxy a
shareholder proposal which is received after that date or which otherwise fails
to meet requirements for shareholder proposals established by regulations of the
Securities and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Common Shares, to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based on a review of the
copies of such forms furnished to the Company and written representation from
the Company's executive officers and directors, the Company believes that all
forms were filed in a timely manner during 1997, with the following exceptions:
Form 3 for Andrew A. Boemi, Michael A. Cavataio and Val Rajic, who became
directors on December 16, 1997, were filed late.
OTHER MATTERS
The solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation will be borne by the Company, including
the reasonable expenses of brokerage firms or other nominees for forwarding
proxy materials to beneficial owners. In addition to solicitation by mail,
proxies may be solicited by telephone, telegraph or personally. Proxies may also
be solicited by directors, officers and employees of the Company without
additional compensation.
If the enclosed form of proxy is validly executed, returned, and not
revoked, the shares represented thereby will be voted in accordance with any
specification made by the shareholder. In the absence of any such specification,
proxies will be voted FOR the election of the nine nominees as set forth under
"Election of Directors" on Page 1 and FOR Proposal No. 2.
The presence of any shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time, insofar as it has not been
exercised, (1) by a later-dated proxy; (2) by giving written notice to the
Company; or (3) in open meeting.
18
<PAGE>
If any other matters shall properly come before the meeting, the persons
named in the proxy, or their substitutes, will vote thereon in accordance with
their judgment. The Board of Directors does not know of any other matters which
will be presented for action at the meeting.
By order of the Board of Directors.
/s/ Fred Lick, Jr.
Chairman of the Board
Date: October 5, 1998
19
<PAGE>
DETACH CARD
-------------------------------------------------------------------------------
CENTRAL RESERVE LIFE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS ON OCTOBER 22, 1998.
The undersigned hereby constitutes and appoints Fred Lick, Jr., and
Frank W. Grimone, and each of them, his true and lawful agents and proxies
with full power of substitution in each, to represent the undersigned at
the Special Meeting of Shareholders in Lieu of the Annual Meeting of
Shareholders of Central Reserve Life Corporation to be held at the Home
Offices of the Company, CRL Plaza, 17800 Royalton Road, Strongsville, Ohio
on Thursday, October 22, 1998, and at any adjournment thereof, on all
matters coming before said meeting.
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1 AND "FOR"
PROPOSAL 2.
1. Directors: Andrew A. Boemi; Michael A. Cavataio; Bradley E. Cooper; Fred
Lick, Jr.; Peter W. Nauert; John F. Novatney, Jr.; Richard M. Osborne;
Robert A. Spass; and Mark H. Tabak.
<TABLE>
<C> <C> <C> <S>
FOR WITHHELD
/ / / / / / FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
--------------------------------------------------------------------------------
</TABLE>
2. Amendment to the Amended Articles of Incorporation to eliminate
cumulative voting for the election of directors.
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN SEE REVERSE
/ / / / / / SIDE
</TABLE>
PROXY
<PAGE>
DETACH CARD
-------------------------------------------------------------------------------
PROXY NO. SHARES
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
Dated ________________, 1998
____________________________
Signature
____________________________
Signature
____________________________
Title
NOTE: Please sign as name
appears hereon. Joint owners
should each sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such.
