<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
CERES GROUP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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: ...........................................................
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<PAGE> 2
[CERES LOGO]
CERES GROUP, INC.
NOTICE OF THE 1999
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
Notice is hereby given that the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") of Ceres Group, Inc. (the "Company") will be held at the
Home Offices of the Company, 17800 Royalton Road, Strongsville, Ohio 44136, on
Thursday, June 10, 1999, at 2:00 p.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 (Proposal 1);
2. To consider and vote upon a proposal to approve the Company's
1998 Key Employee Share Incentive Plan, as set forth and
included in the accompanying Proxy Statement (Proposal 2);
3. To consider and vote upon a proposal to approve and adopt
performance-based compensation for Peter W. Nauert, the
Company's President and Chief Executive Officer (Proposal 3);
4. To ratify the appointment of Ernst & Young LLP as independent
accountants for the Company for the fiscal year ending
December 31, 1999 (Proposal 4); and
5. To consider and transact such other business as may properly
come before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 12, 1999
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof.
By order of the Board of Directors
/s/ Linda S. Standish
LINDA S. STANDISH, Secretary
May 3, 1999
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3
CERES GROUP, INC.
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 the 1999 Annual Meeting of Stockholders (the "Annual
Meeting") of Ceres Group, Inc., a Delaware corporation ("Ceres" or the
"Company"), to be held on Thursday, June 10, 1999.
This Proxy Statement and the accompanying Notice and form of proxy
("proxy card"), together with the Company's Annual Report to Shareholders and
Form 10-K/A for the fiscal year ended December 31, 1998, will first be sent to
stockholders on or about May 3, 1999.
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
Q: WHEN AND WHERE IS THE ANNUAL MEETING?
A: Ceres' 1999 Annual Meeting of Stockholders will be held on Thursday,
June 10, 1999 at 2:00 p.m. local time at the Home Offices of the
Company, 17800 Royalton Road, Strongsville, Ohio 44136.
- --------------------------------------------------------------------------------
Q: WHAT ARE STOCKHOLDERS VOTING ON?
A: - Re-election of nine 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).
- Approval of the Company's 1998 Key Employee Share Incentive
Plan.
- Approval of performance-based compensation for Peter W.
Nauert, the Company's President and Chief Executive Officer.
- Ratification of the appointment of Ernst & Young LLP as Ceres'
independent accountants.
If a proposal other than the four listed above is presented at the
Annual Meeting, your signed proxy card gives authority to Charles E.
Miller, Jr. and Glen A. Laffoon to vote on such matters.
- --------------------------------------------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on April 12, 1999 (the "Record
Date") are entitled to vote at the Annual Meeting. Each share of common
stock, par value $0.001 per share (the "Common Shares"), is entitled to
one vote.
- --------------------------------------------------------------------------------
1
<PAGE> 4
- --------------------------------------------------------------------------------
Q: HOW DO STOCKHOLDERS VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. You have the right to revoke your proxy by notifying Ceres in
writing or by returning a later-dated proxy card any time before the
Annual Meeting or by voting in person at the Annual Meeting. If you
return your signed proxy card, but do not indicate your voting
preferences, Charles E. Miller, Jr. and Glen A. Laffoon will vote FOR
each of the nominated directors and FOR each of the other three
proposals.
- --------------------------------------------------------------------------------
Q: WHO WILL COUNT THE VOTE?
A: Representatives of National City Bank, the Company's transfer agent,
will tabulate the votes. Marlayna J. Miller and Linda S. Standish will
act as inspectors of election.
- --------------------------------------------------------------------------------
Q: WHAT SHARES ARE INCLUDED IN THE PROXY CARD?
A: The number of shares printed on your proxy card represent all your
shares, including those shares in the Company's Dividend Reinvestment
Plan. If you are an employee of Central Reserve Life Insurance Company,
shares in your 401(k) savings plan will be voted in accordance with
your instructions, if indicated. If your proxy card is signed, but does
not indicate your voting preferences, Ceres has been advised by the
401(k) plan administrator and the plan trustee that your shares will be
voted in favor of each of the nominated directors and each of the other
three proposals.
- --------------------------------------------------------------------------------
Q: WHAT DOES IT MEAN IF A STOCKHOLDER GETS MORE THAN ONE PROXY CARD?
A: Receipt of more than one proxy card means that your shares are
registered differently and are in more than one account. Sign and
return all proxy cards to ensure that all your shares are voted. To
provide better stockholder services, we encourage you to have all
accounts registered in the same name and address. You may do this by
contacting our transfer agent, National City Bank at (800) 622-6757.
- --------------------------------------------------------------------------------
Q: WHAT CONSTITUTES A QUORUM?
A: As of the Record Date, 13,497,732 Common Shares were issued and
outstanding. A majority of the outstanding Common Shares, present or
represented by proxy, constitutes a quorum for the transaction of
adopting proposals at the Annual Meeting. If you submit a properly
executed proxy card, you will be considered part of the quorum. If you
are present or represented by a proxy at the Annual Meeting and you
abstain, your abstention will have the same effect as a vote against
such proposal. "Broker non-votes" will not be part of the voting power
present, but will be counted to determine whether or not 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.
- --------------------------------------------------------------------------------
2
<PAGE> 5
- --------------------------------------------------------------------------------
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All stockholders as of the Record Date can attend.
- --------------------------------------------------------------------------------
Q: WHAT PERCENTAGE OF STOCK DO THE DIRECTORS AND EXECUTIVE OFFICERS OWN?
A: Together, as of the Record Date, they beneficially own approximately
36.5% of the Common Shares. (See page 9 for more details.)
- --------------------------------------------------------------------------------
Q: WHO ARE THE LARGEST PRINCIPAL STOCKHOLDERS?
A: - As of the Record Date, Insurance Partners, L.P. beneficially owns
5,149,018 Common Shares, or 34.6%.
- As of the Record Date, Insurance Partners Offshore (Bermuda), L.P.
beneficially owns 2,599,166 Common Shares, or 18.2%.
- As of the Record Date, Peter W. Nauert, Ceres' President and Chief
Executive Officer, beneficially owns 2,113,454 Common Shares, or 14.5%.
- --------------------------------------------------------------------------------
Q: WHEN IS A STOCKHOLDER PROPOSAL DUE FOR THE NEXT ANNUAL MEETING?
A: In order to be considered for inclusion in next year's proxy statement,
stockholder proposals must be submitted in writing by April 11, 2000 to
Linda S. Standish, Secretary, Ceres Group, Inc., 17800 Royalton Road,
Strongsville, Ohio 44136.
- --------------------------------------------------------------------------------
Q: HOW DOES A STOCKHOLDER NOMINATE SOMEONE TO BE A DIRECTOR OF CERES?
A: Any stockholder may recommend any person as a nominee for director of
Ceres by writing to the Chairman of the Executive Committee, c/o Ceres
Group, Inc., 17800 Royalton Road, Strongsville, Ohio 44136.
Recommendations must be received by April 11, 2000.
- --------------------------------------------------------------------------------
Q: WHO PAYS FOR THE SOLICITATION EXPENSES?
A: The expense of soliciting proxies, including the cost of preparing,
printing and mailing the proxy materials, will be paid by Ceres. In
addition to solicitation of proxies by mail, solicitation may be made
personally, by telephone and by facsimile, and Ceres may pay persons
holding shares for others their expenses for sending proxy materials to
their principals. No solicitation will be made other than by directors,
officers and employees of Ceres.
- --------------------------------------------------------------------------------
3
<PAGE> 6
PROPOSAL ONE: ELECTION OF DIRECTORS
The number of directors has been fixed at nine, and nine directors are
currently in office. At the Annual Meeting, shares represented by proxies,
unless otherwise specified, will be voted FOR the election of the nine nominees
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. In the election of directors, the nine nominees receiving
the greatest number of votes will be elected. Broker non-votes will not count in
favor of or against election of any nominee.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
MESSRS. BOEMI, CAVATAIO, COOPER, LICK, NAUERT, NOVATNEY, OSBORNE, SPASS AND
TABAK.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
Based on information as of the Record Date, the following describes the
age, position with the Company and Central Reserve Life Insurance Company, the
Company's principal operating subsidiary ("CRL"), principal occupation and
business experience during the past five years, and other directorships of each
person nominated for election as a director. Each nominee 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, dated July 1, 1998,
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 XIII, Ltd. (the "Fund") and their assignees (the
"Voting Agreement"). (See "Voting Agreement" on page 10.)
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew A. Boemi 54 Director 1997
Michael A. Cavataio 55 Director 1997
Bradley E. Cooper 32 Director 1998
Fred Lick, Jr. 68 Chairman of the Boards of Ceres and CRL 1976
Peter W. Nauert 55 President, Chief Executive Officer 1998
and a Director
John F. Novatney, Jr. 68 General Counsel of CRL and a Director 1976
Richard M. Osborne 53 Director 1998
Robert A. Spass 43 Director 1998
Mark H. Tabak 49 Director 1998
</TABLE>
4
<PAGE> 7
Andrew A. Boemi has been 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, since 1997. 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 is a 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 has been a partner of Capital Z Management, Inc., an
investment management company, since 1998. He has been a partner of Insurance
Partners Advisors, L.P., an investment management company which performs
investment banking services for IP Delaware, IP Bermuda and their portfolio
companies, since 1994. 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. is the Chairman of the Company and Chairman of CRL.
Prior to July 3, 1998, Mr. Lick was also President and Chief Executive Officer
of the Company and of CRL.
Peter W. Nauert has been the President, Chief Executive Officer and a
Director of the Company since July 3, 1998. Mr. Nauert is also the principal
investor in Strategic Partners. Mr. Nauert served as President of Pioneer
Financial Services from 1982 to 1988 and 1991 to 1995, and served 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. is the General Counsel of CRL. Prior to June
1996, Mr. Novatney was a partner in the law firm of Baker & Hostetler LLP.
Richard M. Osborne is the Chief Executive Officer of OsAir, Inc., a
company he 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 and Chairman of the Board of Meridian
Point Realty Trust '83, a real estate investment trust, a director and Chairman
of Pacific Gateway Properties, Inc., a real estate company, a director of USP
Real Estate Investment Trust, a real estate investment trust, a director of
NuMED Home Health Care, Inc., a home healthcare company, and a director and
Vice-Chairman of GLB Bancorp, Inc., a bank holding company.
5
<PAGE> 8
Robert A. Spass has been the Deputy Chairman of Capital Z Management,
Inc., an investment management company, since 1998. Since 1994, Mr. Spass
served as Managing Partner of Insurance Partners Advisors, L.P., an investment
management company which performs investment banking services for IP Delaware,
IP Bermuda and their portfolio companies. Mr. Spass served as President and
Chief Executive Officer of International Insurance Advisors, Inc., an
investment management company, from 1990 to 1994. Mr. Spass is a director of
Superior National Insurance Group, Inc., MMI Companies, and Highlands Insurance
Group, Inc.
Mark H. Tabak has been President and Chief Executive Officer of
International Managed Care Advisors LLC, since 1996. Mr. Tabak served as
Chairman of AIG Managed Care, Inc., a subsidiary of American International Group
from 1993 to 1996. Prior to joining AIG, he served as President and Chief
Executive Officer of Group Health Plan and he was President of Health America
Development Corporation. Mr. Tabak also founded Clinical Pharmaceuticals, Inc.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company has standing executive, audit,
investment and compensation committees.
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 stockholders, provided that the names of such persons are
submitted by April 11, 2000 for the next succeeding annual stockholders'
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 three times
during 1998.
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
twice during 1998.
Investment Committee. The Investment Committee establishes policy for,
and monitors management of, the Company's investments. Its members are Messrs.
Cavataio (Chairman), Lick, Novatney and Osborne. The Investment Committee met
once during 1998.
Compensation Committee. The Compensation Committee was formed on July
8,1998, and is 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 met once during
1998.
6
<PAGE> 9
The Board of Directors met seven times during 1998 and took action in
writing without a meeting eight times. Each current 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. Each former director attended at least
75% of the meetings held by the Board of Directors with the exception of one
director who attended 50%.
DIRECTOR COMPENSATION
During 1998, the current directors of the Company were not compensated
for their services as directors.
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
representations from the Company's executive officers and directors, the Company
believes that all forms were filed in a timely manner during 1998, except that
the Form 3 for Charles E. Miller, Jr., required to be filed when he became Chief
Financial Officer, was filed late.
7
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of 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 that appear in the "Executive Compensation" table, and (iv)
all executive officers and directors as a group. The information contained in
this table does not include 625,000 Common Shares issuable under non-qualified
stock options that are outstanding, but not presently exercisable, 425,000
Common Shares issuable under stock options that are outstanding but not
presently exercisable pursuant to the 1998 Key Employee Share Incentive Plan
which is subject to stockholder approval at this Annual Meeting, and 374,000
Common Shares issuable under stock options that are outstanding but not
presently exercisable pursuant to the 1998 Employee Stock Option Plan.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
- -------------------------------------------------------------------------------------------------------------------
COMMON EQUITY GUARANTEE
NAMES AND ADDRESS (2) SHARES WARRANTS (3) WARRANTS (4) OPTIONS (5) PERCENT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Partners, L.P. (6) 3,749,285 1,399,733 -- -- 34.6%
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Insurance Partners Offshore (Bermuda), L.P. (6) 1,826,171 772,995 -- -- 18.2%
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Peter W. Nauert (6) 996,636 466,818 500,000 150,000 14.5%
Richard M. Osborne (6) (7) 1,120,910 360,455 300,000 -- 12.6%
7001 Center Street
Mentor, Ohio 44060
Medical Mutual of Ohio (6) 480,009 181,818 -- -- 4.8%
1200 Huron Road, Tenth Floor
Cleveland, Ohio 44115
Lunn-Ceres, LLC (6) 400,000 -- -- -- 3.0%
209 South LaSalle, Suite 810
Chicago, Illinois 60604
LEG Partners SBIC, L.P. (6) 240,003 90,909 -- -- 2.4%
230 Park Avenue, 19th Floor
New York, New York 10169
Michael A. Cavataio (6) (8) 231,818 90,909 -- -- 2.4%
3125 Ramsgate Road
Rockford, Illinois 61114
Fred Lick, Jr. (9) 292,580 -- -- -- 2.2%
Billy B. Hill, Jr. (6) (10) 105,100 50,000 100,000 25,000 2.1%
3883 Turtle Creek #1504
Dallas, Texas 75219
Val Rajic (6) 105,092 50,000 100,000 25,000 2.1%
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
- ---------------------------------------------------------------------------------------------------------------------
COMMON EQUITY GUARANTEE
NAMES AND ADDRESS (2) SHARES WARRANTS (3) WARRANTS (4) OPTIONS (5) PERCENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United Payors & United Providers, Inc. (6) 181,818 90,909 -- -- 2.0%
2275 Research Boulevard
Rockville, Maryland 20850
Howard R. Conant (6) 90,909 45,455 -- -- 1.0%
c/o Lunn Partners
209 South LaSalle
Chicago, Illinois 60604
Joseph Cusimano IRA (6) 90,909 45,454 -- -- 1.0%
c/o Lunn Partners
209 South LaSalle
Chicago, Illinois 60604
Frank W. Grimone 120,000 *
Glen A. Laffoon (6) (11) 90,735 -- -- -- *
Charles E. Miller, Jr. (6) 2,600 -- -- 40,000 *
Sally J. Krogh (6) 25,000 -- -- -- *
c/o Stifel, Nicolaus and Co., Inc.
4343 E. State Street
Rockford, Illinois 61108
Kenneth A. Mannino (6) (12) 25,000 -- -- -- *
c/o Stifel, Nicolaus and Co., Inc.
4343 E. State Street
Rockford, Illinois 61108
John F. Novatney, Jr. 13,000 -- -- -- *
Marc C. Krantz (6) 6,967 2,273 -- -- *
1375 E. Ninth Street, 20th Floor
Cleveland, Ohio 44114
Krantz Family Limited Partnership (6) 5,965 2,272 -- -- *
1375 E. Ninth Street, 20th Floor
Cleveland, Ohio 44114
John Cochrane (6) 6,000 -- -- -- *
c/o Lunn Partners
209 S. LaSalle, Suite 810
Chicago, Illinois 60604
Bruce Henry (6) 5,000 -- -- -- *
Andrew A. Boemi (6) (13) 4,000 -- -- *
Bradley E. Cooper 0 -- -- -- 0%
Mark H. Tabak 0 -- -- -- 0%
Robert A. Spass (14) 0 -- -- -- 0%
All directors and executive officers 2,962,471 1,845,455 1,000,000 240,000 36.5%
as a group (13 individuals)
- -------------------
<FN>
(footnotes on following page)
</TABLE>
9
<PAGE> 12
* Less than 1%
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole investment and voting power over the shares of
capital stock owned.
(2) Unless otherwise indicated, the address of each of the beneficial
owners identified is c/o Ceres Group, Inc., 17800 Royalton Road,
Strongsville, Ohio 44136.
(3) Warrants to purchase Common Shares at $5.50 per share exercisable any
time until July 2, 2005.
(4) Warrants to purchase Common Shares at $6.00 per share exercisable any
time until five years from the date of issuance (December 16, 1997 and
July 3, 1998).
(5) Options to purchase Common Shares that are presently or will become
exercisable within 60 days.
(6) All of these Common Shares, Equity Warrants, Guarantee Warrants and
Options, totalling 14,679,927 or 79.8% (the "Investor Shares") are
subject to the Voting Agreement (as described below), and, as a result,
each of these persons (the "Ceres Investors") may be deemed to
beneficially own, as a part of a group, all of the Investor Shares.
Each of these persons disclaims beneficial ownership of the Investor
Shares beneficially owned by the other persons who are parties to the
Voting Agreement.
(7) Shares held by Turkey Vulture Fund XIII, Ltd., an Ohio limited
liability company, of which Mr. Osborne is the sole Manager.
(8) Includes 54,682 Common Shares and 25,751 Equity Warrants held by the
Mercantile Bank of Northern Illinois, Trustee of the Conseco Deferred
Compensation Plan F/B/O Michael Cavataio and 5,385 Common Shares held
by Stifel, Nicolaus and Co., Custodian for Michael A. Cavataio IRA.
(9) Includes 37,500 Common Shares owned by Mid American Asset Management
Corporation, of which Mr. Lick is the sole shareholder.
(10) Includes 105,000 Common Shares and 50,000 Equity Warrants held by Karon
Hill, his spouse.
(11) Includes 41,150 Common Shares held Mr. Laffoon's spouse and 3,000
Common Shares held jointly with his spouse.
(12) Shares held by Stifel, Nicolaus and Co., Custodian for Kenneth A.
Mannino IRA.
(13) Includes 3,000 Common Shares held in trust for Mr. Boemi's children.
(14) Mr. Spass is a managing partner of an indirect general partner of each
of IP Delaware and IP Bermuda. Mr. Spass disclaims beneficial ownership
of all Common Shares and Equity Warrants owned by IP Delaware and IP
Bermuda.
VOTING AGREEMENT
Each of the Ceres Investors entered into a Voting Agreement which will
remain in effect until July 2, 2003, unless earlier terminated. 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 July 3, 1998; (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;
10
<PAGE> 13
(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 Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(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 Exchange Act, or (c) expiration of the remaining term of
his employment agreement with the Company, as amended.
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, 1993, in
each of three indices and dividends reinvested.)
[GRAPH]
<TABLE>
<CAPTION>
LEGEND
12/31/1993 12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998
<S> <C> <C> <C> <C> <C> <C>
Ceres Group, Inc. $100.00 $126.30 $153.30 $131.80 $ 87.10 $176.40
Nasdaq Stock Market 100.00 97.80 138.30 170.00 208.50 293.80
Nasdaq Insurance Stocks 100.00 94.10 133.70 152.40 223.60 199.20
</TABLE>
11
<PAGE> 14
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by CRL, the
principal operating subsidiary of the Company, with respect to the calendar
years ended December 31, 1998, 1997 and 1996, to the Chief Executive Officer and
the five most highly-compensated executive officers of the Company during 1998
(the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
--------------- -----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS COMPENSATION(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FRED LICK, JR. 1998 $ 500,000 -- $ 1,000
Chairman of the Board of the Company 1997 966,994 -- 20,635
and CRL and former Chief Executive Officer of the 1996 966,994 -- 23,671
Company
PETER W. NAUERT (2) 1998 0 500,000 --
President and Chief Executive Officer
GLEN A. LAFFOON 1998 180,000 40,000 1,000
Executive Vice President and Assistant Secretary of 1997 160,000 -- 20,635
the Company and President and Chief Executive 1996 200,000 -- 20,486
Officer of CRL
VAL RAJIC 1998 115,000 125,000 --
Executive Vice President and Treasurer
CHARLES E. MILLER, JR. 1998 93,000(3) 125,000 12,000 (4)
Executive Vice President and Chief Financial Officer
of the Company and Executive Vice President, Chief
Financial Officer and Treasurer of CRL
BILLY B. HILL, JR. (5) 1998 -- -- 230,580 (6)
General Counsel
FRANK W. GRIMONE (7) 1998 250,000 -- --
Former Senior Executive Vice President and Chief 1997 258,000 -- 20,635
Financial Officer of the Company and CRL 1996 258,000 -- 20,755
<FN>
- -----------------
(1) For the year 1998, $1,000 represents the contribution payable by the
Company to each of Messrs. Lick and Laffoon under the Company's 401(k)
plan. For the year 1997, 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; and Mr. Laffoon: $1,181. The Split-Dollar
Life Insurance Agreements and the defined-contribution, money-purchase,
pension plan were terminated in 1997.
(2) Mr. Nauert receives no annual salary. See "Compensation Committee
Report on Executive Compensation--President and Chief Executive
Officer" for information regarding Mr. Nauert's employment agreement.
(3) Includes one-time payment of $50,000 to induce Mr. Miller to enter into
his employment agreement.
12
<PAGE> 15
(4) Represents payment of $4,000 per month for expenses related to travel
to and from Mr. Miller's Florida home to his temporary residence in
Cleveland, Ohio. See "Compensation Committee Report on Executive
Compensation--Chief Financial Officer."
(5) Mr. Hill serves as a consultant to the Company, with the title of
General Counsel, pursuant to a retainer agreement. See "Compensation
Committee Report on Executive Compensation."
(6) Represents retainer payment.
(7) On October 9, 1998, Mr. Grimone retired and resigned from his position
as Senior Executive Vice President and Chief Financial Officer of the
Company and on December 7, 1998, Mr. Grimone retired and resigned as
Senior Executive Vice President and Chief Executive Officer of CRL. He
is currently a consultant to the Company.
</TABLE>
OPTION GRANTS IN 1998
The following table summarizes information concerning options granted
during the Company's fiscal year ended December 31, 1998 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
COMMON TOTAL OPTIONS PRICE APPRECIATION
SHARES GRANTED TO EXERCISE FOR OPTION TERM (1)
UNDERLYING EMPLOYEES IN PRICE PER -------------------------
NAME OPTIONS 1998 SHARE EXPIRATION DATE 5% 10%
- ---------------------- ----------- ------------- --------- ------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter W. Nauert (2) 100,000 46.5% $6.50 * $ 408,792 $1,035,933
100,000 7.50 471,671 1,195,307
100,000 8.50 534,560 1,354,681
100,000 9.50 597,450 1,514,055
100,000 10.50 660,339 1,673,430
Glen A. Laffoon (3) 25,000 2.3% $6.25 September 17, 2008 98,265 249,022
Val Rajic (4) 25,000 11.6% 5.50 * 86,473 219,140
25,000 6.50 102,195 258,983
25,000 7.50 117,918 298,827
25,000 8.50 133,640 338,670
25,000 9.50 149,363 378,514
Charles E. Miller, Jr. (5) 100,000 9.3% $6.50 * 408,782 1,035,933
Billy B. Hill, Jr. (6) 25,000 11.6% 5.50 * 86,473 219,140
25,000 6.50 102,195 258,983
25,000 7.50 117,918 298,827
25,000 8.50 133,640 338,670
25,000 9.50 149,363 378,514
</TABLE>
[FN]
- -----------------
* Termination of employment with the Company.
(1) Assumes a ten-year term of the options.
13
<PAGE> 16
(2) Mr. Nauert was granted non-qualified options to purchase 500,000 Common
Shares in connection with his employment agreement. See "Compensation
Committee Report on Executive Compensation" below. The options vest as
follows: 30% on July 3, 1998; 20% on July 1, 1999; 20% on July 1, 2000;
and 30% on July 1, 2001.
(3) Mr. Laffoon was granted options to purchase 25,000 Common Shares on
September 17, 1998 under the 1998 Key Employee Share Incentive Plan at
an exercise price of $6.25 per share which vest on the third
anniversary of the date of grant. Mr. Laffoon's options are subject to
stockholder approval of the 1998 Key Employee Share Incentive Plan. See
"Proposal 2."
(4) Mr. Rajic was granted non-qualified options to purchase 125,000 Common
Shares in connection with his employment agreement. See "Compensation
Committee Report on Executive Compensation" below. The options vest as
follows: 25,000 vest immediately and the remaining options vest on July
1, 2001.
(5) Mr. Miller was granted non-qualified options to purchase 100,000 Common
Shares in connection with his employment agreement. See "Compensation
Committee Report on Executive Compensation" below. The options vest as
follows: 40,000 vest on October 1, 1998, 30,000 options vest on October
1, 2000 and 30,000 options vest on October 1, 2001.
(6) Mr. Hill was granted non-qualified options to purchase 125,000 Common
Shares in connection with his retainer agreement. See "Compensation
Committee Report on Executive Compensation" below. The options vest as
follows: 25,000 vest immediately and the remaining options vest on July
1, 2001.
OPTION VALUES AT YEAR-END 1998
The following table summarizes information with respect to the number
of unexercised options held by the Named Executive Officers as of December 31,
1998. No Named Executive Officer exercised any options in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS
NAME DECEMBER 31, 1998 AT DECEMBER 31, 1998 *
- --------------------------------------------------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------------------------
<S> <C> <C>
Peter W. Nauert 150,000/350,000 $531,250/$418,750
Glen A. Laffoon 0/25,000 0/$103,125
Val Rajic 25,000/100,000 $121,875/$237,500
Charles E. Miller, Jr. 40,000/60,000 $155,000/$232,500
Billy B. Hill, Jr. 25,000/100,000 $121,875/$237,500
- -----------------
<FN>
* Valued at $10.375 per share, the closing price per Common Share on December 31, 1998.
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The base compensation of all executive officers is governed by
individual employment agreements. An important Company goal is to attract and
retain corporate officers and senior staff and to motivate them to superior
performance. In determining the level and composition of compensation for
executive officers, the Committee considers, among other things, the
responsibilities of the office, the experience and background of the individual,
an evaluation of the individual's contribution to the Company and available
information as to the practices of other insurance companies.
14
<PAGE> 17
Under the guidance of the Compensation Committee of the Board of
Directors, the Company has begun a new stock option program (subject to
stockholder approval at this Annual Meeting) designed to provide incentives to
executive officers and other key employees by encouraging them to acquire a
larger share ownership in the Company, thereby increasing their proprietary
interest in the Company's business and enhancing their personal financial
interest in its success. The 1998 Key Employee Share Incentive Plan permits the
grant of non-transferable options to purchase Common Shares, which grants may or
may not qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended. The plan also permits the grant of
non-transferable options to receive payments based on the appreciation of stock
("SARs"). In making any grants under the plan, the Committee did so based upon
merit and keeping with the Company's overall objective of enhancing its
profitability and stockholder value.
CHAIRMAN
FRED LICK, JR. SERVES AS CHAIRMAN OF THE COMPANY AND OF CRL. On
December 15, 1997, Mr. Lick and CRL entered into an employment agreement that
replaced the existing agreement as of January 1, 1998. Under the new agreement,
Mr. Lick presently serves as Chairman and received a salary of $500,000 for
1998. He will receive the same amount in 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 Mr. Lick's new agreement he receives six weeks vacation annually,
cumulative from year to year (except that no vacation time prior to January 1,
1998 can accumulate); an automobile and its operational expenses; reimbursement
of his business expenses; continuation of his salary during any total or partial
disability and certain other fringe benefits.
Mr. Lick's 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 except
for "significant just and sufficient cause" as defined by the agreement. 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.
On December 15, 1997, Mr. Lick also entered into an employment
agreement with the Company that 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. The Company may not terminate this employment agreement
except for "significant just and sufficient cause" as defined by the agreement.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PETER W. NAUERT SERVES AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE
COMPANY. Effective July 1, 1998, the Company and Mr. Nauert entered into an
employment agreement, as amended, under which he serves as Chief Executive
Officer for a term of three years. Mr. Nauert receives no annual salary under
the agreement. Rather, the agreement is composed of three components, (1) Stock
Award; (2) Stock Options; and (3) Incentive Pay, all designed to induce Mr.
15
<PAGE> 18
Nauert to enter into the agreement and to remain with the Company for the
three-year term of the agreement. These three components are explained below:
STOCK AWARD Mr. Nauert will receive a Stock Award payable in Common
Shares as follows: on July 1, 1999, 166,667 Common Shares and thereafter
quarterly beginning January 1, 2000 and on the first day of each calendar
quarter thereafter, the number of Common Shares equal to $250,000 divided by the
average closing price of the Common Shares for the calendar quarter ending
three months prior to the payment until July 1, 2001 when the final quarterly
payment of the Stock Award will be paid. The July 1, 2001 payment will include
the Stock Award for the quarters ending March 31, 2001 and June 30, 2001.
Mr. Nauert will also receive, subject to the Company meeting specified revenue
criteria, a cash payment equal to the amount of taxes payable on the Stock
Award prior to the time such taxes become due. Any unpaid Stock Award or cash
payment for taxes will be forfeited if Mr. Nauert's employment is terminated
for any reason other than a "Severanceable Event" as defined by the agreement.
STOCK OPTIONS Mr. Nauert was granted options to purchase an aggregate
of 500,000 Common Shares (the "Options"). The exercise prices of the Options are
as follows:
<TABLE>
<CAPTION>
Number of Options Exercise Price
----------------- --------------
<S> <C>
100,000 $ 6.50
100,000 $ 7.50
100,000 $ 8.50
100,000 $ 9.50
100,000 $ 10.50
</TABLE>
Thirty percent (30%) of the Options vested immediately upon issuance on July 3,
1998. The remainder of the Options shall vest as follows: (i) twenty percent
(20%) shall vest July 1, 1999, (ii) twenty percent (20%) shall vest on July 1,
2000 and (iii) thirty percent (30%) shall vest on July 1, 2001. The vesting of
all Options shall occur pro rata among the various exercise price levels.
However, all Options shall become exercisable (vest) upon a "Severenceable
Event" as defined by the employment agreement. A "Severenceable Event" shall
mean any of the following: (i) termination by the company for any reason other
than for "Cause", as defined by the agreement (ii) termination upon a "Change of
Control" as defined by the agreement, (iii) termination by Mr. Nauert for "Good
Reason" as defined by the agreement, or (iv) termination due to the death or
total or partial disability of Mr. Nauert. Any unvested options shall be
forfeited if Mr. Nauert's employment is terminated for any reason other than a
"Severenceable Event" as set forth above.
INCENTIVE PAY For each year of employment, Mr. Nauert will receive an
amount equal to 5% of the amount by which the Company's pre-tax income for such
year exceeds specified targets.
For 1998, Mr. Nauert did not qualify for any compensation under this
component of his agreement.
Under the agreement, Mr. Nauert is obligated to retain ownership of at
least 900,000 Common Shares unless released from this obligation by the Company.
Additionally, Mr. Nauert may receive such cash bonuses or such other incentive
compensation as the Board of Directors may approve from time to time in its sole
discretion.
16
<PAGE> 19
CHIEF FINANCIAL OFFICER
CHARLES E. MILLER, JR. JOINED THE COMPANY ON OCTOBER 1, 1998 AS
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF THE COMPANY. On December
7, 1998, Mr. Miller was also elected Executive Vice President and Chief
Financial Officer of CRL. He became Treasurer of CRL in January 1999. On October
1, 1998, Mr. Miller and the Company entered into a three-year employment
agreement which provides for a base salary of $175,000 and a one-time payment of
$50,000 to induce Mr. Miller to enter into the agreement. On April 1, 1999, Mr.
Miller's salary was increased to $225,000 for the remainder of the term.
Additionally, Mr. Miller was granted options to purchase 100,000 Common Shares
at an exercise price of $6.50. Of these, 40,000 vested immediately; 30,000 will
vest October 1, 2000; and the remaining 30,000 on October 1, 2001. Unvested
options become vested if Mr. Miller's employment is terminated because of a
change of control of the company, as defined in the agreement The agreement
provides for reimbursement of $4,000 in expenses per month for travel to and
from his home in Florida to his temporary residence in Cleveland, Ohio, through
September 1, 1999, at which time Mr. Miller is required to relocate to
Cleveland. The agreement also provides for the reimbursement of reasonable
expenses of relocation. Under the agreement, Mr. Miller may receive such cash
bonuses or other cash-incentive compensation as the Board of Directors may
approve from time to time.
OTHER EXECUTIVE OFFICERS
GLEN A. LAFFOON SERVES AS EXECUTIVE VICE PRESIDENT AND ASSISTANT
SECRETARY OF THE COMPANY AND AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CRL.
Mr. Laffoon and CRL entered into an employment agreement 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. In August 1998, his salary was
increased to $200,000, and thereafter on April 1, 1999 increased to $225,000 for
the remainder of the term. The agreement automatically renews for succeeding
one-year terms unless CRL provides 60-days advance notice. The current term runs
through May 31, 2000. In the event, CRL terminates Mr. Laffoon's employment
other than 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.
VAL RAJIC SERVES AS EXECUTIVE VICE PRESIDENT AND TREASURER OF THE
COMPANY. Mr. Rajic and the Company entered into an employment agreement
effective July 1, 1998 for a term of three years under which Mr. Rajic receives
a base salary of $147,000. Under the agreement, Mr. Rajic received options to
purchase 125,000 Common Shares. Of these, 25,000 became immediately exercisable
at an exercise price of $5.50 per share. The remainder will vest on July 1,
2001. The exercise price of the remaining options is as follows: $6.50-25,000
options; $7.50-25,000 options; $8.50-25,000 options and $9.50-25,000 options.
Mr. Rajic may also receive such cash bonuses or other cash incentive
compensation as the Board of Directors may approve from time to time in its sole
discretion. The agreement provides for reimbursement of business expenses and
certain other fringe benefits.
BILLY B. HILL, JR. SERVES AS A CONSULTANT TO THE COMPANY, WITH THE
TITLE OF GENERAL COUNSEL. Mr. Hill and the Company entered into a retainer
agreement dated as of June 30, 1998 for a term of three years under which Mr.
Hill receives a retainer of $240,000 per year. Under the agreement, Mr. Hill
received stock options to purchase 125,000 Common Shares. Of these, 25,000 were
immediately exercisable at an exercise price of $5.50 per share. The remainder
will vest on
17
<PAGE> 20
July 1, 2001. The exercise price of the remaining options is as follows:
$6.50-25,000 options; $7.50- 25,000 options; $8.50-25,000 options; and
$9.50-25,000 options. Mr. Hill may also receive cash bonuses or other cash
incentive compensation as the Board of Directors may approve from time to time
in its sole discretion. The agreement provides for the reimbursement of
reasonable business expenses. Under the agreement, Mr. Hill is not required to
devote all of his time to the Company.
Frank W. Grimone entered into an employment/consulting agreement with
the Company effective January 1, 1998, which replaced prior employment
agreements. Under that agreement Mr. Grimone was paid a salary for 1998 at an
annual rate of $250,000 and received the same fringe benefits as under the prior
agreements, including an allowance for a leased automobile and its operational
expenses, the reimbursement of business expenses and certain other fringe
benefits.
On June 26, 1998, the Board of Directors re-elected Mr. Grimone as
Senior Executive Vice President and Chief Financial Officer. While the January
1, 1998 agreement 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, which he did until
October 9, 1998, at which time he retired and resigned from his position as
Senior Executive Vice President and Chief Financial Officer of the Company. Mr.
Grimone served as Senior Executive Vice President and Chief Financial Officer of
CRL until December 7, 1998. Since his retirement, Mr. Grimone has served as a
consultant to the Company and will so serve until December 31, 2000.
COMPENSATION COMMITTEE
BRADLEY E. COOPER
MICHAEL A. CAVATAIO
RICHARD M. OSBORNE
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July 3, 1998, 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.
Prior to July 3, 1998, 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 26 with respect to transactions between Mr. Lick and the Company.
18
<PAGE> 21
PROPOSAL TWO:
APPROVAL OF THE 1998 KEY EMPLOYEE SHARE INCENTIVE PLAN
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. BECAUSE THIS IS
A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU.
YOU SHOULD READ THE ENTIRE PROXY STATEMENT AND THE COMPLETE TEXT OF THE 1998 KEY
EMPLOYEE SHARE INCENTIVE PLAN ATTACHED TO THIS PROXY STATEMENT AS ANNEX A IN
THEIR ENTIRETY BEFORE YOU DECIDE HOW TO VOTE ON THIS PROPOSAL. ALL CAPITALIZED
TERMS THAT ARE NOT DEFINED HEREIN ARE DEFINED IN THE 1998 KEY EMPLOYEE SHARE
INCENTIVE PLAN.
On September 17, 1998, the Board of Directors approved the adoption of
the Company's 1998 Key Employee Share Incentive Plan (the "Plan"). Set forth
below is a description of the terms of the Plan. The Plan is effective upon
stockholder approval of the Plan. The Plan permits the grant of non-transferable
non-qualified stock options ("NQSOs") or incentive stock options ("ISOs" and
together with NQSOs, "Options") to purchase Common Shares and the grant of
non-transferable options to receive payments based on the appreciation of Common
Shares ("SARs").
DESCRIPTION OF THE PLAN
The Plan was adopted to provide incentives to key employees of the
Company and its subsidiaries, by encouraging such employees to acquire a larger
share ownership in the Company, thereby increasing their proprietary interest in
the Company's business and enhancing their personal financial interest in its
success. The Plan has 500,000 Common Shares available for grants to key
employees. The Plan provides for the grant to employees (including officers and
directors who are employees) of ISOs within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), for the grant of NQSOs
to eligible employees (including officers and directors who are employees), and
for the grant of SARs. ISOs may be exercisable for up to ten years at an option
price of not less than the fair market value of the Common Shares on the date
that the option is granted, or for up to five years at an option price of not
less than 110% of the fair market value of the Common Shares in the case of an
officer or other key employee who owns, at the time the option is granted, more
than ten percent of the Common Shares. Holders of ISOs qualify for certain
favorable tax treatment. See "Summary of Federal Income Tax Consequences." NQSOs
may be exercisable for up to ten years at such exercise price and upon such
terms and conditions as the Compensation Committee of the Board of Directors may
determine.
The Plan will be administered by the Compensation Committee of the
Board of Directors, which is charged with designating those persons to whom
Options or SARs are to be granted and determining the terms of such awards,
including the exercise price of Options, the number of shares subject to an
Option, the time when an Option or SAR may be exercised and whether SARs will be
made part of any Options.
Options granted under the Plan are subject to the following
restrictions, among others: (1) the per share exercise price for ISOs must be
equal to or greater than 100% of the fair market value of a Common Share on the
date of grant of the Option; (2) no Option may be exercisable after the
expiration of ten years from the date of its grant; and (3) Options granted
under the Plan are subject to transfer restrictions as follows:
19
<PAGE> 22
(a) No Option or SAR shall be transferable by the Optionee other
than by will or the laws of descent and distribution; and
(b) No option granted can be pledged or hypothecated, nor can it
be subject to execution, attachment or similar process.
The Compensation Committee may condition the exercise of any Option
upon the continued employment of the optionee with the Company, and may make
such Option immediately exercisable. However, the Committee will require that
from the date of grant of any ISO until three months prior to the date such ISO
is exercised, such optionee must be an employee of the Company or a subsidiary.
If an optionee's employment by the Company is terminated by reason of a
permanent and total disability or death, then his or her Options or SARs will
expire one year after the date of termination. If an optionee's employment is
terminated for any other reason, then his or her Options or SARs will terminate
on the effective date of such termination. Options and SARs become immediately
exercisable in the event of a change in control (as defined in the Plan) of the
Company.
Options exercised by the Optionee may be paid in cash or by check or,
with the consent of the Compensation Committee, in whole or in part with a
surrender of Common Shares having a fair market value on the date of exercise
equal to that portion of the purchase price for which payment in cash or check
is not made. The Committee, in its sole discretion, may approve other methods of
exercise for an Option or payment of an option price, provided that no such
method may cause any ISO granted under the Plan to not qualify under Section 422
of the Code or cause any Common Share issued in connection with the exercise of
an Option not to be a fully paid and non-assessable Common Share.
SARs may be granted by the Compensation Committee to key employees as a
right in tandem with the number of Common Shares underlying Options granted to
such employees under the Plan or on a stand-alone basis with respect to a number
of Common Shares for which an Option has not been granted. No optionee is
entitled to a grant of a SAR solely as a result of the grant of an Option to
such optionee. SARs are the right to receive payment per share of the SAR
exercised in Common Shares, in cash (or check) or a combination of cash (or
check) and Common Shares equal to the excess of the Common Share's fair market
value on the date of exercise over its fair market value on the date the SAR was
granted. Exercise of a SAR issued in tandem with an Option will result in the
reduction of the number of Common Shares underlying the related Option to the
extent of the SAR exercise. After the grant of a SAR, an optionee intending to
rely on an exemption from Section 16(b) of the Exchange Act is required to hold
such SAR for six months from the date the price for such SAR is fixed to the
date of cash settlement. Additionally, in order to remain exempt from Section
16(b) of the Exchange Act, a SAR must be exercised by an Optionee subject to
Section 16(b) only during the period beginning on the third business day
following the release of a summary statement of the Company's quarterly or
annual sales and earnings and ending on the twelfth business day following said
date.
The Compensation Committee, subject to the approval of the Board of
Directors, has the authority to amend, modify, suspend or terminate the Plan,
provided that no such action impairs the rights of the holder of any outstanding
Option or SAR without the written consent of such holder,
20
<PAGE> 23
and provided further that certain amendments of the Plan are subject to
stockholder approval. Unless terminated sooner, the Plan will terminate on
September 30, 2008.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options
Generally. An optionee generally will not recognize income upon the
grant of a NQSO. If an optionee receives unrestricted Common Shares upon the
exercise of a NQSO, the optionee will normally recognize ordinary income at the
time of exercise equal to the excess of the fair market value, at the time of
exercise, of the optioned Common Shares over the exercise price. When the
optionee disposes of the shares, capital gain will be recognized, either long or
short term depending on the holding period beginning on the date the shares are
acquired.
Tax Consequences to the Company. To the extent that an optionee
recognizes ordinary income, the Company or subsidiary for which the optionee
performs services will generally be entitled to a corresponding deduction
assuming that the deduction is not disallowed by Section 162(m) of the Code. The
deduction is allowed in the tax year in which the optionee is required to
include the amount in income.
Incentive Stock Options
Generally. An optionee will not recognize income upon the grant of an
ISO. In addition, an optionee will not recognize income upon the exercise of an
ISO if he or she satisfies certain employment and holding period requirements.
To satisfy the employment requirement, an optionee generally must exercise the
option not later than three months after he or she ceases to be an employee of
the Company or a subsidiary of the Company (one year if he or she ceases to be
an employee due to disability). To satisfy the holding period requirement, an
optionee must not sell or dispose of the optioned Common Shares before two years
from the grant of the option and must hold the optioned Common Shares more than
one year after the Common Shares are transferred to the optionee. If these
requirements are satisfied, upon the sale of the Common Shares, the optionee
will be taxed at long-term capital gains rates on any gain, measured by the
difference between the optionee's basis in the Common Stock and the net proceeds
of the sale.
Disqualifying Disposition. If Common Shares acquired upon the timely
exercise of an ISO are sold, exchanged or otherwise disposed of without
satisfying the holding period requirement (a "Disqualifying Disposition"), the
optionee will usually recognize ordinary income at the time of disposition equal
to the amount of the excess of the fair market value of the optioned Common
Shares on the date of the exercise of the ISO over the exercise price.
Alternative Minimum Tax. An optionee generally must include in
alternative minimum taxable income the amount by which the amount paid for the
option is exceeded by the option's fair market value at the time of exercise of
the option, or, if later, at the time at which the stock is freely transferable
or not subject to a substantial risk of forfeiture.
Tax Consequences to the Company. The granting of an ISO, or the
exercise thereof, will generally not result in a deduction for the Company.
However, to the extent that an optionee recognizes ordinary income as the result
of a Disqualifying Disposition, the Company will generally
21
<PAGE> 24
be entitled to a corresponding deduction, assuming that the deduction is not
disallowed by Section 162(m) of the Code.
Stock Appreciation Rights
Generally. The recipient of SAR awards generally will not recognize
income at the time a SAR is granted, but will recognize ordinary income upon the
exercise of a SAR equal to the sum of (1) the gross cash proceeds payable and
(2) the fair market value on the exercise date of any shares received.
Tax Consequences to the Company. The Company will be entitled to a tax
deduction with respect to a SAR at the same time in the same amount as the
recipient, assuming that the deduction is not disallowed by Section 162(m) of
the Code.
The following table sets forth certain Options under the Plan that were
granted (subject to approval of the Plan) on September 17, 1998 and February 17,
1999 to Named Executive Officers, Executive Officers as a group and
Non-Executive Officer Employees as a group. Each of the Options set forth below
vest on the third anniversary of the date of grant. The exercise price for all
of the following Options is $6.25 per share for Options granted on September 17,
1998 and $8.25 for Options granted on February 17, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS TO BE DATE OF
NAME GRANTED UNDER THE PLAN GRANT
- ---- ---------------------- -------
<S> <C> <C>
Glen A. Laffoon 25,000 9/17/98
15,000 2/17/99
Charles E. Miller, Jr. 25,000 2/17/99
Executive Officers as a Group 25,000 9/17/98
40,000 2/17/99
Non-Executive Officer 200,000 9/17/98
Employees as a Group 160,000 2/17/99
</TABLE>
Approval of the Plan requires the affirmative vote of the holders of a
majority of the Common Shares present in person or represented by proxy at the
Annual Meeting. The enclosed Proxy will be voted FOR the Plan unless the proxy
holders are otherwise instructed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1998 KEY
EMPLOYEE SHARE INCENTIVE PLAN.
22
<PAGE> 25
PROPOSAL THREE: APPROVAL AND ADOPTION OF
PERFORMANCE-BASED COMPENSATION FOR
PETER W. NAUERT, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Effective July 1, 1998, the Company entered into the employment
agreement for Peter W. Nauert, which was amended as of March 18, 1999 (the
"Employment Agreement") and includes certain performance-based compensation for
Mr. Nauert. The Compensation Committee of the Board of Directors of the Company
and the Board recommended that all of the performance-based compensation set
forth in the Employment Agreement ("Performance-Based Compensation") be
submitted to stockholders for approval at the Annual Meeting.
The Performance-Based Compensation is intended to address certain
limitations on the deductibility of executive compensation under Section 162(m)
of the Code, which limits the deductibility of certain compensation in excess of
$1 million per year paid by a publicly-traded corporation to certain employees,
including Mr. Nauert. Certain types of compensation may be excluded from the
limitations on deductibility, including compensation that qualifies as
"performance-based compensation."
The Internal Revenue Service in the regulations promulgated under
Section 162(m) of the Code has indicated that four conditions must be satisfied
in order for compensation to qualify as performance-based. Compensation will not
be subject to the deduction limit if (1) it is payable on account of the
attainment of one or more pre-established, objective performance goals; (2) the
performance goals are established by a compensation committee of the board of
directors that is comprised solely of two or more outside directors; (3) the
material terms of the compensation and the performance goals are disclosed to
and approved by stockholders before payment; and (4) the compensation committee
certifies that the performance goals have been satisfied before payment. To
comply with the provisions of the Code and to qualify the compensation payable
to Mr. Nauert under the Employment Agreement as performance-based compensation
eligible for exclusion from the deduction limit, the Performance-Based
Compensation is being submitted to stockholders for approval and adoption at the
Annual Meeting.
Mr. Nauert's Employment Agreement establishes certain performance
criteria based upon overall Company performance for determining the maximum
amount of Performance-Based Compensation to Mr. Nauert, who has wide ranging
responsibilities for the Company's overall performance.
The Performance-Based Compensation payable to Mr. Nauert includes the
following features:
- A cash award in an amount equal to Mr. Nauert's federal, state
and local taxes ("Tax Payments") resulting from the payment of
Common Shares to Mr. Nauert under the terms of his Employment
Agreement ("Stock Awards"). In no event will the Tax Payment
exceed 50% of the Fair Market Value of the Stock Award to which
it relates. For this purpose, the Fair Market Value of a Stock
Award is the product of (1) the number of Common Shares,
including fractional shares, paid to Mr. Nauert multiplied by (2)
the closing price of one Common Share on the date of payment.
Under the Employment Agreement, Mr. Nauert is entitled to receive
the following Stock Awards:
23
<PAGE> 26
- July 1, 1999 Stock Award is equal to 166,667 Common Shares;
and
- Thereafter, Stock Awards will be paid quarterly beginning
January 1, 2000 and on the first day of each calendar
quarter thereafter, and each such quarterly Stock Award
shall be equal to the number of Common Shares equal to
$250,000 divided by the average closing price of the Common
Shares for the calendar quarter ending three months prior
to the payment until July 1, 2001 when the final quarterly
Stock Award will be paid. The July 1, 2001 payment will
include the Stock Award for the quarters ending March 31,
2001 and June 30, 2001.
- The Tax Payments will be awarded prior to the due date of such
taxes and only in the event specified revenue criteria are
satisfied.
- For each year of employment, "Incentive Pay" equals 5% of the
amount by which the Company's pre-tax income for such year
exceeds specified targets. No Incentive Pay was payable in 1998.
- Stock options granted to Mr. Nauert pursuant to his Employment
Agreement to purchase 500,000 Common Shares. The stock options
were granted to Mr. Nauert on July 3, 1998, at which time the
fair market value of one Common Share was less than $6.50. The
exercise price of the stock options are as follows:
<TABLE>
<CAPTION>
Number of Options Exercise Price
----------------- --------------
<S> <C>
100,000 $6.50
100,000 $7.50
100,000 $8.50
100,000 $9.50
100,000 $10.50
</TABLE>
For more information regarding Mr. Nauert's employment agreement, see
"Compensation Committee Report on Executive Compensation - President and Chief
Executive Officer."
Approval of this Proposal requires the affirmative vote of the holders
of a majority of the Common Shares present in person or represented by proxy at
the Annual Meeting. The enclosed Proxy will be voted FOR this Proposal unless
the proxy holders are otherwise instructed.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE PERFORMANCE-BASED COMPENSATION.
PROPOSAL FOUR: RATIFICATION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
Ernst & Young LLP ("E&Y") has been Ceres' independent public
accountants since August 1998. Representatives of E&Y have direct access to
members of the Audit Committee and regularly attend their meetings.
Representatives of E&Y are expected to attend the Annual Meeting to answer
appropriate questions and make a statement if they desire.
In 1998, the Audit Committee reviewed all services provided by E&Y to
ensure that they were within the scope previously approved by the Committee.
24
<PAGE> 27
Although Ceres' Bylaws do not require the selection of independent
accountants to be submitted to stockholders for approval, this selection is
being presented to stockholders for ratification or rejection at the Annual
Meeting. Ceres needs the affirmative vote of the majority of shares present in
person or by proxy and entitled to vote at the meeting in order to ratify E&Y as
independent accountants for the fiscal year ending December 31, 1999. If the
resolution is rejected, or if Ernst & Young LLP declines to act or becomes
incapable of action, or if its employment is discontinued, the Board will
appoint other independent accountants whose continued employment after the next
annual meeting of stockholders will be subject to ratification by stockholders.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999.
Change of Independent Auditor. The Company appointed E&Y as its
independent auditors for the fiscal year ending December 31, 1998, to replace
the firm of KPMG 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 E&Y as the Company's independent auditors. The audit reports of
KPMG 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 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 LLP would have caused KPMG 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 LLP furnished the Company with a letter addressed to the
Securities and Exchange Commission stating that they agree with the statements
in the preceding three paragraphs.
The Company engaged E&Y as its new independent accountants effective
August 27, 1998. During the fiscal years ended December 31, 1996 and 1997 and
through August 27, 1998, the Company had not consulted with E&Y 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.
25
<PAGE> 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 30, 1998, the Company entered into an amended and restated
Stock Purchase Agreement with Strategic Partners and Insurance Partners. The
March 30, 1998 agreement amended and restated an agreement entered into on
November 26, 1997 between the Company and Strategic Partners. Following the
receipt of shareholder approval, the transaction closed on July 3, 1998, at
which time the Company issued and sold 7,300,000 Common Shares at $5.50 per
share and 3,650,000 Equity Warrants for an aggregate purchase price of $40.2
million (the "July Equity Financing").
Concurrent with the signing of the original agreement with Strategic
Partners in November 1997, Strategic Partners arranged for an interim loan (the
"Bridge Loan") of $20.0 million to the Company. In consideration for the
arrangement of the Bridge Loan, the Company issued 800,000 Guarantee Warrants
and an additional 200,000 Guarantee Warrants upon receipt of shareholder
approval in July 1998. The holders of the Guarantee Warrants are Messrs. Nauert
(500,000), Rajic (100,000), Osborne (300,000) and Hill (100,000). The Bridge
Loan was paid in full on July 3, 1998 in connection with the closing of the July
Equity Financing. The proceeds of the July Equity Financing were used to: (i)
pay off the Bridge Loan, plus interest, (ii) pay related transaction expenses,
such as legal, printing, accounting and investment banking fees, and (iii) to
make a $5.0 million contribution to the surplus of CRL. The remaining $13.0
million was used for working capital at the Company. The July Equity Financing
resulted in a change of control of the Company.
Messrs. Nauert, Osborne, Cavataio and Rajic, Karon Hill (Mr. Hill's
spouse), and Insurance Partners were investors in the July Equity Financing. Mr.
Nauert purchased 933,636 Common Shares and 466,818 Equity Warrants for
$5,134,998; Mr. Osborne purchased 720,910 Common Shares and 360,455 Equity
Warrants for $3,965,005; Mr. Cavataio purchased 181,818 Common Shares and 90,909
Equity Warrants for $999,999; Mr. Rajic purchased 100,000 Common Shares and
50,000 Equity Warrants for $550,000; Ms. Hill purchased 100,000 Common Shares
and 50,000 Equity Warrants for $550,000; IP Delaware purchased 2,799,466 Common
Shares and 1,399,733 Equity Warrants for $15,397,063; and IP Bermuda purchased
1,545,990 Common Shares and 772,995 Equity Warrants for $8,502,945. Mr. Cooper
is a partner and Mr. Spass is the managing partner of Insurance Partners
Advisors, L.P., an investment management company which performs investment
banking services for IP Delaware, IP Bermuda and their portfolio companies. In
addition, Mr. Spass is a managing partner of an indirect general partner of each
of IP Delaware and IP Bermuda. Mr. Rajic, who was a director and acting Chief
Operating Officer during 1997 and who is currently Executive Vice President and
Treasurer of the Company, has served as President of Strategic Partners since
November 1997. Mr. Nauert is the principal investor in Strategic Partners. All
of the investors in the July Equity Financing are parties to the Voting
Agreement. See "Voting Agreement."
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
26
<PAGE> 29
Corporations. Mr. Laffoon holds the office of President of the Trustee
Corporations. None of the officers or directors of the Trustee Corporations
receives any compensation for serving in such capacity.
For a discussion of the employment agreements the Company has with
Messrs. Lick, Nauert, Miller, Rajic, Laffoon, Hill and Grimone, see
"Compensation Committee Report on Executive Compensation" beginning on page 14.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
A stockholder intending to present a proposal to be included in the
Company's Proxy Statement for the Company's 2000 Annual Meeting of Stockholders
must deliver a proposal, in accordance with the requirements of the Company's
Bylaws and Rule 14a-8 under the Exchange Act, to the Secretary of the Company at
the Company's principal executive office no earlier than March 13, 2000 and no
later than April 11, 2000. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the meeting (1)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and record
address of the stockholder proposing such business, (3) the class and number of
Common Shares that are beneficially owned by the stockholder, and (4) any
material interest of the stockholder in such business.
A stockholder desiring to nominate a director for election at the
Company's 2000 Annual Meeting of Stockholders must deliver a notice, in
accordance with the requirements of the Company's Bylaws, to the Secretary of
the Company at the Company's principal executive office no earlier than March
13, 2000 and no later than April 11, 2000. Such notice must include (1) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, (a) the name, age, business address and residence
address of the person, (b) the principal occupation or employment of the person,
(c) the class and number of shares of capital stock of the Company beneficially
owned by the person, and (d) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Exchange Act; and (2) as to the
stockholder giving the notice, (a) the name and record address of the
stockholder, and (b) the class and number of shares of capital stock of the
Company beneficially owned by the stockholder. The Company may require any
proposed nominee to furnish additional information reasonably required by the
Company to determine the eligibility of the proposed nominee to serve as a
director of the Company.
OTHER MATTERS
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 stockholder. 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 4, FOR Proposal No. 2, FOR Proposal No. 3, and
FOR Proposal No. 4.
27
<PAGE> 30
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.
You are urged to sign and return your proxy card promptly to make
certain your shares will be voted at the Annual Meeting. For your convenience, a
return envelope is enclosed requiring no additional postage if mailed in the
United States.
By order of the Board of Directors
/s/ Fred Lick, Jr.
Fred Lick, Jr.
Chairman of the Board
Date: May 3, 1999
28
<PAGE> 31
ANNEX A
CENTRAL RESERVE LIFE CORPORATION
(now known as Ceres Group, Inc.)
1998 KEY EMPLOYEE SHARE INCENTIVE PLAN
1. GENERAL. This 1998 Key Employee Share Incentive Plan ("Plan")
provides key employees of Central Reserve Life Corporation ("CRLC") or
subsidiary corporations of CRLC with the opportunity to acquire or expand their
equity interest in CRLC by making available for award or purchase common shares,
without par value, of CRLC ("Common Shares"), through the granting of
nontransferable options to purchase Common Shares ("Options") and the granting
of nontransferable options to receive payments based on the appreciation of
Common Shares ("SARs"). Options and SARs are collectively referred to herein as
"Grants"; an individual grant of Options is individually referred to herein as a
"Grant". CRLC intends that key employees may be granted, simultaneously or from
time to time, Stock Options that qualify as incentive stock options ("Incentive
Stock Options" under Section 422 of the Internal Revenue Code of 1986, as
amended ("Code") or stock options that do not so qualify ("Non-qualified Stock
Options"). No provision of the Plan is intended or shall be construed to grant
employees alternative rights in any Incentive Stock Option granted under the
Plan so as to prevent such Option from qualifying under Section 422 of the Code.
2. PURPOSE OF THE PLAN. The purpose of the Plan is to provide
incentives to key employees of CRLC or of subsidiary corporations of CRLIC, by
encouraging such employees to acquire a larger share ownership in the CRLC,
thereby increasing their proprietary interest in CRLC's business and enhancing
their personal financial interest in its success. For purposes of the Plan, a
"subsidiary corporation" consists of any corporation fifty percent (50%) of the
shares of which are directly or indirectly owned or controlled by CRLC.
3. EFFECTIVE DATE OF THE PLAN. The Plan shall have a stated
effective date of October 1, 1998. However, the Plan is and shall be effective
upon its adoption by the Board of Directors, subject to approval by holders of a
majority of the total votes cast on a proposal to approve the Plan at a meeting
of the shareholders at which a quorum is present. If the Plan is not so approved
within twelve (12) months after the date the Plan is adopted by the Board of
Directors, the Plan and any Grants made hereunder shall be null and void.
However, if the Plan is approved, no further shareholder approval shall be
required with respect to the making of Grants pursuant to the Plan, except as
provided in Section 11 hereof.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Compensation Committee of the Board of Directors of CRLC ("Committee") which
shall consist of not less than three members. None of the Committee members
shall be employees of CRLC or its subsidiary corporations nor be eligible to
receive an Option while serving as a member of the Committee. Each of the
Committee members shall be a "Non-Employee Director" within the meaning of Rule
16b-3 promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any successor definition adopted by the Securities
Exchange Commission, and each shall be an "outside director" within the meaning
of Section 162(m) of
<PAGE> 32
the Code. The Board may also select one or more qualified Directors to serve as
alternate members of the Committee, who may take the place of any absent member
or members at any meeting of the Committee. The Committee shall be authorized to
administer the Plan in accordance with its terms and may adopt, amend or repeal
such rules and regulations as the Committee may desire concerning the conduct of
its affairs. The interpretation and construction by the Committee of any
provision of the Plan or of any Grant under it and the administration of the
Plan by the Committee shall be final.
A majority of the Committee shall constitute a quorum. The acts of a
majority of the members present at any meeting at which a quorum is present (or
acts unanimously approved in writing by the members of the Committee) shall
constitute binding acts of the Committee. No member of the Board of Directors or
the Committee shall be liable for any action taken or omitted, or any
determination made, in good faith in connection with the Plan.
Subject to the terms and conditions of the Plan, the Committee is
authorized and empowered:
(a) To select the key employees to whom Grants may be made;
(b) To determine the number of Common Shares to be covered by any
Grant;
(c) To prescribe the terms and conditions of any Grants made under
the Plan, and the form and agreement used in connection with the
grant of Options and SARs;
(d) To determine the time or times when Options and SARs will be
granted and when they will terminate in whole or in part;
(e) To determine the time or times when Options and SARs that are
granted may be exercised;
(f) To determine, at the time a Stock Option is granted under the
Plan, whether such Option is an Incentive Stock Option entitled
to the benefits of Section 422 of the Code;
(g) To establish any other Option agreement provisions not
inconsistent with the terms and conditions of the Plan or, where
the Stock Option is an Incentive Stock Option, with the terms
and conditions of Section 422 of the Code; and
(h) To determine whether SARs will be made part of any Grants
consisting of Options, and to approve any SARs made part of any
such Grants pursuant to Section 8 hereof.
5. EMPLOYEES ELIGIBLE FOR GRANTS. Grants may be made from time to
time to those key employees of CRLC or of a subsidiary corporation who are
designated by the
________________________________________________________________________________
Page 2
<PAGE> 33
Committee in its sole and exclusive discretion. Key employees may include, but
shall not necessarily be limited to, employees who are also members of the Board
of Directors (excluding members of the Committee), officers of CRLC, and
officers of any subsidiary corporation. However, Stock Options intended to
qualify as Incentive Stock Options shall only be granted to employees while
actually employed by CRLC or a subsidiary corporation. The Committee may grant
more than one Option, with or without SARs, to the same key employee. No Option
will be granted to any key employee during any period of time when such key
employee is on a leave of absence.
6. SHARES SUBJECT TO THE PLAN; ADJUSTMENTS TO OPTIONS; GRANTS. Upon
the approval of the Plan by the shareholders, Five-Hundred Thousand (500,000)
presently authorized but unissued Common Shares of CRLC shall be reserved,
allotted and set aside for issuance under the Plan, subject to the next sentence
and Section 7(h). If a SAR is granted in tandem with an Option pursuant to
Section 8 and such SAR is thereafter exercised in whole or in part, then such
Option or the portion thereof to which the duly exercised SAR relates shall be
deemed to have been exercised for purposes of such Option, but the Common Shares
which were issuable to such Option or the portion thereof to which the duly
exercised SAR relates may be made available for reoffering under the Plan to any
eligible key employee.
If, at any time subsequent to the date of adoption of the Plan by
the Board of Directors, the number of Common Shares are increased or decreased,
or changed into or exchanged for a different number or kind of shares of stock
or other securities of CRLC or of another corporation (whether as a result of a
stock split, stock dividend, combination or exchange of shares, exchange for
other securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or otherwise): (i) there shall automatically be
substituted for each Common Share subject to an unexercised Stock Option or SAR
(in whole or in part) granted under the Plan, the number and kind of shares of
stock or other securities into which each outstanding Common Share shall be
changed or for which each such Common Share shall be exchanged; and (ii) the
option price per Common Share or unit of securities shall be increased or
decreased proportionately so that the aggregate purchase price for the
securities subject to a Stock Option or SAR shall remain the same as immediately
prior to such event. In addition to the foregoing, the Committee shall be
entitled in the event of any such increase, decrease or exchange of Common
Shares to make other adjustments to the securities subject to a Stock Option or
SAR, the provisions of the Plan, and to any related Stock Option or SAR
agreements (including adjustments which may provide for the elimination of
fractional shares), where necessary to preserve the terms and conditions of any
Grants hereunder.
7. STOCK OPTION PROVISIONS.
(a) GENERAL. The Committee may grant to key employees (also referred
to as "optionees") nontransferable Stock Options that either qualify as
Incentive Stock Options under Section 422 of the Code or do not so qualify.
However, any Stock Option that is an Incentive Stock Option shall only be
granted within ten (10) years from the earlier of (i) the date this Plan is
adopted by the Board of Directors of CRLC; or (ii) the date this Plan is
approved by the shareholders of CRLC.
________________________________________________________________________________
Page 3
<PAGE> 34
(b) STOCK OPTION PRICE. The option price per Common Share which may
be purchased under the Plan shall be determined by the Committee at the time of
Grant, but shall not be less than one hundred percent (100%) of the fair market
value of a Common Share, determined as of the date such Option is granted;
however, if a key employee to whom an Incentive Stock Option is granted is, at
the time of the grant of such Option, an "owner," as defined in Section
422(b)(6) of the Code (modified as provided in Section 424(d) of the Code) of
more than ten percent (10%) of the total combined voting power of all classes of
stock of CRLC or any subsidiary corporation (a "Substantial Shareholder"), the
price per Common Share of such option, as determined by the Committee, shall not
be less than one hundred ten percent (110%) of the fair market value of a Common
Share on the date such Option is granted. The option price per Common Share
under each Stock Option granted pursuant to the Plan that is not an Incentive
Stock Option shall be determined by the Committee at the time of Grant. The fair
market value of a Common Share shall be determined in accordance with procedures
to be established by the Committee; provided, that so long as Common Shares are
traded or exchanged on the NASDAQ National Market, the fair market value of a
Common Share for any given date shall be considered the average of the bid and
asked prices quoted on that date. The day on which the Committee approves the
granting of an Option shall be considered the date on which such Option is
granted.
(c) PERIOD OF OPTION. The Committee shall determine when each Stock
Option is to expire. However, no Stock Option (including without limitation, an
Incentive Stock Option) may be exercisable for a period of more than ten (10)
years from the date it is granted. Further, no Incentive Stock Option granted to
an employee who is a Substantial Shareholder at the time of the grant of such
Option shall be exercisable after the expiration of five (5) years from the date
of grant of such Option.
(d) LIMITATION ON EXERCISE AND TRANSFER OF OPTIONS. Only the key
employee to whom an Option is granted may exercise such Option, except in those
cases where a guardian or other legal representative has been duly appointed for
such key employee, and except as otherwise provided in the case of such key
employee's death. No Option granted hereunder shall be transferable by an
optionee other than by will or the laws of descent and distribution; provided,
however, that if so provided in the instrument evidencing the Option, the
Compensation Committee may permit an optionee to transfer the Option during his
lifetime to one or more members of his family or to one or more trusts for the
benefit of one or more members of his family so long as no consideration is paid
for such transfer and such transfer would not result in the loss of any
exemption under Rule 16b-3 for any Option that the Compensation Committee does
not permit to be so transferred. The transferee of an Option shall be subject to
all restrictions, terms, and conditions applicable to the Option prior to its
transfer, except that the Option shall not be further transferable inter vivos
by the transferee. The Compensation Committee may impose on any transferable
Option and on the Common Shares to be issued upon the exercise of the Option
such limitations and conditions as the Committee deems appropriate. No Option
granted hereunder can be pledged or hypothecated, nor shall any such Option be
subject to execution, attachment or similar process.
________________________________________________________________________________
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<PAGE> 35
(e) EMPLOYMENT; HOLDING PERIOD REQUIREMENTS FOR CERTAIN OPTIONS. The
Committee may condition the exercise of any Option granted hereunder upon the
continued employment of the optionee by CRLC or by a subsidiary corporation, and
may make any such Option immediately exercisable. However, the Committee will
require that, from and after the date of grant of any Incentive Stock Option
until the date three (3) months prior to the date such Option is exercised, such
optionee must be an employee of the Company or of a subsidiary corporation, but
always subject to the right of CRLC or any subsidiary corporation to terminate
such optionee's employment of such during such period. Each Option shall be
subject to such additional restrictions as to the time and method of exercise as
shall be prescribed by the Committee. Upon satisfaction of such requirements, if
any, an Option or the appropriate portion thereof may be exercised in whole or
in part from time to time during the option period; however, such exercise
right(s) shall be limited to blocks of at least one hundred (100) Common Shares.
(f) PAYMENT OF OPTION PRICE. An Option shall be exercised by an
optionee giving written notice to CRLC of his/her intention to exercise the
same, accompanied by full payment of the purchase price in cash or by check, or,
with the consent of the Committee, in whole or in part with a surrender of
Common Shares having a fair market value on the date of exercise equal to that
portion of the purchase price for which payment in cash or check is not made.
The Committee may, in its sole discretion, approve other methods of exercise for
an Option or payment of the option price, provided that no such method shall
cause any option granted under the Plan as an Incentive Stock Option to not
qualify under Section 422 of the Code or cause any Common Share issued in
connection with the exercise of an option not to be a fully paid and
non-assessable Common Share.
(g) CERTAIN REISSUANCES OF STOCK OPTIONS. To the extent Common
Shares are surrendered by an optionee in connection with the exercise of an
Option in accordance with Section 7(f), the Committee may in its sole discretion
grant new Options to such optionee (to the extent Common Shares remain available
for Grants), subject to the following terms and conditions:
(i) The number of Common Shares issuable pursuant to the new
Options shall be equal to the number of Common Shares being
surrendered by the optionee;
(ii) The option price per Common Share shall be equal to the fair
market value of a Common Share, on the date of exercise of
those Options whose exercise caused such Grant; and
(iii) The terms and conditions of such Options shall in all other
respects replicate the terms and conditions of those Options
whose exercise caused such Grant, except to the extent such
terms and conditions are determined to not be wholly
consistent with the general provisions of this Section 7, or
in conflict with the remaining provisions of the Plan.
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(h) CANCELLATION AND REPLACEMENT OF STOCK OPTIONS; REALLOCATION OF
UNUSED COMMON SHARES. The Committee may at any time or from time to time permit
the voluntary surrender by an optionee who is the holder of any outstanding
Stock Options under the Plan, where such surrender is conditioned upon the
granting to such optionee of new Stock Options for such number of shares as the
Committee shall determine, or may require such a voluntary surrender as a
condition precedent to the grant of new Stock Options. The Committee shall
determine the terms and conditions of new Stock Options, including the prices at
and periods during which they may be exercised, in accordance with the
provisions of this Plan, all or any of which may differ from the terms and
conditions of the Stock Options surrendered. Any such new Stock Options shall be
subject to all the relevant provisions of this Plan. The Common Shares subject
to any Stock Option so surrendered, and/or any Common Shares subject to any
Stock Option that has lapsed, been forfeited, or been cancelled and extinguished
in connection with the exercise of an SAR, shall no longer be charged against
the limitation provided in Section 6 of this Plan and may again become shares
subject to the Plan. The granting of new Stock Options in connection with the
surrender of outstanding Stock Options under this Plan shall be considered for
the purposes of the Plan as the granting of new Stock Options and not an
alteration, amendment or modification of the Plan or of the Stock Options being
surrendered. Common Shares that are not purchased through the exercise of
Options that terminate or lapse may be used for further Grants under the Plan.
(i) LIMITATION ON EXERCISABLE INCENTIVE STOCK OPTIONS. The aggregate
fair market value of the Common Shares first becoming subject to exercise as
Incentive Stock Options by a key employee during any given calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). Such aggregate
fair market value shall be determined as of the date such Option is granted,
taking into account, in the order in which granted, any other incentive stock
options granted by CRLC or by a parent or subsidiary corporation.
8. SHARE APPRECIATION RIGHTS. A key employee may be granted the
right to receive a payment based on the increase in the value of Common Shares
occurring after the date of such Grant. Such rights shall be known as SARs. SARs
may (but need not) be granted to a key employee in tandem with, and exercisable
in lieu of exercising, a Grant of Options. SARs will be granted upon terms and
conditions specified by the Committee receiving such Grant, or by a subsidiary
corporation if such subsidiary corporation is the employer of the key employee
receiving such Grant. No optionee is entitled to a Grant of SARs solely as a
result of the grant of an Option to him. Any SAR if granted in tandem with a
Grant of Options, may only be exercised by the holder thereof with respect to
all, or a portion, of the Options to which such tandem SAR applies. When granted
in tandem with an Option, a SAR shall provide that the holder of an Option shall
have the right to receive an amount equal to one hundred percent (100%) of the
excess, if any, of the fair market value of the Common Shares covered by such
Option, determined as of the date of exercise of such SAR by the Committee (in
the same manner as such value is determined for purposes of the granting of
Stock Options), over the price to be paid for such Common Shares under such
Option. Such amount will be payable by either the Company or the subsidiary
corporation, whichever such corporation is the employer of the employee, in one
or more of the following manners, as determined by the Committee:
________________________________________________________________________________
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<PAGE> 37
(a) cash (or check);
(b) Common Shares having a fair market value equal to such amount;
or
(c) a combination of cash (or check) and Common Shares.
In the case of SARs granted in tandem with Options, in no event may any person
exercise any such SARs unless (i) such person is then permitted to exercise the
Options with respect to which such SARs relate, and (ii) the fair market value
of the Common Shares covered by the tandem Options, determined as provided
above, exceeds the option price of such Common Shares. Upon the exercise of any
SARs, the Stock Option, or that portion thereof to which such SARs relate, shall
be canceled and automatically extinguished. A SAR granted in tandem with a Stock
Option hereunder shall be made a part of the Stock Option agreement to which
such SAR relates, in a form approved by the Committee and not inconsistent with
this Plan. The granting of a Stock Option or SAR shall impose no obligation upon
the optionee to exercise such Stock Option or SAR. The obligation of CRLC or a
subsidiary corporation to satisfy SARs shall not be funded or secured in any
manner. No SAR granted hereunder shall be transferable by the key employee
granted such SAR, other than by will or the laws of descent and distribution.
After the Grant of an SAR, an optionee intending to rely on an
exemption from Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") shall be required to hold such SAR for six (6) months from the
date the price for such SAR is fixed to the date of cash settlement.
Additionally, in order to remain exempt from Section 16(b) of the Exchange Act,
an SAR must be exercised by an optionee subject to such Section only during the
period beginning on the third business day following the release of a summary
statement of CRLC's quarterly or annual sales and earnings and ending on the
twelfth business day following said date.
9. TERMINATION OF EMPLOYMENT. If a key employee ceases to be an
employee of CRLC and every subsidiary corporation, for a reason other than
death, retirement, or permanent and total disability, his/her Grants shall,
unless extended by the Committee on or before his/her date of termination of
employment, terminate on the effective date of such termination of employment.
Neither the key employee nor any other person shall have any right after such
date to exercise all or any part of his Stock Options or SARs.
If termination of employment is due to death or permanent and total
disability, then outstanding Stock Options and SARs may be exercised within the
one (1) year period ending on the first anniversary of such death or permanent
and total disability. In the case of death, such outstanding Stock Options and
SARs shall be exercised by such key employee's estate, or the person designated
by such key employee by will, or as otherwise designated by the laws of descent
and distribution. Notwithstanding the foregoing, in no event shall any Option or
SAR be exercisable after the expiration of the option period, and in the case of
exercises made after a key employee's death, not to any greater extent than the
key employee would have been entitled to exercise such Option or SAR at the time
of his death.
________________________________________________________________________________
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<PAGE> 38
Subject to the discretion of the Committee, if a key employee
terminates employment with CRLC and all subsidiary corporations because of
normal or early retirement under the Retirement Plan for Employees of Central
Reserve Life Corporation (or any successor retirement plan), any
then-outstanding Options or SARs held by such key employee shall lapse at the
earlier of the end of the term of such Option or SAR, or ninety (90) days after
such retirement or permanent and total disability.
If a key employee of CRLC or one of its subsidiary corporations is
granted a leave of absence because of sickness or the need to enter military
service, his/her employment with CRLC or such subsidiary corporation shall not
be considered terminated, and he/she shall be deemed an employee of CRLC or such
subsidiary corporation during such leave of absence or any extension thereof
granted by CRLC or such subsidiary corporation.
10. CHANGE IN CONTROL. Upon the occurrence of a Change in Control
(as defined below), notwithstanding any other provisions hereof or of any
agreement to the contrary, all Options and SARs granted under this Plan shall
immediately vest and become exercisable in full.
For purposes of this Plan, a Change in Control shall be deemed to
have occurred if: (i) a tender offer shall be made and consummated for the
ownership of 25% or more of the outstanding voting securities of CRLC; (ii) CRLC
shall be merged or consolidated with another corporation and, as a result of
such merger or consolidation, less than 75% of the outstanding voting securities
of the surviving or resulting corporation shall be owned in the aggregate by the
former shareholders of CRLC as the same shall have existed immediately prior to
such merger or consolidation; (iii) CRLC shall sell substantially all of its
operating assets to another corporation which is not a wholly owned subsidiary;
or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3)
(as in effect on the date hereof) of the Exchange Act shall acquire, other than
by reason of inheritance, twenty-five percent (25%) or more of the outstanding
voting securities of CRLC (whether directly, indirectly, beneficially or of
record). In determining whether a Change in Control has occurred, gratuitous
transfers made by a person to an affiliate of such person (as determined by the
Board of Directors of CRLC), whether by gift, devise or otherwise, shall not be
taken into account. For purposes of this Plan, ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant
to the Exchange Act.
11. AMENDMENT, SUSPENSION AND TERMINATION. The Committee is
authorized to interpret this Plan and from time to time adopt any rules and
regulations for carrying out this Plan that it may deem advisable. Subject to
the approval of the Board of Directors of CRLC, the Committee may at any time
amend, modify, suspend or terminate this Plan. In no event, however, without the
approval of shareholders, shall any action of the Committee or the Board of
Directors result in:
(a) Materially amending, modifying or altering the eligibility
requirements provided in Section 5 hereof;
________________________________________________________________________________
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<PAGE> 39
(b) Materially increasing, except as provided in Section 6 hereof,
the maximum number of shares subject to Grants; or
(c) Materially increasing the benefits accruing to participants
under this Plan, except to conform this Plan and any agreements
made hereunder to changes in the Code or governing law.
12. INVESTMENT REPRESENTATION; APPROVALS AND LISTING. The Committee
may condition any Grant hereunder upon receipt of the following investment
representation from the optionee:
"I agree that any Common Shares of Central Reserve Life Corporation that I
may acquire by virtue of this Option or SAR shall be acquired for
investment purposes only and not with a view to distribution or resale,
and may not be transferred, sold, assigned, pledged, hypothecated or
otherwise disposed of by me unless (i) a registration statement or
post-effective amendment to a registration statement under the Securities
Act of 1933, as amended, with respect to said Common Shares has become
effective so as to permit the sale or other disposition of said shares by
me; or (ii) there is presented to Central Reserve Life Corporation. an
opinion of counsel satisfactory to Central Reserve Life Corporation to the
effect that the sale or other proposed disposition of said Common Shares
by me may lawfully be made otherwise than pursuant to an effective
registration statement or post-effective amendment to a registration
statement relating to the said Shares under the Securities Act of 1933, as
amended."
CRLC shall not be required to issue any certificate or certificates
for Common Shares upon the exercise of any Option or SAR granted under this Plan
prior to (i) the obtaining of any approval from any governmental agency which
the Committee shall, in its sole discretion, determine to be necessary or
advisable; (ii) the admission of such shares to listing on any national
securities exchange on which the Common Shares may be listed or any other system
for trading Common Shares (including, without limitation, the NASDAQ National
Market); (iii) the completion of any registration or other qualifications of the
Common Shares under any state or federal law or ruling or regulations of any
governmental body which the Committee shall, in its sole discretion, determine
to be necessary or advisable or the determination by the Committee, in its sole
discretion, that any registration or other qualification of the Common Shares is
not necessary or advisable; and (iv) the obtaining of an investment
representation from the optionee in the form stated above or in such other form
as the Committee, in its sole discretion, shall determine to be adequate.
13. GENERAL PROVISIONS. The form and substance of Option agreements
and SAR agreements made hereunder, whether granted at the same or different
times, need not be identical. Nothing in this Plan or in any agreement shall
confer upon any key employee any right to continue in the employ of CRLC or any
of its subsidiary corporations, to be entitled to any remuneration or benefits
not set forth in this Plan or such Grant, or to interfere with or limit the
right of CRLC or any subsidiary corporation to terminate his employment at any
time, with or without cause. Nothing contained in this Plan or in any Option
agreement or SAR shall be
________________________________________________________________________________
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<PAGE> 40
construed as entitling any optionee to any rights of a shareholder as a result
of the grant of an Option or an SAR, until such time as Common Shares are
actually issued to such optionee pursuant to the exercise of such Option or SAR.
The successors and assigns of CRLC may assume this Plan. The liability of CRLC
under this Plan and any sale made hereunder is limited to the obligations set
forth herein with respect to such sale and no term or provision of this Plan
shall be construed to impose any liability on CRLC in favor of any employee with
respect to any loss, cost or expense which the employee may incur in connection
with or arising out of any transaction in connection with this Plan. The expense
of administering the Plan shall be borne by CRLC. The Plan, and all options and
actions taken thereunder and any agreements relating thereto shall be governed
by, and controlled in accordance with the laws of CRLC's state of incorporation,
without regard to its conflicts of law principles or statute. The captions and
section numbers appearing in this Plan are inserted only as a matter of
convenience; they do not define, limit, construe or describe the scope or intent
of the provisions of this Plan.
TERMINATION OF THE PLAN. This Plan shall terminate on the tenth
(10th) anniversary of its effective date, as determined in accordance with
Section 3 of this Plan, but no later than September 30, 2008. This Plan may be
terminated earlier in accordance with Section 11 of this Plan. After the Plan
terminates, no Options or SARs shall be granted hereunder. All Options and SARs
outstanding at the time of termination of the Plan shall continue in full force
and effect according to their terms and the terms and conditions of the Plan.
________________________________________________________________________________
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<PAGE> 41
DETACH CARD
- --------------------------------------------------------------------------------
CERES GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR
THE 1999 ANNUAL MEETING OF STOCKHOLDERS
ON JUNE 10, 1999
The undersigned hereby constitutes and appoints Charles E.
P Miller, Jr. and Glen A. Laffoon, and each of them, his true and
R lawful agents and proxies with full power of substitution in
O each, to represent the undersigned at the 1999 Annual Meeting
X of Stockholders of Ceres Group, Inc. to be held at the Home
Y Offices of the Company, 17800 Royalton Road, Strongsville, Ohio
44136 on Thursday, June 10, 1999, at 2:00 p.m., local time, and
at any adjournments thereof, on all matters coming before said
meeting.
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1
AND
"FOR" PROPOSAL 2, "FOR" PROPOSAL 3 AND "FOR" PROPOSAL 4.
1. THE ELECTION OF DIRECTORS.
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.
FOR [ ] WITHHELD [ ] FOR, EXCEPT VOTE WITHHELD FROM
THE FOLLOWING NOMINEE(S): [ ]
--------------------------------------------------------
2. APPROVAL OF THE COMPANY'S 1998 KEY EMPLOYEE SHARE INCENTIVE
PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL AND ADOPTION OF PERFORMANCE-BASED COMPENSATION FOR
PETER W. NAUERT, THE COMPANY'S PRESIDENT AND CHIEF EXECUTIVE
OFFICER. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER
31, 1999. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed, on the reverse side)
<PAGE> 42
DETACH CARD
- --------------------------------------------------------------------------------
Proxy No. (Continued from reverse side) 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: , 1999
--------------
--------------------------
(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.
