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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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[CERES LOGO]
CERES
group, inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 27, 2000
AND NOTICE OF STOCKHOLDER ACTIONS BY WRITTEN CONSENT
Notice is hereby given that the 2000 Annual Meeting of Stockholders of
Ceres Group, Inc. will be held at 17800 Royalton Road, Cleveland, Ohio, on
Tuesday, June 27, 2000, at 10:00 a.m., local time, for the following purposes:
1. To elect nine directors to hold office until the next annual
election of directors and until their successors are elected
and qualified (Proposal 1);
2. To consider and vote upon a proposal to amend our Certificate
of Incorporation to increase the number of authorized shares
of our common stock (Proposal 2);
3. To consider and vote upon a proposal to amend our 1998 Key
Employee Share Incentive Plan (Proposal 3);
4. To consider and vote upon a proposal to approve our 2000
Employee Stock Purchase Plan (Proposal 4);
5. To ratify the appointment of Ernst & Young LLP as our
independent accountants for the fiscal year ending December
31, 2000 (Proposal 5); and
6. To consider and transact such other business as may properly
come before the meeting or any adjournment thereof.
Notice is also hereby given that on April 14, 2000, holders of a
majority of shares of our outstanding common stock approved, by written consent,
an amendment to our Certificate of Incorporation to provide for convertible
voting preferred stock, and our intention to sell, in private placements, shares
of our common stock and convertible voting preferred stock to provide funds for
the acquisition of The Pyramid Life Insurance Company.
Only stockholders of record at the close of business on April 28, 2000,
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 1, 2000
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CERES GROUP, INC.
-------------
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the 2000 Annual Meeting of Stockholders of Ceres Group,
Inc., a Delaware corporation, to be held on Tuesday, June 27, 2000.
This Proxy Statement and the accompanying notice and proxy card,
together with our annual report to stockholders on Form 10-K for the year ended
December 31, 1999, will first be sent to stockholders on or about May 1, 2000.
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
Q: WHEN AND WHERE IS THE ANNUAL MEETING?
A: Our 2000 Annual Meeting of Stockholders will be held on Tuesday, June
27, 2000 at 10:00 a.m. local time at 17800 Royalton Road, Cleveland,
Ohio 44136.
- --------------------------------------------------------------------------------
Q: WHAT ARE STOCKHOLDERS VOTING ON?
A: - Election of nine directors (Andrew A. Boemi, Michael A. Cavataio,
Bradley E. Cooper, Susan S. Fleming, Rodney L. Hale, Peter W.
Nauert, William J. Ruh, Robert A. Spass and Mark H. Tabak).
- Approval of an amendment to our Certificate of Incorporation to
increase the number of authorized shares of our common stock.
- Approval of an amendment to our 1998 Key Employee Share Incentive
Plan.
- Approval of the Ceres Group, Inc. 2000 Employee Stock Purchase
Plan.
- Ratification of the appointment of Ernst & Young LLP as our
independent accountants.
If a proposal other than the five 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 any additional proposal.
- --------------------------------------------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on April 28, 2000, the record
date, are entitled to vote at the annual meeting. Each share of our
common stock, par value $0.001 per share, is entitled to one vote.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Q: HOW DO STOCKHOLDERS VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. If you do not mark any selections, your proxy card will be
voted in favor of the five proposals. You have the right to revoke your
proxy any time before the meeting by:
- notifying our Corporate Secretary,
- voting in person, or
- returning a later-dated proxy card.
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
the five proposals on your behalf.
- --------------------------------------------------------------------------------
Q: WHO WILL COUNT THE VOTE?
A: Representatives of National City Bank, our transfer agent, will
tabulate the votes. Marlayna J. Jeanclerc 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 our Dividend Reinvestment Plan. If
you are an employee of Central Reserve Life Insurance Company or
Continental General Insurance Company, the 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, we have 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 four
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, 13,707,573 shares of our common stock were
issued and outstanding. A majority of the outstanding 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, then 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.
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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.
- --------------------------------------------------------------------------------
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All stockholders as of the record date, April 28, 2000, can attend.
- --------------------------------------------------------------------------------
Q: WHAT PERCENTAGE OF STOCK DO THE DIRECTORS AND EXECUTIVE OFFICERS OWN?
A: Together, as of April 28, 2000, they beneficially own approximately
21.9% of our common stock. (See page 38 for more details.)
- --------------------------------------------------------------------------------
Q: WHO ARE THE LARGEST PRINCIPAL STOCKHOLDERS?
A: - International Managed Care, LLC and International Managed Care
(Bermuda), L.P. beneficially own 7,748,184 shares of our common
stock, or 48.8%, as of the record date.
- Peter W. Nauert, our Chairman of the Board, Chief Executive
Officer and President, beneficially owns 2,553,239 shares of our
common stock, or 17.0%, as of the record date.
- --------------------------------------------------------------------------------
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 January 1, 2001
to Linda S. Standish, Secretary, Ceres Group, Inc., 17800 Royalton
Road, Cleveland, Ohio 44136, and must be in accordance with the
provisions of Rule 14a-8 promulgated under the Securities Exchange Act
of 1934. See page 43 for more details.
- --------------------------------------------------------------------------------
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 by
writing to the Chairman of the Executive Committee, c/o Ceres Group,
Inc., 17800 Royalton Road, Cleveland, Ohio 44136. Recommendations must
be received by January 1, 2001. See page 43 for more details.
- --------------------------------------------------------------------------------
Q: ARE STOCKHOLDERS VOTING ON THE ACTIONS BY WRITTEN CONSENT?
A: No. We are furnishing the information regarding certain actions taken
by written consent solely for the purpose of informing you, in the
manner required by the Securities Exchange Act of 1934, of these
corporate actions. We are not asking for your vote or your proxy on
those matters. We still need your vote on the election of directors and
the four other proposals.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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 us. In
addition to solicitation of proxies by mail, solicitation may be made
personally, by telephone and by facsimile, and we may pay persons
holding shares for others their expenses for sending proxy materials to
their principals. No solicitation will be made other than by our
directors, officers and employees.
- --------------------------------------------------------------------------------
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PROPOSAL ONE
ELECTION OF DIRECTORS
The number of directors has been fixed at nine, and eight directors are
currently in office. There is one additional nominee for director to fill the
vacant seat. 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.
Pursuant to the provisions of a voting agreement, dated July 1, 1998,
which will be amended and restated, between Ceres and International Managed
Care, LLC (formerly Insurance Partners, L.P.), International Managed Care
(Bermuda), L.P. (formerly Insurance Partners Offshore (Bermuda), L.P.),
Strategic Acquisition Partners, LLC, Turkey Vulture Fund XIII, Ltd. and their
assignees, the eight directors currently in office have been nominated for
re-election by the Board of Directors, and one nominee has been nominated by the
Board for election at the annual meeting. See "Voting Agreement" on page 41.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ANDREW BOEMI,
MICHAEL CAVATAIO, BRADLEY COOPER, SUSAN FLEMING, RODNEY HALE, PETER NAUERT,
WILLIAM RUH, ROBERT SPASS AND MARK TABAK.
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PROPOSAL TWO
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE OUR AUTHORIZED COMMON STOCK
On February 4, 2000, our Board of Directors unanimously adopted the
following resolution, subject to your approval, amending our Certificate of
Incorporation to increase the number of shares of authorized common stock, par
value $0.001 per share, to fifty million (50,000,000) shares:
"RESOLVED, that Section 4.1 of Article IV of the Certificate of
Incorporation be amended to read as follow:
4.1 Authorized Capital Stock. The aggregate number of shares of all
classes of stock that the Corporation is authorized to issue is 52,000,000
shares, consisting of:
(a) 100,000 Convertible Voting Preferred Shares, par value $0.001
per share (the "Voting Preferred Shares");
(b) 1,900,000 Non-Voting Preferred Shares, par value $0.001 per
share (the "Non-Voting Preferred Shares" and, together with the Voting Preferred
Shares, the "Preferred Shares"); and
(c) 50,000,000 Common Shares, par value $0.001 per share (the
"Common Shares")."
If the proposed amendment is adopted by you at this annual meeting, we
plan to file a Certificate of Amendment to the Certificate of Incorporation with
the Secretary of State of the State of Delaware to be effective as soon as
practicable following this annual meeting. Article IV, as amended, of our
Certificate of Incorporation is attached hereto as Annex A.
On April 28, 2000, of the 30,000,000 authorized shares of our common
stock, a total of 13,707,573 shares was outstanding, and 8,315,000 shares were
reserved for issuance under our 1998 Key Employee Share Incentive Plan, our 1998
Employee Stock Option Plan, our Employee Stock Purchase Plan, our Agent Stock
Purchase Plan, our 401(k) plan, certain non-qualified stock options and certain
warrants. No shares of our common stock are held in treasury. The remainder of
shares of authorized common stock was not issued or subject to reservation. No
preferred shares were outstanding.
The additional shares will be available for future stock-based plans,
future acquisitions of property and securities of other companies and for other
corporate purposes. The Board believes that it is beneficial to have the
additional shares available for such purposes without delay or the necessity of
a special stockholders' meeting. We have no immediate plans, arrangements,
commitments or understandings with respect to the issuance of any of the
additional shares of
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common stock which would be authorized by the proposed amendment. However, we
may issue these additional shares in future public or private offerings to
provide for our capital needs.
The additional shares will be available for issuance from time to time
without further action by the stockholders and without first offering such
shares to the stockholders. You do not have preemptive rights with respect to
the common stock. The issuance of our common stock, or securities convertible
into our common stock, on other than a pro-rata basis would result in the
dilution of your interest.
We have not proposed the increase in the authorized number of shares
with the intention of using the additional shares for anti-takeover purposes,
although we could theoretically use the additional shares to make it more
difficult or to discourage an attempt to acquire control of Ceres.
Approval of the amendment to our Certificate of Incorporation requires
the affirmative vote of the holders of a majority of outstanding shares of our
common stock. The enclosed proxy card will be voted FOR the amendment to our
Certificate of Incorporation unless the proxy holders are otherwise instructed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER
OF SHARES OF OUR COMMON STOCK.
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PROPOSAL THREE
APPROVAL OF AN AMENDMENT TO
OUR 1998 KEY EMPLOYEE SHARE INCENTIVE PLAN
The plan, adopted by stockholders at last year's annual meeting,
provides incentives to our key employees by encouraging these employees to
acquire a larger share ownership in Ceres, thereby increasing their proprietary
interest in our business and enhancing their personal financial interest in its
success. The plan permits the grant to employees, including officers and
directors who are employees, of non-transferable non-qualified stock options or
incentive stock options to purchase shares of our common stock and the grant of
non-transferable options to receive payments based on the appreciation of common
stock, or stock appreciation rights. The plan currently authorizes 500,000
shares of our common stock available for issuance under the plan. As of December
31, 1999, a total of 480,000 shares were subject to outstanding options, leaving
20,000 shares available for future options or awards.
Our Board of Directors believes that an additional share reserve will
allow us to continue to provide the necessary incentives to our employees.
Accordingly, on February 4, 2000, the Board adopted an amendment to the plan,
subject to your approval, to increase the total number of shares of our common
stock available for issuance under the plan by an additional 500,000 shares to
1,000,000 shares.
The language of the proposed amendment is attached to this proxy
statement as Annex B. The principle features of the plan are described below.
DESCRIPTION OF THE PLAN
The plan provides for the grant to employees, including officers and
directors who are employees, of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, for the grant of
non-qualified stock option to eligible employees, including officers and
directors who are employees, and for the grant of stock appreciation rights.
Incentive stock options may be exercisable for up to ten years at an option
price of not less than the fair market value of our common stock 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 our common stock in the case of an
officer or other key employee who owns, at the time the option is granted, more
than ten percent of our common stock. Holders of incentive stock options qualify
for favorable tax treatment. See "Summary of Federal Income Tax Consequences."
Non-qualified stock options may be exercisable for up to ten years at such
exercise price and upon such terms and conditions as our compensation committee
of the Board of Directors may determine.
The plan will be administered by our compensation committee of the
Board of Directors, which is charged with designating those persons to whom
options or stock appreciation rights 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 stock appreciation right may be
exercised and whether stock appreciation rights will be made part of any
options.
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Options granted under the plan are subject to the following
restrictions, among others:
- the per share exercise price for incentive stock
options must be equal to or greater than 100% of the
fair market value of a share of our common stock on
the date of grant of the option;
- no option may be exercisable after the expiration of
ten years from the date of its grant; and
- options granted under the plan are subject to
transfer restrictions as follows:
(a) No option or stock appreciation right 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 us, and may make such option
immediately exercisable. However, the committee will require that from the date
of grant of any incentive stock option until three months prior to the date such
option is exercised, such optionee must be an employee of Ceres or a subsidiary.
If an optionee's employment with us is terminated by reason of a
permanent and total disability or death, then his or her options or stock
appreciation rights 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 stock appreciation rights will terminate on the effective date of
such termination. Options and stock appreciation rights become immediately
exercisable in the event of a change in control (as defined in the plan) of
Ceres.
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 our common stock 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 incentive stock option granted under the plan to not
qualify under Section 422 of the Code or cause any shares of our common stock
issued in connection with the exercise of an option not to be a fully paid and
non-assessable shares of common stock.
Stock appreciation rights may be granted by the compensation committee
to key employees as a right in tandem with the number of shares of common stock
underlying options granted to such employees under the plan or on a stand-alone
basis with respect to a number of shares of common stock for which an option has
not been granted. No optionee is entitled to a
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grant of a stock appreciation right solely as a result of the grant of an option
to such optionee. Stock appreciation rights are the right to receive payment per
share of the stock appreciation rights exercised in shares of our common stock,
in cash, or check, or a combination of cash, or check, and shares of common
stock equal to the excess of the common stock's fair market value on the date of
exercise over its fair market value on the date the stock appreciation right was
granted. Exercise of a stock appreciation right issued in tandem with an option
will result in the reduction of the number of shares of our common stock
underlying the related option to the extent of the stock appreciation right
exercise. After the grant of a stock appreciation right, an optionee intending
to rely on an exemption from Section 16(b) of the Exchange Act is required to
hold such stock appreciation right for six months from the date the price for
such stock appreciation right is fixed to the date of cash settlement.
Additionally, in order to remain exempt from Section 16(b) of the Exchange Act,
a stock appreciation right 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 our quarterly or annual sales and earnings and
ending on the twelfth business day following said date.
Our 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 stock appreciation right without the written consent of such holder,
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 non-qualified stock option. If an optionee receives unrestricted
shares of our common stock upon the exercise of a non-qualified stock option,
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 shares of common stock 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 Ceres. To the extent that an optionee recognizes
ordinary income, we 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
incentive stock option. In addition, an optionee will not recognize income upon
the exercise of an incentive stock option 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
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three months after he or she ceases to be an employee of Ceres or a subsidiary
or 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 shares of our common stock before two years from the grant of the
option and must hold the optioned shares of our common stock more than one year
after the common stock are transferred to the optionee. If these requirements
are satisfied, upon the sale of the shares of our common stock, the optionee
will be taxed at long-term capital gains rates on any gain, measured by the
difference between the optionee's basis in our common stock and the net proceeds
of the sale.
Disqualifying Disposition. If shares of our common stock acquired upon
the timely exercise of an incentive stock option 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 shares of our common stock on the date of the exercise of
the incentive stock option 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 Ceres. The granting of an incentive stock option,
or the exercise thereof, will generally not result in a deduction for us.
However, to the extent that an optionee recognizes ordinary income as the result
of a disqualifying disposition, we will generally 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 stock appreciation right awards generally
will not recognize income at the time a stock appreciation right is granted, but
will recognize ordinary income upon the exercise of a stock appreciation right
equal to the sum of:
- the gross cash proceeds payable, and
- the fair market value on the exercise date of any shares
received.
Tax Consequences to Ceres. We will be entitled to a tax deduction with
respect to a stock appreciation right 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 amendment to the plan, on February 4, 2000,
to executive officers as a group and non-executive officer employees as a group.
Each of the options set forth below vest on the third
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anniversary of the date of grant. The exercise price for all of the following
Options is $6.8125 per share.
NUMBER OF SHARES
UNDERLYING OPTIONS TO BE
NAME GRANTED UNDER THE PLAN
- ---- ----------------------
Executive Officers as a 35,000
Group
Non-Executive Officer 205,000
Employees as a Group
Approval of the amendment to the plan requires the affirmative vote of
the holders of a majority of the shares of our common stock present in person or
represented by proxy at the annual meeting. The enclosed proxy card will be
voted FOR the amendment to the plan unless the proxy holders are otherwise
instructed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO OUR 1998 KEY EMPLOYEE SHARE INCENTIVE PLAN.
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PROPOSAL FOUR
APPROVAL OF 2000 EMPLOYEE STOCK PURCHASE 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 2000
EMPLOYEE STOCK PURCHASE PLAN ATTACHED AS ANNEX C IN THEIR ENTIRETY BEFORE YOU
DECIDE HOW TO VOTE.
On February 4, 2000, the Board of Directors approved the adoption of
our 2000 Employee Stock Purchase Plan. The stock purchase plan is effective upon
stockholder approval of the plan. The Board recommends approval of this stock
purchase plan to encourage the accumulation of our common stock by employees by
offering them the opportunity to purchase the stock at an attractive price. Our
intention is to have this stock purchase plan qualify as an "employee stock
purchase plan" under Section 423 of the Code.
The principle features of the stock purchase plan are described below.
DESCRIPTION OF THE PLAN
Administration. The employee stock purchase plan will be administered
by the compensation committee of our Board of Directors. The committee will have
all of the powers of the Board with respect to the plan. The committee may adopt
rules and regulations for purposes of the plan.
Offerings. We will make six-month offerings beginning on May 1 and
November 1 of each year.
Eligibility. All employees, including officers, who work more than 20
hours a week are eligible to participate in the stock purchase plan. Temporary
employees are not eligible. As of March 30, 2000, we had approximately 810
employees eligible to participate in the stock purchase plan.
However, no employee is eligible to participate in the plan, if
immediately after the purchase, the employee would own shares possessing at
least 5% of the total combined voting power of Ceres or any of its subsidiaries.
In addition, no employee may purchase more than $25,000 worth of our common
stock, determined at the fair market value of the shares at the time the option
is granted, under all our employee stock purchase plans in any calendar year.
Participation in the Plan. Eligible employees enroll in the stock
purchase plan by delivering to us, prior to the date selected as the offering
date for the offering, an agreement authorizing payroll deductions of up to 15%
of such employee's base total compensation during the offering period.
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<PAGE> 16
Purchase Price. The stock purchase plan, if approved by stockholders,
will permit us to offer our common stock for purchase by eligible employees at a
price equal to 85% of the lesser of:
- the market value of the stock on the first day of the
offering period, or
- the market value of the stock on the last day of the
offering period.
Payment of Purchase Price; Payroll Deductions. Eligible employees may
accumulate savings through payroll deductions over an offering period in order
to purchase common stock at the end of the period. Purchases of common stock
under the stock purchase plan may only be made with accumulated savings from
payroll deductions, and an employee cannot complete the purchases using other
resources. The accumulated payroll deductions for an offering will be
automatically applied at the end of the offering period to purchase as many
shares of common stock as feasible, and the unused balance will be carried over
to the next offering.
The rate, ranging from 1% to 15%, of an employee's payroll deduction
must be established before the offering. An employee's payroll deduction
authorization for one offering will apply to successive offerings unless the
employee changes the authorization. An employee may reduce, but not increase,
his or her rate of payroll deductions during an offering or withdraw from an
offering at any time. Upon withdrawal from any offering, the employee's
accumulated savings for the offering will be returned to the employee without
interest.
Withdrawal. While each participant in the stock purchase plan is
required to sign an agreement authorizing payroll deductions, the participant
may withdraw from an offering by terminating his or her payroll deductions and
by delivering to us a notice of withdrawal from the plan. A participant may
withdraw at any time at least ten days prior to the end of the applicable
offering period.
Upon any withdrawal from an offering by the employee, we will
distribute to the employee his or her accumulated payroll deductions without
interest and no further payroll deductions will be made from his or her pay. The
employee's interest in the offering will be automatically terminated. The
employee would be eligible to participate in the next offering by re-enrolling
in the plan.
Termination of Employment. Any individual whose employment with us is
terminated for any reason, other than disability, death or retirement, before
the end of an offering will become ineligible to purchase common stock under the
stock purchase plan.
Transferability of Rights under the Plan. Rights granted under the
stock purchase plan are not transferable and may be exercised only by the person
to whom the rights are granted.
Duration, Amendment and Termination. The employee stock purchase plan
is intended to comply with Section 423 of the Code. Our Board of Directors may
amend or terminate the stock purchase plan at any time. However, any increase in
the number of shares of common
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<PAGE> 17
stock reserved for issuance under the employee stock purchase plan and agent
stock purchase plan or material modification of the eligibility requirements
would require stockholder approval. In addition, the stock purchase plan will
terminate when all the shares reserved for issuance under the plan have been
purchased.
Stock Subject to the Plan. There will be 1,000,000 shares of our common
stock reserved for issuance in the aggregate under this stock purchase plan and
the Ceres Group, Inc. 2000 Agent Stock Purchase Plan.
Effect of Corporate Events. In the event of a dissolution, liquidation
or specified type of merger of Ceres, the stock purchase plan will terminate and
the committee may accelerate the exercise date of the offering so that the
outstanding options may be exercised immediately prior to any such event.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of an employee's purchases under
the stock purchase plan will vary. The following discussion is only a summary of
the general federal income tax rules applicable to the stock purchase plan.
Employees should consult their own tax advisors since a taxpayer's particular
situation may be such that some variation of the rules described below will
apply.
The stock purchase plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. However, a participant
may become liable for tax upon disposition of shares acquired under the stock
purchase plan, or if he or she dies holding these shares. The tax consequences
will depend on how long a participant has held the shares prior to disposition.
If the shares are disposed of at least one year after the shares were
acquired under the stock purchase plan and at least two years after the first
day of the offering period to which the shares relate, or if the employee dies
while holding the shares, the following tax consequences will apply. The lesser
of:
- the excess of the fair market value of the shares at
the time of the disposition over the purchase price
of the shares, or
- the excess of the fair market value of the shares at
the time the option was granted over the option price
will be treated as ordinary income to the participant. Any further gain upon
disposition generally will be taxed at long-term capital gain rates. If the
shares are sold and the sale price is less than the excess of the fair market
value of the shares at the time of the disposition over the purchase price of
the shares, there is no ordinary income and the participant has a long-term
capital loss equal to the difference. No corresponding deduction will be allowed
to us.
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<PAGE> 18
If the shares are sold or disposed of, including by way of gift, before
the expiration of either the two year or one year holding periods described
above, the following tax consequences will apply. The amount by which the fair
market value of the shares on the date the option is exercised, which is the
last business day of the offering period, exceeds the option price will be
treated as ordinary income to the participant. This excess will constitute
ordinary income in the year of sale or other disposition even if no gain is
realized on the sale or a gratuitous transfer of the shares is made. The balance
of any gain will be treated as a capital gain and will qualify for long-term
capital gain treatment if the shares have been held for more than one year
following the exercise of the option. Even if the shares are sold for less than
their fair market value on the last business day of the offering period, the
same amount of ordinary income is attributed to a participant and a capital loss
is allowed equal to the difference between the sale price and the value of the
shares on the last business day of the offering period. We, in the event of an
early disposition, will be allowed a deduction for federal income tax purposes
to the ordinary income realized by the federal income tax purposes equal to the
ordinary income realized by the disposing employee.
Approval of the 2000 Employee Stock Purchase Plan requires the
affirmative vote of the holders of a majority of the shares of our common stock
present in person or represented by proxy at the annual meeting. The enclosed
proxy card will be voted FOR the 2000 Employee Stock Purchase Plan unless the
proxy holders are otherwise instructed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF 2000
EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL FIVE
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Ernst & Young LLP has been our independent public accountants since
August 1998. Representatives of Ernst & Young have direct access to members of
the audit committee and regularly attend their meetings. Representatives of
Ernst & Young are expected to attend the annual meeting to answer appropriate
questions and make a statement if they desire.
In 1999, the audit committee reviewed all services provided by Ernst &
Young to ensure that they were within the scope previously approved by the
committee.
Although our Bylaws do not require the selection of independent
accountants to be submitted to stockholders for approval, this selection is
being presented to you for ratification or rejection at the annual meeting. We
need 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 Ernst & Young as
independent accountants for the fiscal year ending December 31, 2000. If the
resolution is rejected, or if Ernst & Young declines to act or becomes incapable
of action, or if its employment is discontinued by action of our Board of
Directors, the Board will appoint other independent accountants whose continued
employment after the next annual meeting of stockholders will be subject to
ratification by you.
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, 2000.
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NOTICE OF STOCKHOLDER ACTIONS BY WRITTEN CONSENT
Because the following actions have already been approved, the
disclosure in this section is intended to provide stockholders with notice of
the actions that have been taken. Therefore, we are not asking you for a proxy
in connection with the amendment to our Certificate of Incorporation to provide
for convertible voting preferred stock with conversion rights or our intention
to sell, in private placements, shares of our common stock and convertible
voting preferred stock to provide funds for the acquisition of The Pyramid Life
Insurance Company. You are not required to send us a proxy in connection with
these actions.
The Pyramid Life Insurance Company. On October 7, 1999, we signed a
definitive agreement to purchase The Pyramid Life Insurance Company from United
Insurance Company of America, a subsidiary of Unitrin, Inc. The acquisition is
expected to be completed in the second quarter of 2000. The $67.5 million
purchase price is expected to be financed as follows:
- up to $15.0 million from financing provided by Chase
Manhattan Bank and associated banks,
- $25.0 million from special dividends from Pyramid
Life,
- $7.5 million from the proceeds of the sale of our
convertible voting preferred stock to United
Insurance, Pyramid Life's parent company, and
- $20.0 million from the proceeds of the sale of our
common stock in a private placement offering.
We cannot guarantee that the acquisition of Pyramid Life will be
completed.
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
General. On February 22, 2000 and April 14, 2000, our board of
directors approved and recommended that our Certificate of Incorporation be
amended in order to provide for convertible voting preferred stock. On April 14,
2000, the holders of a majority of our outstanding common stock approved by
written consent the amendment to our Certificate of Incorporation.
Section 242(b) of the Delaware general corporation law provides that
every amendment to the certificate of incorporation of a Delaware corporation
must first be adopted by a resolution of the Board of Directors and then be
subject to the approval of stockholders owning a majority of the stock entitled
to vote on the amendment.
Amendment. The Certificate of Amendment to our Certificate of
Incorporation amends Article IV to provide for convertible voting preferred
stock with conversion rights. Article IV, as amended, of our Certificate of
Incorporation, is attached as ANNEX A.
Effect of the Amendment. The amendment authorizes 100,000 shares of
convertible voting preferred stock, par value $0.001 per share. Previously, our
Certificate of Incorporation
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provided only for non-voting preferred stock to be designated by our board, and
all rights to vote and all voting power was vested exclusively in the holders of
our common stock. Therefore, this amendment effects the relative rights and
privileges of the holders of our common stock by authorizing the issuance of
preferred stock with voting and conversion rights.
Description of the Convertible Voting Preferred Stock.
- VOTING-- Each holder of the convertible voting
preferred stock will be entitled to vote on all
matters presented for a vote of our stockholders,
including the election of directors. Each holder of
the convertible voting preferred stock will have the
number of votes equal to the largest number of whole
shares of our common stock into which the holders'
convertible voting preferred stock can then be
converted. The holders of the convertible voting
preferred stock and the holders of our common stock
will vote together as one class on all matters
presented for a vote.
- DIVIDENDS AND DISTRIBUTIONS-- The holders of the
convertible voting preferred stock will be entitled
to receive dividends prior and in preference to any
declaration or payment of any dividend on our common
stock at the rate of 10% per year. These dividends
will be cumulative and will be payable annually in
additional shares of convertible voting preferred
stock without a declaration of a dividend by the
Board. In addition, as long as any shares of the
convertible voting preferred stock are outstanding,
we cannot declare or pay any dividend on our common
stock, nor can we purchase or redeem any shares of
our common stock unless all previous dividends on the
convertible voting preferred stock have been paid.
- CONVERSION RIGHTS-- The holders of the convertible
voting preferred stock will have the right to convert
each share into shares of our common stock at any
time and will be obligated to convert all shares by
the end of the third year from the date of issuance.
The number of shares of our common stock into which
each share of convertible voting preferred stock will
be convertible will be determined by dividing the
$100 per share purchase price, plus any accrued and
unpaid dividends, by the average market price of our
common stock as determined at the time the
convertible voting preferred stock is issued, subject
to adjustment for reclassification, stock splits, and
other events with respect to our common stock. Any
shares of convertible preferred stock that remain
outstanding three years after the date of issuance
will be automatically converted into common stock in
accordance with the calculation described in the
preceding sentence.
- REPURCHASE OBLIGATION -- If at any time we issue or
sell any of our equity securities in a single or
continuous offering for an aggregate purchase price
of more than $20.0 million, then we must repurchase
all of
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the outstanding shares of the convertible voting
preferred stock at a price equal to $100 per share,
plus any accrued and unpaid dividends. However, the
holders of the convertible voting preferred stock
have the right, upon notice to us, to convert any of
their shares of convertible voting preferred stock
into our common stock at any time up to 20 days prior
to the date of repurchase.
- REDEMPTION RIGHTS-- We may redeem all or any part of
the convertible voting preferred stock equal to the
following percentage of the sum of the aggregate
amount of shares multiplied by $100, plus any accrued
and unpaid dividends thereon: one year after issuance
- 120%; two years after issuance - 115%; and three
years after issuance - 110%. However, the holders of
the convertible voting preferred stock have the
right, upon notice to us, to convert any of their
shares of convertible voting preferred stock into our
common stock at any time up to 20 days prior to the
date of redemption.
- LIQUIDATION RIGHTS -- The holders of the convertible
voting preferred stock will be entitled to their
original purchase price of $100 per share, plus any
accrued and unpaid dividends, upon our voluntary or
involuntary liquidation, dissolution or winding up of
our affairs, before any payment is made to the
holders of our common stock or any class or series of
preferred stock ranking junior to the convertible
voting preferred stock.
Reasons for the Amendment. The amendment to our Certificate of
Incorporation allows us to obtain funds for the acquisition of Pyramid Life
through the sale of this convertible voting preferred stock to United Insurance
Company of America, the parent of Pyramid Life.
ISSUANCE OF STOCK
General. The acquisition of Pyramid Life was approved by our board of
directors on October 5, 1999 and April 14, 2000, and the terms of the sale of
the convertible voting preferred stock and common stock were approved by our
board of directors on February 22, 2000 and April 14, 2000. Although approval of
the acquisition and the issuance and sale of our stock is not required under
applicable Delaware law, we are required to obtain stockholder approval under
the rules applicable to companies listed on the Nasdaq Stock Market.
Under Nasdaq rules, we are required to obtain the approval of our
stockholders before we issue any number of shares of our common stock, or
securities convertible into our common stock, if the number of shares of our
common stock to be issued is or will be equal in excess of 20% of the number of
shares of our common stock outstanding before such issuance. The proposed
issuances of our common stock and convertible voting preferred stock, in the
aggregate, are in excess of 20% of the outstanding shares of our common stock
prior to the issuances. After giving effect to the sale of our convertible
voting preferred and common stock, neither United Insurance nor any of the
purchasers of common stock will own in excess of 19.9%
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of our common stock, assuming conversion by United Insurance of the convertible
voting preferred stock. The affirmative vote of the holders of a majority of the
outstanding shares of our common stock was required to approve the issuance and
sale of our convertible voting preferred and common stock to provide funding for
the acquisition of Pyramid Life.
Terms of the Sale of $7.5 million of Convertible Voting Preferred Stock
to United Insurance.
- AMOUNT AND PRICE -- We will issue and sell for
$100.00 per share 75,000 shares of our convertible
voting preferred stock, which is convertible into
shares of our common stock, to United Insurance
pursuant to a stock subscription agreement. Terms of
the convertible voting preferred stock are described
under "Amendment to our Certificate of Incorporation
-- Description of Convertible Voting Preferred
Stock."
- REGISTRATION RIGHTS-- We will enter into a
registration rights agreement with United Insurance
whereby, beginning three years from the date of the
agreement, if requested by the holders of all, but
not less than all, of the common stock issued upon
conversion of the convertible voting preferred stock,
we are obligated to use our best efforts to cause
all, but not less than all, the shares of our common
stock issued upon conversion of the convertible
voting preferred stock to be registered. This
registration right is known as a "demand"
registration. Beginning one year from the date of the
agreement, United Insurance will also have
"piggyback" registration rights, whereby if we
propose to register any of our shares in a public
offer, we will use our best efforts to register any
shares subject to the agreement. The holders of the
convertible voting preferred stock will rank the same
as the holders of our common stock subject to the
existing registration rights agreement, dated as of
July 3, 1998, which will be amended and restated in
connection with the offering.
Terms of the Sale of $20 million of Our Common Stock in a Private
Placement Offering.
- AMOUNT AND PRICE -- We will issue and sell 3,333,334
shares of our common stock in a private placement
offering to Castle Creek Capital Partners Fund IIa,
LP, Castle Creek Capital Partners Fund IIb, LP and
Lunn Partners or its designees for $6.00 per share.
- REGISTRATION RIGHTS -- Beginning one year from the
date of sale, the purchasers of our common stock in
this offering will become parties to the registration
rights agreement, dated as of July 3, 1998, which
will be amended and restated, whereby they will be
entitled to a "demand" registration right if
requested by the holders of at least $10.0 million in
market value of the shares of our common stock sold
in this offering.
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<PAGE> 24
Beginning one year from the date of the sale, these
purchasers will also have "piggyback" registration
rights.
- STOCKHOLDERS AGREEMENT-- In addition, Lunn Partners
or its designees will be joined as parties to our
stockholders agreement, dated as of July 1, 1998. The
Stockholders Agreement provides that each of the
parties to the agreement will have rights in
connection with specified sales of shares by the
other parties. Specifically, if the International
Managed Care funds sell shares representing more than
20% of our outstanding common stock, they have the
right to require each of the other parties to sell a
portion of his, her or its shares which represents
the same percentage of the fully diluted shares held
by that party as the shares being sold by the funds
represents of the fully diluted shares they holds.
All shares transferred pursuant to this provision of
the stockholders agreement will be sold at the same
price and time, and otherwise be treated identically
with, the shares being sold by the funds.
The stockholders agreement also provides that if any
party desires to sell shares, other than a sale in an
underwritten public offering pursuant to an effective
registration statement under the Securities Act,
representing more than 20% of our outstanding common
stock, then the selling party must make an offer to
each of the other parties to include in the proposed
sale a portion of that party's shares which
represents the same percentage of that party's fully
diluted shares as the shares being sold by the
selling party represents of its fully diluted shares.
- VOTING AGREEMENT -- In addition, Castle Creek will
become a party to our existing voting agreement, as
amended and restated, which will provide that the
parties to the agreement will cause our board of
directors to consist of nine directors. The voting
agreement, as amended and restated, is described on
page 41.
VOTING
Action by Written Consent. The elimination of the need for a meeting of
stockholders to approve the amendment to the Certificate of Incorporation and
the issuance and sale of our convertible voting preferred and common stock is
made possible by Section 228 of the Delaware general corporation law which
provides that the written consent of the holders of outstanding shares of voting
stock, having not less than the minimum number of votes which would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, may be substituted for a meeting. In order
to sell the securities as early as possible in order to accomplish our purposes,
our board of directors voted to utilize the written consent of the holders of a
majority of our voting stock.
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Vote Required and Obtained. On April 28, 2000, there were 13,707,573
outstanding shares of our common stock and approximately 1,544 holders of
record. The approval of the amendment to our Certificate of Incorporation as
described above requires the written consent of a majority of our outstanding
shares of common stock. The approval of the issuance and sale of our convertible
voting preferred and common stock as described above requires the written
consent of a majority of shares of our common stock entitled to vote. By written
consent in lieu of a meeting, holders of 7,776,133 shares of our common stock,
representing approximately 56.7% of the outstanding voting power, approved the
amendment to our Certificate of Incorporation and the issuance and sale of our
convertible voting preferred and common stock.
Pursuant to Section 228 of Delaware law, we are required to provide
prompt notice of the taking of the corporate action without a meeting. Under
applicable securities laws, neither the amendment nor the issuance and sale of
our convertible voting preferred and common stock can be effected until at least
20 calendar days after this information is sent or given to our stockholders.
The approximate date this information is first being sent or given to
stockholders is May 1, 2000. The amendment to our Certificate of Incorporation
and the issuance and sale of our convertible voting preferred and common stock
is subject to the acquisition of Pyramid Life. If the acquisition is not
completed, then we reserve the right not to amend our Certificate to provide
for the convertible voting preferred stock. Our stockholders are not entitled to
any dissenters' or appraisal rights under Delaware law as a result of the
approval and adoption of this issuance and sale of our common stock and
convertible voting preferred stock.
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BOARD OF DIRECTORS
Based on information as of April 28, 2000, the following describes the
age, position with Ceres, principal occupation and business experience during
the past five years, and other directorships of each person nominated for
election as a director. Pursuant to the provision of a voting agreement, which
will be amended and restated, eight of the nominees are currently directors and
have been nominated for re-election by the Board of Directors, and one nominee
has been nominated by the Board for election at the annual meeting. See "Voting
Agreement" on page 41.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL POSITION SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew A. Boemi 55 Director 1997
Michael A. Cavataio 56 Director 1997
Bradley E. Cooper 33 Director 1998
Susan S. Fleming 30 Director 2000
Rodney L. Hale 59 Director 2000
Peter W. Nauert 56 Chairman of the Board, President and CEO 1998
William J. Ruh 39 Director --
Robert A. Spass 44 Director 1998
Mark H. Tabak 50 Director 1998
</TABLE>
Mr. 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.
Mr. Cavataio is a real estate developer in northern Illinois and
southern Wisconsin. He 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.
Mr. Cooper has been a Partner and co-founder of Capital Z Management,
Inc., an investment management company, since 1998. Prior to joining Capital Z,
he served as a Partner of Insurance Partners I, L.P., which made investments in
property and casualty insurers, life and health insurers, healthcare services
firms and related insurance businesses. Mr. Cooper has been
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involved in the acquisitions of and the investments in several financial
services companies. Mr. Cooper served as a 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., Highlands
Insurance Group, Inc., American Capital Access Holdings, USI Insurance Services
and Universal American Financial Corp.
Ms. Fleming has been a Principal of Capital Z Management, Inc., an
investment management company, since 1998. Prior to joining Capital Z, Ms.
Fleming served as a Vice President of Insurance Partners I, L.P. From June 1992
to December 1994, Ms. Fleming was an investment banking analyst with Morgan
Stanley & Co. Ms. Fleming is a director of Universal American Financial Corp., a
life and supplementary accident and health insurance company.
Mr. Hale has been the President of International Insurance Investment
Strategies, a consulting firm specializing in strategic alternatives for the
life insurance industry, since 1993. Since 1995, he has owned Sterling Investors
Life Insurance Company, a life and accident and health insurance company.
Mr. Nauert has been the President, Chief Executive Officer and a
director of Ceres, since July 3, 1998 and Chairman of the Board, since June 10,
1999. Mr. Nauert is also the principal investor in Strategic Partners. Mr.
Nauert served as Chief Executive Officer of Pioneer Financial Services from 1982
to 1997, and as Chairman from 1988 to 1997. Mr. Nauert had been employed in an
executive capacity by one or more of the insurance subsidiaries of Pioneer
Financial Services from 1968 to 1997.
Mr. Ruh has been a principal and co-founder of Castle Creek Capital, an
investment management company, since 1995. He is also a co-founder and has been
a principal of Belle Plaine Financial, a registered broker/dealer that conducts
financial advisory services and places private equity investments, since 1995.
Mr. Ruh has ten years of commercial banking and investment banking experience,
having worked for The First National Bank of Chicago and Mabon Securities prior
to founding Castle Creek and Belle Plaine. Mr. Ruh presently serves as a
director of First Community Bank of the Desert and Regency Bancorp.
Mr. Spass has been a Partner and co-founder of Capital Z Partners, an
investment management company, since 1998. Prior to co-founding Capital Z, Mr.
Spass was the Managing Partner and co-founder of Insurance Partners I, L.P. 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,
Highlands Insurance Group, Inc., USI Insurance Services, and Universal American
Financial Corp.
Mr. Tabak has been the managing partner of Healthcare Capital Partners,
since 1998. Mr. Tabak was also the 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. Before joining AIG, he served as President and Chief
Executive Officer of Group Health Plan and as President of
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<PAGE> 28
HealthAmerica Development Corporation. Mr. Tabak also founded Clinical
Pharmaceuticals, Inc. Mr. Tabak serves on the boards of Corporate Health
Dimensions and Brookdale Living Communities.
COMPOSITION OF THE BOARD OF DIRECTORS
Our board of Directors has eight members. There is one vacancy which
will be filled if all the nominees are elected at the annual meeting. The
directors are elected by our stockholders at the annual meeting and each
director holds office until the next annual meeting and until his successor is
properly elected. Some of our stockholders have entered into a voting agreement
that governs who they will vote for as directors. For more information on this
voting agreement, see the section called "Principal Stockholders -- Voting
Agreement."
BOARD COMMITTEES
Our Board of Directors met six times in 1999 and took action by written
consent twice. During 1999, all members of the Board, except for Richard M.
Osborne, participated in 75% of all Board and applicable committee meetings. Mr.
Osborne participated in 69% of all Board and applicable committee meetings.
Our board of directors has standing executive, audit, investment and
compensation committees.
Executive Committee. Our executive committee has all powers of the
Board of Directors in the management of our business and affairs between Board
meetings except the power to fill vacancies on the Board or its committees. The
executive committee also functions as a nominating committee. As a nominating
committee, the executive committee seeks qualified persons to serve as directors
and makes recommendations to the Board of Directors. Currently, the members of
the executive committee are Mr. Nauert (chairman), Mr. Cavataio and Mr. Spass.
The executive committee met once during 1999 and took action by written consent
three times.
Audit Committee. Our audit committee recommends to the Board of
Directors the firm of independent accountants to serve us and reviews the scope,
performance and results of the annual audit. Currently, the members of the audit
committee are Mr. Boemi (chairman), Mr. Cavataio, Ms. Fleming and Mr. Tabak. The
audit committee met five times in 1999.
Investment Committee. Our investment committee establishes policies for
our investments and monitors their management. Currently, the members of the
investment committee are Mr. Cavataio (chairman), Mr. Boemi and Ms. Fleming. The
investment committee met once in 1999 and took action by written consent once.
Compensation Committee. Our compensation committee is responsible for
determining the compensation of our executive officers. Currently, the members
of the compensation committee are Mr. Cooper (chairman) and Mr. Cavataio. The
compensation committee met twice in 1999 and took action by written consent four
times.
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DIRECTOR COMPENSATION
During 1999, our directors were not compensated for their services as
directors. Beginning in 2000, our directors, with the exception of Messrs.
Cooper, Nauert, Ruh, Spass and Tabak and Ms. Fleming, will receive a $2,500
quarterly retainer and a $5,000 annual fee for serving as a chairman of a
committee.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers, directors, and persons who beneficially own more than 10% of
our common stock, 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 us and written representations from our executive
officers and directors, we believe that all forms were filed in a timely manner
during 1999.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning our current executive officers:
EXECUTIVE
OFFICER
NAME AGE PRINCIPAL POSITION SINCE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Peter W. Nauert(1) 56 Chairman of the Board, President 1998
and Chief Executive Officer
Bruce Henry 41 Chief Sales Officer 2000
Billy B. Hill, Jr. 48 General Counsel 1998
Glen A. Laffoon 60 Executive Vice President of Ceres and 1974
President and Chief Executive Officer of
Central Reserve
Charles E. Miller, Jr. 49 Executive Vice President, Chief Financial 1998
Officer and Treasurer
Anthony J. Pino 52 Executive Vice President 1999
</TABLE>
- --------------------
1) Biographical information for Mr. Nauert can be found under "Board of
Directors."
Mr. Henry has been the Chief Sales Officer of Ceres since joining Ceres
in July 1998. From 1996 to 1998, Mr. Henry was National Sales Director for
Design Benefit Plans, a marketing subsidiary of Pioneer Financial Services.
Prior to 1996, Mr. Henry was a top producing regional sales manager for a
subsidiary of Pioneer Financial Services.
27
<PAGE> 30
Mr. Hill has served as a consultant to Ceres, with the title of General
Counsel, since July 3, 1998. He is a principal in the law firm of Hill & Reagan,
Dallas, Texas. Mr. Hill is an investor in Strategic Acquisition Partners. Mr.
Hill also served as General Counsel of Pioneer Financial Services from January
1996 to August 1997.
Mr. Laffoon has served as an officer of Ceres since 1991 and of Central
Reserve since 1974 and has held various positions in both companies. Since July
1998, he has served as Executive Vice President of Ceres and since December
1998, he has also served as Assistant Secretary. Since June 1998, Mr. Laffoon
has served as President and Chief Executive Officer of Central Reserve.
Mr. Miller has served as Executive Vice President and Chief Financial
Officer of Ceres since October 1998 and as Treasurer since June 30, 1999. From
1996 to 1998, he was a principal and President of Wellington Partners, Inc., an
insurance acquisition company. Mr. Miller was also a consultant to Insurance
Partners, L.P. and Insurance Partners Offshore (Bermuda), L.P. Before 1996, Mr.
Miller was Executive Vice President, Chief Financial Officer and a director of
Harcourt General Insurance Companies.
Mr. Pino has served as Executive Vice President of Ceres since February
2000 and was Senior Vice President of Ceres from August 1999 to February 2000.
From June to August 1999, he was a consultant to Ceres. From 1996 to 1999, Mr.
Pino was President of National Health Services, Inc., a managed care subsidiary
of United Payors & United Providers, an intermediary between health care payors
and health care providers. From 1991 to 1996, Mr. Pino was Executive Vice
President of Pioneer Financial Services, Inc. and President of National Group
Life Insurance Company, a subsidiary of Pioneer.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the annual compensation paid by Central
Reserve, our principal operating subsidiary, with respect to the calendar years
ended December 31, 1999, 1998 and 1997, to our Chief Executive Officer and our
five most highly-compensated executive officers during 1999.
28
<PAGE> 31
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- -----------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS (1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PETER W. NAUERT 1999 -- $ 1,000,000(2) -- --
Chairman of the Board, 1998 -- -- 500,000 --
President and Chief Executive Officer
BILLY B. HILL, JR. (3) 1999 -- 200,000(4) -- $ 240,000
General Counsel 1998 -- -- 125,000 230,580
GLEN A. LAFFOON 1999 $ 215,200 -- 15,000 4,562
Executive Vice President and 1998 180,000 -- 25,000 1,000
Assistant Secretary of Ceres and 1997 160,000 -- -- 20,635
President and Chief Executive Officer
of Central Reserve
FRED LICK, JR. 1999 492,200(5) -- -- 7,463
Chairman of the Board of Central 1998 500,000 -- -- 1,000
Reserve and former Chairman of the 1997 966,994 -- -- 20,635
Board and Chief Executive Officer of
Ceres
CHARLES E. MILLER, JR. 1999 211,900 -- 25,000 145,810(7)
Executive Vice President and Chief 1998 93,000(6) -- 100,000 12,000(7)
Financial Officer of Ceres and
Executive Vice President, Chief
Financial Officer and Treasurer of
Central Reserve
VAL RAJIC 1999 147,000 181,900(8) -- 1,537
Former Executive Vice President and 1998 115,000 -- 125,000(9) --
Treasurer
<FN>
- --------------------
(1) For the year 1999, $1,000 represents the contribution payable by us to each of Messrs.
Laffoon, Lick, Miller and Rajic under our 401(k) plan. For the year 1998, $1,000 represents
the contribution payable by us to each of Messrs. Lick and Laffoon under our 401(k) plan.
For the year 1997, represents the contribution under a defined-contribution,
money-purchase, pension plan.
(2) Mr. Nauert receives no annual salary. Under his employment agreement, Mr. Nauert is
entitled to a stock award payable in shares of our common stock and a cash payment equal to
the amount of taxes payable on the stock award. In 1999, pursuant to his employment
agreement, Mr. Nauert received $1.0 million worth, or 108,108 shares, of our common stock.
He is also entitled to an amount equal to the taxes payable on such award under his
agreement. See "Employment Agreement" for information regarding Mr. Nauert's employment
agreement.
(3) Mr. Hill serves as a consultant to the Company, with the title of General Counsel, pursuant
to a retainer agreement under which he is paid an annual retainer. See "Employment
Agreements."
</TABLE>
29
<PAGE> 32
(4) Pursuant to his retainer agreement, Mr. Hill received 16,667 shares of
our common stock, valued at $133,336, and $66,668 in cash equal to the
taxes payable on the stock award.
(5) Represents salary paid to Mr. Lick under his employment agreements
which terminated in accordance with their terms as of December 31,
1999.
(6) Includes one-time payment of $50,000 to induce Mr. Mille to enter into
his employment agreement.
(7) Represents (i) payment of $4,000 per month for expenses relating to his
residence in Cleveland, Ohio, and (ii) $96,000 related to non-recurring
expenses related to Mr. Miller's relocation from Florida to Ohio. See
"Employment Agreements."
(8) Pursuant to his settlement agreement, Mr. Rajic received 16,667 shares
of our common stock, valued at $112,502 and $69,426 in cash equal to
the taxes payable on the stock award. See "Employment Agreements."
(9) Mr. Rajic forfeited 50,000 of these options on August 10 1999 in
connection with his settlement agreement. See "Employment Agreements."
OPTION GRANTS IN 1999
The following table summarizes information concerning options granted
during our fiscal year ended December 31, 1999 to each of our executive officers
listed in the compensation table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SHARES GRANTED TO EXERCISE FOR OPTION TERM *
UNDERLYING EMPLOYEES IN PRICE PER -----------------------
NAME OPTIONS 1999 SHARE EXPIRATION DATE 5% 10%
- ------------------------ -------------- ---------------- ----------- ------------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Glen A. Laffoon 15,000 3.1% $ 8.25 February 17, 2009 $ 77,826 $197,226
Charles E. Miller, Jr. 25,000 5.2% $ 8.25 February 17, 2009 $129,710 $328,709
</TABLE>
- ----------------
* Assumes a ten-year term of the options.
Note: Each of the above options were granted under th 1998 Key Employee Share
Incentive Plan and each vest on the third anniversary of the date of
grant of such option.
OPTION VALUES AT YEAR-END 1999
The following table summarizes information with respect to the number
of unexercised options held by the executive officers listed in the compensation
table as of December 31, 1999. None of these executive officers exercised any
options in 1999.
30
<PAGE> 33
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
NAME OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 *
- -----------------------------------------------------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------------------------------------------------------
<S> <C> <C>
Peter W. Nauert 250,000/250,000 $25,000/$25,000
Billy B. Hill, Jr. 25,000/100,000 $37,500/$12,500
Glen A. Laffoon 0/40,000 ---/$9,375
Charles E. Miller, Jr. 40,000/85,000 $20,000/$30,000
Val Rajic 75,000/0 $50,000/---
</TABLE>
- -----------------
* Valued at $7.00 per share, the closing price per share of our common
stock on December 31, 1999.
EMPLOYMENT AGREEMENTS
Peter W. Nauert. Mr. Nauert serves as our Chairman of the Board,
President and Chief Executive Officer. Effective July 1, 1998, we entered into
an employment agreement, as amended, with Mr. Nauert 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:
- stock awards;
- stock options; and
- incentive pay,
all designed to induce Mr. Nauert to enter into the agreement and to remain with
us 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 shares of our common stock as follows: on July 1,
1999, 108,108 shares of common stock and after that quarterly
beginning January 1, 2000 and on the first day of each
calendar quarter after that, the number of Common Shares equal
to $250,000 divided by the average closing price of our common
stock for the calendar quarter ending three months before the
payment until July 1, 2001 when the final quarterly payment of
stock will be paid. The July 1, 2001 payment will include the
stock awards for the quarters ending March 31, 2001 and June
30, 2001 and an additional payment of 25,225 shares. Mr.
Nauert will also receive a cash payment equal to the amount of
taxes payable on the stock award before the time these taxes
become due. Mr. Nauert will forfeit any unpaid stock award or
cash payment for taxes if we terminate his employment for any
reason other than a "Severenceable Event" as defined by the
agreement.
31
<PAGE> 34
STOCK OPTIONS Mr. Nauert was granted options to
purchase an aggregate of 500,000 shares of our common stock.
The exercise prices of the options are as follows:
Number of Options Exercise Price
----------------- --------------
100,000 $ 6.50
100,000 $ 7.50
100,000 $ 8.50
100,000 $ 9.50
100,000 $ 10.50
Thirty percent (30%) of the options vested immediately upon
issuance on July 3, 1998 and 20% vested on July 1, 1999. The
remainder of the options shall vest as follows: (i) 20% shall vest
on July 1, 2000 and (ii) 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:
- termination by the company for any reason other than
for "Cause", as defined by the agreement,
- termination upon a "Change of Control" as defined by
the agreement,
- termination by Mr. Nauert for "Good Reason" as
defined by the agreement, or
- termination due to the death or total or partial
disability of Mr. Nauert.
Mr. Nauert will forfeit any unvested options if his 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 our
pre-tax income for such year exceeds specified targets. For
1999 and 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 shares of our common stock unless we release him from this
obligation. Additionally, Mr. Nauert may receive cash bonuses or other incentive
compensation as the Board of Directors approves.
32
<PAGE> 35
Billy B. Hill, Jr. Mr. Hill serves as a consultant to Ceres, with the
title of General Counsel. We entered into a retainer agreement with Mr. Hill
dated as of June 30, 1998 for a term of three years under which Mr. Hill
receives a retainer of $240,000 per year. Effective January 1, 2000, Mr. Hill's
retainer was increased to $300,000. Under the agreement, Mr. Hill received stock
options to purchase 125,000 shares of our common stock. Twenty-five thousand of
the options vested immediately 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. Hill may also receive cash bonuses or
other cash incentive compensation as the board of directors may approve. 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 Ceres. If
Mr. Hill is terminated for reasons other than cause or his agreement is not
renewed at the end of its term, Mr. Hill will receive two years of his retainer
as severance pay. On November 8, 1999, we issued 16,667 shares of our common
stock to Mr. Hill in connection with his retainer agreement.
Glen A. Laffoon. Mr. Laffoon serves as Executive Vice President and
Assistant Secretary of Ceres and as President and Chief Executive Officer of
Central Reserve. Mr. Laffoon and Central Reserve 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 we provide 60-days
advance notice. The current term runs through May 31, 2000. If we terminate Mr.
Laffoon's employment other than for cause, Mr. Laffoon will be entitled to
severance pay equivalent to one year's salary. His agreement also provides for
reimbursement of business expenses and certain other fringe benefits.
Charles E. Miller, Jr. Mr. Miller joined Ceres on October 1, 1998 as
Executive Vice President and Chief Financial Officer. On December 7, 1998, Mr.
Miller was also elected Executive Vice President and Chief Financial Officer of
Central Reserve. He became Treasurer of Central Reserve in January 1999. On
October 1, 1998, we entered into a three-year employment agreement with Mr.
Miller 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. Effective January 1, 2000, Mr.
Miller's salary was increased to $250,000 for the remainder of the term. If we
terminate Mr. Miller's employment other than for cause, Mr. Miller will be
entitled to severance pay equivalent to one year's salary. Additionally, Mr.
Miller was granted options to purchase 100,000 shares of our common stock 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 also provides
for the reimbursement of reasonable expenses of relocation. Under the agreement,
Mr. Miller may receive cash bonuses or other cash-incentive compensation as the
Board of Directors may approve.
33
<PAGE> 36
Anthony J. Pino. Mr. Pino serves as Executive Vice President of Ceres.
He served as Senior Vice President of Claims from August 1999 until his
promotion to Executive Vice President in February 2000. Mr. Pino and Central
Reserve entered into an employment agreement effective October 1, 1999 under
which Mr. Pino will receive a salary of $150,000 for the period of October 1,
1999 through October 1, 2000 and each renewal year. Effective January 1, 2000,
his salary was increased to $200,000 for the remainder of the term. The
agreement automatically renews for succeeding one-year terms unless we provide
60-days advance notice. The current term runs through October 1, 2000. If we
terminate Mr. Pino's employment other than for cause, Mr. Pino will be entitled
to severance pay equivalent to one year's salary. His agreement also provides
for reimbursement of business expenses and certain other fringe benefits.
Val Rajic. Mr. Rajic served as Executive Vice President and Treasurer
of the Company until June 28 1999. Mr. Rajic's employement agreement, effective
July 1, 1998, provided for a term of three years under which Mr. Rajic was to
receive a base salary of $147,000. Under his employment agreement, Mr. Rajic
received options to purchase 125,000 Common Shares. 25,000 of these options
vested immediately at an exercise price of $5.50 per share. The remainder were
scheduled to vest on July 1, 2001. The exercise price of the remaining options
was as follows: $6.50-25,000 options; $7.50-25,000 options; $8.50-25,000 options
and $9.50-25,000 options. On June 28, 1999, Mr. Rajic resigned as an employee
and officer.
On August 10, 1999, we entered into a Settlement and Consulting
Agreement with Mr. Rajic whereby Mr. Rajic will continue as an employee for the
remainder of 1999 and then become a consultant until December 31, 2000, and Mr.
Rajic's employment agreement was terminated. Mr. Rajic may terminate the
Settlement Agreement at any time with 30 days notice to us. From July 1, 1999 to
December 31, 1999, we paid Mr. Rajic $73,500 and beginning on January 1, 2000
through the remainder of his Settlement Agreement, we will pay Mr. Rajic
$147,000 per year. The agreement also provides that 25,000 of Mr. Rajic's
unvested options at $6.50 per share and 25,000 of his options at $7.50 per share
vested on August 1, 1999. Mr. Rajic forfeited 50,000 options. In addition, we
issued to Mr. Rajic 16,667 shares of our common stock and paid him an amount
equal to his estimated tax payment on the shares.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
OVERVIEW
The base compensation of our executive officers is governed by
individual employment agreements, except for Mr. Henry. An important 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 our executive officers, the committee considers, among other things, the
responsibilities of the office, the experience and background of the individual,
an
34
<PAGE> 37
evaluation of the individual's contribution to Ceres and available information
as to the practices of other insurance companies.
The 1998 Key Employee Share Incentive Plan is designed to provide
incentives to executive officers and other key employees by encouraging them to
acquire a larger share ownership in Ceres, thereby increasing their proprietary
interest in our business and enhancing their personal financial interest in our
success. This plan permits the grant of non-transferable options to purchase our
common stock, 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. In making any grants under the plan, the committee
did so based upon merit and keeping with our overall objective of enhancing our
profitability and stockholder value.
In addition, under the guidance of the compensation committee, we have
begun a new stock purchase program, subject to stockholder approval at this
annual meeting, which is also designed to encourage our employees, including
executive officers, to acquire an ownership interest in Ceres. The plan permits
us to offer our common stock for purchase by eligible employees at a price equal
to 85% of the lower of the market value of our stock on the first day of the
offering period or the market value of our stock on the last day of the offering
period.
BASE SALARY
Even though most of our executive officers' salaries are determined by
their individual employment agreements, the compensation committee reviews the
salaries of our executive officers each year and adjusts salaries, in its
discretion, based on a subjective evaluation of individual performance and
comparisons to peers inside and outside Ceres.
ANNUAL INCENTIVE AWARDS
Annual incentive awards are designed to focus management attention on
our performance. The 1999 bonus program for our executive officers and other key
employees became effective with the achievement by the company of a minimum
pre-tax profit of $16 million. Eligibility for the 1999 bonus program was based
on 1999 salary and level of corporate responsibility. The bonus pool for
eligible officers is 10% of the 1999 net after-tax income. The bonus is paid 50%
by formula and 50% by discretion. The discretionary payment is based on the
officer's performance, length of tenure and corporate expectations for 2000.
The formula bonus will be paid 25% in our stock, 25% in cash and 50% in options.
The bonus was earned in 1999 but will be paid in the second quarter of 2000.
In February 2000, the Board of Directors, based on the recommendation
of the compensation committee, adopted the 2000 officer bonus plan. The plan
provides for a separate, but equal, bonus pools for selected senior officers and
for Messrs. Henry, Hill, Miller and Pino.
35
<PAGE> 38
Bonuses will be distributed out of each pool pro rata based on the base salary
of the individual officer. Both pools are based on the minimum achievement of
certain pre-tax earnings targets. Bonuses will be paid 50% by a formula and 50%
by discretion. The formula bonus will be paid 25% in cash, 25% in our stock and
50% in options.
COMPENSATION OF OUR CHIEF EXECUTIVE OFFICER
Mr. Nauert's compensation is governed by his employment agreement. Mr.
Nauert does not receive an annual salary under his agreement. Rather, his
employment agreement is composed of (1) stock awards equal to $1 million of our
common stock per year, plus an amount equal to the taxes payable on such awards,
(2) non-qualified stock options to purchase 500,000 shares of our common stock
which were granted in 1998, and (3) incentive pay equal of 5% of the amount by
which our pre-tax income for such year exceeds specified targets. Under the
agreement, Mr. Nauert is obligated to retain ownership of at least 900,000
shares of our common stock unless we release him from this obligation. In
addition, Mr. Nauert may receive cash bonuses or other incentive compensation as
the Board approves. For a more detailed description of Mr. Nauert's employment
agreement, see the section called "Employment Agreements -- Peter W. Nauert."
COMPENSATION COMMITTEE
BRADLEY E. COOPER
MICHAEL A. CAVATAIO
36
<PAGE> 39
PERFORMANCE GRAPH
The following graph compares our 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, 1994, in each of three
indices and dividends reinvested.)
[GRAPH INSERTED HERE]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
CERES GROUP, INC. 100.0 121.4 104.3 69.0 139.7 94.2
NASDAQ STOCK MARKET 100.0 141.3 173.9 213.1 300.4 556.0
NASDAQ INSURANCE STOCKS 100.0 142.0 161.9 237.5 211.6 164.4
- -------------------------- -------------- -------------- -------------- -------------- -------------- -------------
</TABLE>
37
<PAGE> 40
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 28, 2000, regarding
the beneficial ownership of our common stock by:
- each stockholder known to us to be the beneficial owner of
more than 5% of our common stock,
- each director,
- each executive officer included in our 1999 executive
compensation table, and
- all our directors and executive officers as a group.
The information contained in this table does not include:
- 425,000 shares of our common stock issuable under
non-qualified stock options that are outstanding but not
presently exercisable,
- 730,000 shares of our common stock issuable under stock
options that are outstanding but not presently exercisable
pursuant to the 1998 Key Employee Share Incentive Plan, and
- 386,000 shares of our common stock issuable under stock
options that are outstanding but not presently exercisable
pursuant to the 1998 Employee Stock Option Plan.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------------------------------------------------------------
EQUITY GUARANTEE
NAMES AND ADDRESS(2) SHARES WARRANTS(3) WARRANTS(4) OPTIONS(5) TOTAL PERCENT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Managed Care, LLC (6) 3,749,285 1,399,733 -- -- 5,149,018 34.1%
54 Thompson Street
New York, New York 10012
International Managed Care(Bermuda), L.P. (6) 1,826,171 772,995 -- -- 2,599,166 17.9%
54 Thompson Street
New York, New York 10012
Peter W. Nauert (6)(7) 1,270,458 532,781 500,000 250,000 2,553,239 17.0%
Richard M. Osborne (6)(8) 985,933 360,455 300,000 -- 1,646,388 11.5%
8500 Station Street, Suite 113
Mentor, Ohio 44060
Medical Mutual of Ohio (6) 480,009 181,818 -- -- 661,827 4.8%
1200 Huron Road, Tenth Floor
Cleveland, Ohio 44115
Lunn-Ceres, LLC (6) 400,000 -- -- -- 400,000 2.9%
209 South LaSalle, Suite 810
Chicago, Illinois 60604
LEG Partners SBIC, L.P. (6) 240,003 90,909 -- -- 330,912 2.4%
230 Park Avenue, 19th Floor
New York, New York 10169
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
Beneficial Ownership (1)
----------------------------------------------------------------------------
EQUITY GUARANTEE
NAMES AND ADDRESS(2) SHARES WARRANTS(3) WARRANTS(4) OPTIONS(5) TOTAL PERCENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Cavataio (6) (9) 231,818 90,909 -- -- 322,727 2.3%
3125 Ramsgate Road
Rockford, Illinois 61114
Billy B. Hill, Jr. (6) (10) 122,885 50,737 100,000 25,000 298,622 2.2%
Fred Lick, Jr. (11) 292,580 -- -- -- 292,580 2.1%
Val Rajic (6) 154,279 -- -- 75,000 229,279 1.7%
Howard R. Conant (6) 90,909 45,455 -- -- 136,364 1.0%
c/o Lunn Partners
209 South LaSalle
Chicago, Illinois 60604
Joseph Cusimano IRA (6) 90,909 45,454 -- -- 136,363 1.0%
c/o Lunn Partners
209 South LaSalle
Chicago, Illinois 60604
Glen A. Laffoon (6) (12) 90,875 -- -- -- 90,875 *
Charles E. Miller, Jr. (6) (13) 7,177 2,968 -- 40,000 50,145 *
Bruce Henry (6) 20,387 7,124 -- -- 27,511 *
Sally J. Krogh (6) 25,000 -- -- -- 25,000 *
c/o Stifel, Nicolaus and Co., Inc.
4343 E. State Street
Rockford, Illinois 61108
Kenneth A. Mannino (6) (14) 25,000 -- -- -- 25,000 *
c/o Stifel, Nicolaus and Co., Inc.
4343 E. State Street
Rockford, Illinois 61108
Ralph Alexander (6) (15) 13,082 8,048 -- -- 21,130 *
Anthony Pino (6) 10,000 2,639 -- -- 12,639 *
Marc C. Krantz (6) 6,967 2,273 -- -- 9,240 *
1375 E. Ninth Street, 20th Floor
Cleveland, Ohio 44114
Krantz Family Limited Partnership (6) 5,965 2,272 -- -- 8,237 *
1375 E. Ninth Street, 20th Floor
Cleveland, Ohio 44114
John Cochrane (6) 6,000 -- -- -- 6,000 *
c/o Lunn Partners
209 S. LaSalle, Suite 810
Chicago, Illinois 60604
Richard Kusnic (6) 4,069 1,319 -- -- 5,388 *
Andrew A. Boemi (6) (16) 4,000 -- -- 4,000 *
John Kertis (6) 2,226 1,319 -- -- 3,545 *
Ronald Kotowski (6) 2,783 132 -- -- 2,915 *
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
Beneficial Ownership (1)
----------------------------------------------------------------------------
EQUITY GUARANTEE
NAMES AND ADDRESS(2) SHARES WARRANTS(3) WARRANTS(4) OPTIONS(5) TOTAL PERCENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George Gehringer (6) 1,000 660 -- -- 1,660 *
Bradley E. Cooper 0 -- -- -- 0 0.0%
Susan S. Fleming 0 -- -- -- 0 0.0%
Rodney L. Hale 0 -- -- -- 0 0.0%
William J. Ruh 0 -- -- -- 0 0.0%
Mark H. Tabak 0 -- -- -- 0 0.0%
Robert A. Spass (17) 0 -- -- -- 0 0.0%
All directors and executive officers 1,757,600 687,158 600,000 315,000 3,359,758 21.9%
as a group (14 individuals)
Voting Agreement Group 9,867,190 3,600,000 900,000 390,000 14,757,190 79.4%
- ------------------
</TABLE>
* Less than 1%
(1) Unless otherwise indicated, we believe that all persons named in the
table have sole investment and voting power over the shares of stock
owned.
(2) Unless otherwise indicated, the address of each of the beneficial
owners identified is c/o Ceres Group, Inc., 17800 Royalton Road,
Cleveland, Ohio 44136.
(3) Warrants to purchase shares at $5.50 per share exercisable any time
until July 2, 2005 (the "Equity Warrants").
(4) Warrants to purchase shares at $6.00 per share exercisable any time
until five years from the date of issuance (December 16, 1997 and July
3, 1998) (the "Guarantee Warrants").
(5) Options to purchase shares that are presently or will become
exercisable within 60 days.
(6) All of these shares, Equity Warrants, Guarantee Warrants and options,
totaling 14,757,190 or 79.4%, are subject to a voting agreement and
stockholders agreement, and, as a result, each of these persons may be
deemed to beneficially own, as a part of a group, all of these shares.
Each of these persons disclaims beneficial ownership of the shares
beneficially owned by the other persons who are parties to the voting
and stockholders agreements.
(7) Includes 62,000 shares, 466,818 Equity Warrants and 500,000 Guarantee
Warrants held by the Peter W. Nauert Revocable Trust, of which
Mr. Nauert is the trustee.
(8) Includes 985,933 shares and the Equity Warrants held by Turkey Vulture
Fund XIII, Ltd., an Ohio limited liability company, of which Mr.
Osborne is the sole Manager.
(9) Includes 54,682 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 shares held by
Stifel, Nicolaus and Co., Custodian for Michael A. Cavataio IRA.
(10) Includes 105,000 shares and 50,000 Equity Warrants held by Karon Hill,
Mr. Hill's wife.
(11) Includes 37,500 shares owned by Mid American Asset Management
Corporation, of which Mr. Lick is the sole shareholder.
(12) Includes 41,150 shares held by Mr. Laffoon's wife and 3,000 shares held
jointly with his wife
(13) Includes 7,100 shares and 2,968 Equity Warrants held by First Union
National Bank C/F Charles E. Miller, Jr. R/O IRA.
(14) Shares held by Stifel, Nicolaus and Co., Custodian for Kenneth A.
Mannino IRA.
(15) Includes 12,200 shares and 8,048 Equity Warrants held by First Clearing
Corp. Custodian Ralph Alexander IRA.
40
<PAGE> 43
(16) Includes 3,000 shares held in trust for Mr. Boemi's children.
(17) Mr. Spass is a managing partner of an indirect general partner of each
of the International Managed Care funds. Mr. Spass disclaims beneficial
ownership of all shares and Equity Warrants owned by the International
Managed Care funds.
VOTING AGREEMENT
We are a party to a Voting Agreement, dated as of July 1, 1998. The
voting agreement is being amended and restated in connection with the
acquisition of Pyramid Life to provide Castle Creek a board seat designation.
The voting agreement will remain in effect until July 2, 2003, unless earlier
terminated. The voting agreement provides that the parties to the agreement will
cause our board of directors to consist of nine directors, some or all, as
applicable, of whom will be the following individuals:
- four individuals designated by the International Managed Care
funds, so long as the International Managed Care funds and their
officers, directors, employees and affiliates (the "International
Managed Care Group") own shares equal to at least 75% of the
shares owned by the International Managed Care Group on July 3,
1998, three individuals designated by the International Managed
Care funds, so long as the International Managed Care Group owns
shares equal to at least 50%, but less than 75%, of the shares
owned by the International Managed Care Group on July 3, 1998,
two individuals designated by the International Managed Care
funds, so long as the International Managed Care Group owns
shares equal to at least 25%, but less than 50%, of the shares
owned by the International Managed Group on July 3, 1998, and one
individual designated by the International Managed Care funds, so
long as the International Managed Care Group owns shares equal to
at least 10%, but less than 25%, of the shares owned by the
International Managed Care Group on July 3, 1998;
- two individuals designated by Strategic Acquisition Partners,
LLC, so long as Strategic Partners and its affiliates own shares
equal to at least 50% of the shares owned by Strategic Partners
and its affiliates on July 3, 1998, and one individual designated
by Strategic Partners, so long as Strategic Partners and its
affiliates own shares equal to at least 10%, but less than 50%,
of the shares owned by Strategic Partners and its affiliates on
July 3, 1998;
- one individual designated by Turkey Vulture Fund XIII, Ltd., so
long as Turkey Vulture Fund and its affiliates own shares equal
to at least 25% of the shares owned by Turkey Vulture Fund and
its affiliates on July 3, 1998; and
- one individual designated by Castle Creek so long as Castle Creek
and its affiliates own more than 25% of the shares it purchases
in the offering.
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<PAGE> 44
Currently, the director(s) designated by:
- the International Managed Care funds are Messrs. Cooper, Spass
and Tabak and Ms. Fleming,
- Strategic Partners are Messrs. Cavataio and Nauert, and
- Castle Creek is Mr. Ruh.
Turkey Vulture Fund has not opted to designate a director at this time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 17, 1999, we acquired Continental General Corporation and
its wholly- owned subsidiary, Continental General Insurance Company, from the
Western and Southern Life Insurance Company of Cincinnati, Ohio, for $84.5
million in cash. We sold 2,000,000 shares of newly-issued common stock for $15.0
million, or $7.50 per share, to raise a portion of the purchase price. The $7.50
per share price was based on the market price of our common stock at the time
the private placement transaction was being negotiated. The investors that
purchased shares in February were primarily the same investors that participated
in our equity financing in July 1998.
Mr. Nauert, Mr. Cavataio, Mr. Rajic, Mr. Miller, Mr. Laffoon, Mr.
Boemi, Karon Hill, Mr. Hill's wife, and the International Managed Care funds
were investors in the February equity financing. Mr. Nauert purchased 62,000
shares for $465,000; Mr. Cavataio purchased 50,000 shares for $375,000; Mr.
Rajic purchased 5,000 shares for $37,500; Mr. Miller purchased 2,600 shares for
$19,500; Mr. Laffoon purchased 4,000 shares for $30,000; Mr. Boemi purchased
3,000 shares for $22,500; Ms. Hill purchased 5,000 shares for $37,500;
International Managed Care LLC purchased 949,819 shares for $7,123,642.50; and
International Managed Care (Bermuda), L.P. purchased 280,181 shares for
$2,101,357.50. 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 the International Managed Care funds
and their portfolio companies. In addition, Mr. Spass is a managing partner of
an indirect general partner of each of the International Managed Care funds. All
of the investors in the February equity financing are parties to voting,
stockholders and registration rights agreements.
In order to comply with certain state insurance regulatory requirements
that prohibit providing group life insurance unless at least ten lives are
insured, we 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. In compliance with state regulations
that require that the stockholders of these "trustee corporations" be natural
persons, Mr. Lick and Frank W. Grimone hold, for our benefit, all of the
outstanding shares of these trustee
42
<PAGE> 45
corporations and are directors of the corporations. Mr. Laffoon holds the office
of President of each of these corporations. None of the officers or directors of
these corporations receives any compensation for serving in that capacity.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
A stockholder intending to present a proposal to be included in our
proxy statement for the 2001 annual meeting of stockholders must deliver a
proposal, in accordance with the provisions of Rule 14a-8 under the Exchange
Act, to Linda S. Standish, Secretary at our principal executive office no later
than January 1, 2001. A stockholder's notice to the Secretary must set forth as
to each matter the stockholder proposes to bring before the meeting:
- a brief description of the business desired to be brought
before the meeting and the reasons for conducting such
business at the meeting,
- the name and record address of the stockholder proposing such
business,
- the class and number of shares of our common stock that are
beneficially owned by the stockholder, and
- any material interest of the stockholder in such business.
A stockholder desiring to nominate a director for election at our 2001
annual meeting of stockholders must deliver a notice to the Linda S. Standish,
Secretary at our principal executive office no later than January 1, 2001. Such
notice must include as to each person whom the stockholder proposes to nominate
for election or re-election as a director:
- the name, age, business address and residence address of the
person,
- the principal occupation or employment of the person,
- the class and number of shares of our capital stock of
beneficially owned by the person, and
- 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 as to the stockholder giving the notice:
- the name and record address of the stockholder, and
- the class and number of shares of our capital stock
beneficially owned by the stockholder.
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<PAGE> 46
We may require any proposed nominee to furnish additional information reasonably
required by us to determine the eligibility of the proposed nominee to serve as
a director.
OTHER MATTERS
If the enclosed proxy card 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 named nominees, FOR Proposal
No. 2, FOR Proposal No. 3, FOR Proposal No. 4 and FOR Proposal No. 5.
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/ Peter W. Nauert
Peter W. Nauert
Chairman of the Board
Date: May 1, 2000
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<PAGE> 47
ANNEX A
AMENDMENTS TO CERTIFICATE OF INCORPORATION
The following is a form of the text of Article IV of our Certificate of
Incorporation following (1) the amendment to provide for convertible voting
preferred stock, and (2) the amendment to increase the number of authorized
shares of our common stock.
* * *
"ARTICLE IV
CAPITAL STRUCTURE
4.1 Authorized Capital Stock. The aggregate number of shares of all
classes of stock that the Corporation is authorized to issue is 52,000,000
shares, consisting of:
(a) 100,000 Convertible Voting Preferred Shares, par value $0.001
per share (the "Voting Preferred Shares");
(b) 1,900,000 Non-Voting Preferred Shares, par value $0.001 per
share (the "Non-Voting Preferred Shares" and, together with the Voting Preferred
Shares, the "Preferred Shares"); and
(c) 50,000,000 Common Shares, par value $0.001 per share (the
"Common Shares").
4.2 Voting Preferred Shares.
4.2.1 Effective Date. For purposes of this Section 4.2, the later
to occur of [May 1], 2000 or the date that 75,000 Voting Preferred Shares are
fully subscribed and paid for is referred to as the "Effective Date."
4.2.2 Voting Rights. Except as may otherwise be provided by the
Delaware General Corporation Law, each holder of Voting Preferred Shares shall
be entitled to vote on all matters presented for a vote of the stockholders of
the Corporation, including, without limitation, the election of directors. Each
holder of Voting Preferred Shares shall have the number of votes equal to the
largest number of whole Common Shares into which such Voting Preferred Shares
could then be converted pursuant to Section 4.2.4 hereof (such number to be
calculated as of the record date for the determination of holders of Common
Shares having the right to vote on such matters, or if no record date has been
established, on the date such vote is taken). The holders of the Voting
Preferred Shares and the holders of the Common Shares shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation.
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<PAGE> 48
4.2.3 Dividends and Distributions.
(a) The holders of Voting Preferred Shares shall be entitled
to receive dividends, to the extent permitted by the Delaware General
Corporation Law, prior and in preference to any declaration or payment
of any dividend on the Common Shares, at the rate of 10% per annum,
based on a 365-day year. Such dividends shall be cumulative and shall
be paid annually on the last day of [April] (except that if any such
date is a Saturday, Sunday or legal holiday, then such dividend shall
be payable on the next day that is not a Saturday, Sunday or legal
holiday) in each year, commencing on the Effective Date, for each full
year and each portion of a year that the share entitled to such
dividend is outstanding. Such dividends shall be paid in additional
fully paid and nonassessable Voting Preferred Shares. No formal
declaration of any such dividends by the Board of Directors shall be
required.
(b) As long as any Voting Preferred Shares are outstanding,
the Corporation shall not declare or pay on any Common Shares any
dividend whatsoever, whether in cash, stock, property or otherwise, nor
shall the Corporation make any distribution on any Common Shares, nor
shall any Common Shares be purchased or redeemed by the Corporation,
nor shall any monies be paid or made available for a purchase,
retirement or sinking fund for the purchase or redemption of any Common
Shares, unless all dividends that the holders of the Voting Preferred
Shares are then entitled to receive under Section 4.2.3(a) hereof for
all previous dividend periods have been paid.
4.2.4 Conversion Rights.
(a) The holders of Voting Preferred Shares shall have the
right to convert each such share into fully paid and nonassessable
Common Shares, at the Voting Preferred Conversion Rate (as defined in
Section 4.2.4(b) hereof) in effect on the date of conversion, at any
time after the Effective Date.
(b) The holders of Voting Preferred Shares shall be
obligated to convert each such share into fully paid and
nonassessable Common Shares, at the Voting Preferred Conversion Rate
in effect on the date of conversion, by no later than [April 30],
2003. Any Voting Preferred Share that has not been converted into
Common Shares by [April 30], 2003 shall automatically convert into
Common Shares at the Voting Preferred Conversion Rate then in effect;
provided, however, that if the Market Price on that date is less than
the Initial Voting Preferred Conversion Price, then the Corporation
shall promptly pay the aggregate amount of the shortfall to the
holders of the Voting Preferred Shares in cash based on the number of
shares held by each such holder. Notwithstanding that the
certificates evidencing any such converted shares shall not have been
surrendered, the shares shall no longer be deemed outstanding and all
rights whatsoever with respect to the converted shares (except the
right of the holders to convert such shares upon surrender of their
certificates therefor) shall terminate. For purposes of this Section
4.2.4, the term:
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<PAGE> 49
(i) "Initial Voting Preferred Conversion
Price" means $_____ [AVERAGE MARKET PRICE FOR THE 30 DAY
PERIOD PRECEDING EFFECTIVE DATE] per share.
(ii) "Market Price" means the thirty-day
average closing price per Common Share on the New York Stock
Exchange ("NYSE") on the day immediately preceding the
conversion if the Common Shares are then traded on the NYSE,
or the thirty-day average closing bid price per Common Share
on the day immediately preceding the conversion if the Common
Shares are then traded on The Nasdaq Stock Market, Inc.
("Nasdaq") National Market or any other national securities
exchange; provided, however, that if the Common Shares are not
then listed on a national securities exchange or Nasdaq, then
the Market Price shall be the current fair market value per
Common Share on such date as determined in good faith by the
Board of Directors.
(iii) "Voting Preferred Conversion Rate"
means, with respect to each Voting Preferred Share, the result
of dividing (A) the sum of the Voting Preferred Liquidation
Preference (as defined in Section 4.2.7(a) hereof) plus any
accrued and unpaid dividends on such share by (B) the Initial
Voting Preferred Conversion Price.
(c) If, at any time after the Effective Date, the
Common Shares issuable on conversion of the Voting Preferred Shares are
changed into the same or a different number of shares of any other
class or classes of stock of the Corporation, whether by
reclassification, subdivision, combination, stock dividend, exchange of
shares or otherwise, then the holders of the Voting Preferred Shares
shall, upon such conversion, be entitled to receive, in lieu of the
Common Shares that the holders would have become entitled to receive
but for such change, a number of shares of such other class or classes
of stock that would have been subject to receipt by the holders if they
had exercised their rights of conversion of the Voting Preferred Shares
immediately before such change.
(d) If, at any time after the Effective Date, there
shall be a capital reorganization of the Common Shares (including any
subdivision or combination of the Common Shares but excluding any
reclassification, subdivision, combination, dividend or exchange
provided for in Section 4.2.4(c) hereof), or a merger or consolidation
of the Corporation with another corporation or entity, or a statutory
stock exchange, or a sale of all or substantially all of the
Corporation's assets or securities to any other person, then, as a part
of such reorganization, merger, consolidation, exchange or sale, lawful
provision shall be made so that the holders of the Voting Preferred
Shares shall thereafter be entitled to receive upon conversion of their
Voting Preferred Shares the number of shares of stock or other
securities or property of the Corporation, or of the successor
corporation resulting from such merger or consolidation, to which
holders of the Common Shares deliverable upon conversion of the Voting
Preferred Shares would have been entitled on such capital
reorganization, merger, consolidation, exchange or sale if the Voting
Preferred Shares had been converted immediately before that capital
reorganization,
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<PAGE> 50
merger, consolidation, exchange or sale to the end that the provisions
of this Section 4.2.4(d) (including but not limited to adjustment of
the Voting Preferred Conversion Rate then in effect) shall be
applicable after that event as nearly equivalently as may be
practicable.
(e) In order to convert the Voting Preferred Shares
into Common Shares, the holder thereof shall deliver to the
Corporation, at its principal office or such other office or agency
maintained by the Corporation for such purpose: (i) a complete and
executed conversion certificate in the form attached hereto as Exhibit
A (a "Notice of Voting Preferred Conversion"); and (ii) the certificate
or certificates representing the Voting Preferred Shares being
converted (collectively, the "Converted Voting Preferred Certificate").
The Notice of Voting Preferred Conversion shall be effective and in
full force and effect if delivered to the Secretary of the Corporation
by facsimile transmission at (440) 572-4500. Provided that a copy of
the Notice of Voting Preferred Conversion is delivered to the
Corporation by the close of business on such date by facsimile
transmission or otherwise, and provided that the original Notice of
Voting Preferred Conversion and the Converted Voting Preferred
Certificate are delivered to the Corporation within three business days
thereafter at 17800 Royalton Road, Strongsville, Ohio 44136-5197,
Attention: Secretary, the date on which the Notice of Voting Preferred
Conversion is given shall be deemed to be the date set forth therefor
in the Notice of Voting Preferred Conversion (the "Voting Preferred
Conversion Date"), and the person or persons entitled to receive the
Common Shares issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Shares as of
the Voting Preferred Conversion Date. If the original Notice of Voting
Preferred Conversion and the Converted Voting Preferred Certificate are
not delivered to the Corporation within three business days after the
Voting Preferred Conversion Date, then the Notice of Voting Preferred
Conversion shall become null and void as if it were never given and the
Corporation shall, within two business days thereafter, return to the
holder by overnight courier any Converted Voting Preferred Certificate
that may have been submitted in connection with such conversion. In the
event that any Converted Voting Preferred Certificate submitted
represents a number of Voting Preferred Shares that is greater than the
number of such shares that is being converted pursuant to the Notice of
Voting Preferred Conversion delivered in connection therewith, the
Corporation shall deliver, together with the certificates for the
Common Shares issuable upon such conversion as provided herein, a
certificate representing the remaining number of Voting Preferred
Shares not converted.
(f) Upon receipt of a Notice of Voting Preferred
Conversion, the Corporation shall absolutely and unconditionally be
obligated to cause a certificate or certificates representing the
number of Common Shares to which a converting holder of Voting
Preferred Shares shall be entitled to receive as provided herein to be
issued to, delivered by overnight courier to and received by such
converting holder within ten business days after the Voting Preferred
Conversion Date. Such delivery shall be made at such address as such
converting holder may designate therefor in the Notice of Voting
Preferred Conversion or in its written instructions submitted together
therewith.
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<PAGE> 51
(g) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Voting Preferred Shares
pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(h) No less than 500 Voting Preferred Shares may be
converted at any one time, unless the holder then holds less than 500
shares and converts all such shares at that time.
(i) No fractional Common Shares shall be issued upon
conversion of the Voting Preferred Shares. Instead, the number of
Common Shares to be issued shall be rounded down to the nearest whole
share and the Corporation shall promptly pay in lieu of a fractional
Common Share a cash adjustment equal to the corresponding fraction of
the Market Price on the Voting Preferred Conversion Date.
(j) The Corporation shall at all times reserve and
keep available out of its authorized but unissued Common Shares, solely
for the purpose of effecting the conversion of the Voting Preferred
Shares into Common Shares as provided herein, the full number of Common
Shares deliverable from time to time upon the conversion of all
outstanding Voting Preferred Shares.
4.2.5 Repurchase Obligation.
(a) If at any time after the Effective Date the
Corporation issues or sells any of its equity securities, in a single
or continuous offering, for an aggregate purchase price in excess of
$20,000,000 (other than an offering for the purpose of financing the
acquisition of The Pyramid Life Insurance Company, a Kansas stock
insurance company), then the Corporation shall repurchase all
outstanding Voting Preferred Shares, at a price equal to the aggregate
Voting Preferred Liquidation Preference of such shares plus any accrued
and unpaid dividends thereon, within ninety days after the date of
issuance or sale of such equity securities.
(b) The Corporation shall provide written notice of
any repurchase required by this Section 4.2.5 specifying the repurchase
date and the procedure for the repurchase, by first class or certified
mail, postage prepaid, to each holder of Voting Preferred Shares at the
address for such holder last shown on the records of the Corporation or
its transfer agent, not more than sixty nor less than thirty days
before the repurchase date.
(c) Notwithstanding Section 4.2.5(a) hereof, the
holders of the Voting Preferred Shares shall have the right to convert
any of their shares into Common Shares, in accordance with the
provisions of Section 4.2.4 hereof, at any time up to twenty days prior
to the repurchase date specified in the notice of repurchase from the
Corporation.
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<PAGE> 52
(d) No holder of redeemed Voting Preferred Shares
shall be entitled to any dividends with respect to such shares after
the repurchase date, and on such date all rights of such holder as a
stockholder of the Corporation by reason of the ownership of such
shares shall cease, except the right to receive the price of such
shares without interest, upon presentation and surrender of the
certificate representing such shares, and such shares will not after
the repurchase date be deemed to be outstanding.
(e) On or before the repurchase date, the Corporation
shall deposit an amount equal to the aggregate repurchase price for all
outstanding Voting Preferred Shares with a bank or trust company in a
trust fund for the benefit of the respective holders of such shares
together with instructions and authority to the bank or trust company
to pay such price for such shares to the respective holders, after the
repurchase date and upon receipt of notification from the Corporation
that such holder has surrendered to the Corporation all of the
certificates representing the Voting Preferred Shares of such holder.
The Corporation shall have the right to request the return of the
balance of any monies deposited by the Corporation remaining unclaimed
at the expiration of sixty days following the repurchase date.
4.2.6 Redemption Rights.
(a) The Corporation may, on any of the dates
specified below and as may be determined by the Board of Directors,
redeem all or any part of the Voting Preferred Shares for an amount
equal to the following percentage of the sum of the aggregate Voting
Preferred Liquidation Preference of the shares to be redeemed on such
date and any accrued and unpaid dividends thereon:
Redemption Date Applicable Percentage
--------------- ---------------------
[May 1], 2001 120%
[May 1], 2002 115%
[May 1], 2003 110%
(b) The Corporation shall provide written notice of
any redemption pursuant to this Section 4.2.6 specifying the applicable
redemption date, the number or percentage of shares to be redeemed and
the procedure for redemption, by first class or certified mail, postage
prepaid, to each holder of Voting Preferred Shares at the address for
such holder last shown on the records of the Corporation or its
transfer agent, not more than sixty nor less than thirty days before
the applicable redemption date. Upon mailing of any such notice of
redemption, the Corporation shall become obligated to redeem Voting
Preferred Shares specified in such notice.
(c) Notwithstanding Section 4.2.6(a) hereof, the
holders of the Voting Preferred Shares shall have the right to convert
any of their shares into Common Shares, in accordance with the
provisions of Section 5 hereof, at any time up to twenty days prior to
the repurchase date specified in any notice of redemption from the
Corporation.
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<PAGE> 53
(d) No holder of redeemed Voting Preferred Shares
shall be entitled to any dividends with respect to such shares after
the applicable redemption date, and on such date all rights of such
holder as a stockholder of the Corporation by reason of the ownership
of such shares shall cease, except the right to receive the price of
such shares without interest, upon presentation and surrender of the
certificate representing such shares, and such shares will not after
such redemption date be deemed to be outstanding. In the event that the
Corporation redeems less than all of the outstanding Voting Preferred
Shares, the Corporation shall issue to each holder a replacement
certificate representing the Voting Preferred Shares that were not so
redeemed.
(e) On or before the applicable redemption date, the
Corporation shall deposit an amount equal to the applicable redemption
price for all Voting Preferred Shares to be redeemed on such date with
a bank or trust company in a trust fund for the benefit of the
respective holders of the Voting Preferred Shares designated for
redemption together with instructions and authority to the bank or
trust company to pay such price for such shares to the respective
holders, after the redemption date and upon receipt of notification
from the Corporation that such holder has surrendered to the
Corporation all of the certificates representing the Voting Preferred
Shares of such holder that are being redeemed. The Corporation shall
have the right to request the return of the balance of any monies
deposited by the Corporation remaining unclaimed at the expiration of
sixty days following the redemption date.
4.2.7 Liquidation Rights.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, before any payment or distribution shall be made to the
holders of Common Shares and any class or series of Non-Voting
Preferred Shares ranking on liquidation junior or subordinate to the
Voting Preferred Shares, but after and subject to the payment in full
of all amounts required to be distributed to the holders of any other
class or series of stock of the Corporation ranking on liquidation
prior and in preference to the Voting Preferred Shares, the holders of
each Voting Preferred Share shall be entitled to receive an amount of
cash, out of funds legally available therefor, equal to the sum of (i)
the original purchase price of $100 per Voting Preferred Share, as
appropriately adjusted for any combinations, subdivisions or similar
recapitalizations affecting the Voting Preferred Shares after the
Effective Date (the "Voting Preferred Liquidation Preference"), plus
(ii) an amount equal to any accrued and unpaid dividends thereon. After
the full preferential liquidation amount has been paid to, or
determined and set apart for, the Voting Preferred Shares and any class
or series of Preferred Shares ranking on liquidation on a parity with
the Voting Preferred Shares, the remaining assets of the Corporation
available for distribution to its stockholders shall be distributed
ratably to the holders of any class or series of Non-Voting Preferred
Shares ranking on liquidation junior or subordinate to the Voting
Preferred Shares and the holders of the Common Shares, as their
interests may appear.
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(b) If the assets and surplus funds of the
Corporation legally available to be distributed to the holders of the
Voting Preferred Shares on liquidation are insufficient to permit the
payment to such holders of the full preferential amounts to which they
are entitled pursuant to Section 4.2.7(a) hereof, then the holders of
the Voting Preferred Shares and any class or series of Preferred Shares
ranking on liquidation on a parity with the Voting Preferred Shares
shall share ratably in any remaining assets and surplus funds of the
Corporation legally available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(c) A merger or consolidation of the Corporation with
or into any other company, a share exchange or the sale or conveyance
of all or any part of the assets of the Corporation (that does not in
fact result in a liquidation, dissolution or winding up of the affairs
of the Corporation and the distribution of assets to its stockholders)
shall not be deemed a voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation within the meaning of this Section
4.2.7.
(d) If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, payment
shall have been made to the holders of Voting Preferred Shares of the
full amount to which they shall be entitled hereunder, then such
holders shall not be entitled to any further participation in the
distribution of the remaining assets of the Corporation available for
distribution to its stockholders.
4.2.8 No Sinking Fund. The Voting Preferred Shares shall not be
subject to the operation of any purchase, retirement or sinking fund.
4.2.9 Preemptive Rights. The holders of the Voting Preferred
Shares are not entitled to any preemptive or subscription rights in respect of
any securities of the Corporation.
4.2.10 Reacquired Shares. Any Voting Preferred Shares that are
converted into Common Shares, or are redeemed, purchased or otherwise acquired
by the Corporation in any manner whatsoever, shall be promptly retired and
cancelled and shall not subject to reissuance.
4.2.11 Ranking. Notwithstanding any provision of this Section
4.2 to the contrary, the Voting Preferred Shares shall rank senior to or on a
parity with all other classes or series of Preferred Shares hereafter
designated as to the payment of dividends and the distribution of assets,
unless otherwise consented to or agreed in writing by the holders of a
majority of the outstanding Voting Preferred Shares.
4.2.12 Subordination. Notwithstanding any provision of this
Section 4.2 to the contrary, the Corporation shall not be required to declare
or pay, or set aside for payment, any dividends or distributions with respect
to the Voting Preferred Shares, or to repurchase or redeem any Voting
Preferred Shares, if such action would constitute a default pursuant to the
Corporation's agreements with its senior lenders; provided that the holders of
the Voting
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Preferred Shares shall always be entitled to convert their Voting Preferred
Shares into Common Shares in accordance with the provisions of this Section 4.2.
4.2.13 Severability. In the event any term, provision, sentence
or paragraph of this Section 4.2 is declared by a court of competent
jurisdiction to be invalid or unenforceable, such term, provision, sentence or
paragraph shall be deemed severed from the remainder of this Section 4.2, and
the balance of this Section 4.2 shall remain in effect and be enforced to the
fullest extent permitted by law and shall be construed to preserve the intent
and purposes of this Section 4.2. Any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such term,
provision, sentence or paragraph of this Section 4.2 in any other
jurisdiction.
4.3 Non-Voting Preferred Shares.
(a) Designations by Board of Directors. The Non-Voting Preferred
Shares may be issued from time to time in one or more classes or series
without voting rights, and with such designations, preferences and relative,
participating, optional or special rights and qualifications, limitations or
restrictions as are stated herein and as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors as hereinafter prescribed.
(b) Voting Rights. Except as may otherwise be required by the
Delaware General Corporation Law, the holders of Non-Voting Preferred Shares
shall not be entitled to vote on any matters to be voted on by the
stockholders of the Corporation.
(c) Terms of the Non-Voting Preferred Shares. Authority is
hereby expressly granted to and vested in the Board of Directors or any
designated committee thereof to authorize the issuance of the Non-Voting
Preferred Shares from time to time in one or more classes or series, to
determine and take necessary proceedings to fully effectuate the issuance and
redemption of any such Non-Voting Preferred Shares and, with respect to each
class or series of Non-Voting Preferred Shares, to fix and state from time to
time, by resolution or resolutions providing for the issuance thereof, the
following:
(i) the number of shares to constitute the class or
series and the designations thereof;
(ii) the preferences and relative, participating,
optional or special rights, if any, and qualifications, limitations
or restrictions thereof, if any, of the class or series;
(iii) whether the shares of the class or series will be
redeemable and, if redeemable, the redemption price or prices and
the time or times at which, and the terms and conditions upon
which, such shares will be redeemable and the manner of redemption;
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(iv) whether the shares of the class or series will be
subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement
and, if such retirement or sinking funds are to be established, the
annual amount thereof and the terms and conditions relative to the
operation thereof;
(v) the dividend rate, whether dividends are payable in
cash, stock or otherwise, the conditions upon which and the times
when such dividends are payable, the preference or relation to the
payment of dividends on any other class or series of stock, whether
or not such dividends will be cumulative or noncumulative and, if
cumulative, the date or dates from which such dividends will
accumulate;
(vi) the preferences, if any, and the amounts thereof
that the holders of the class or series will be entitled to receive
upon the voluntary or involuntary dissolution, liquidation or
winding up of, or upon any distribution of the assets of, the
Corporation;
(vii) whether the shares of the class or series will be
convertible into, or exchangeable for, the shares of any other
class or classes, or of any other series of the same or any other
class or classes, of stock of the Corporation and the conversion
price or prices, or ratio or ratios, or rate or rates, at which
such conversion or exchange may be made, with such adjustments, if
any, as shall be expressed or provided for in such resolution or
resolutions; and
(viii) such other special rights and protective
provisions with respect to the class or series as the Board of
Directors or any designated committee thereof may deem advisable.
The shares of each class or series of Non-Voting Preferred
Shares may vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The Board of Directors or any designated
committee thereof may from time to time increase the number of shares of
Non-Voting Preferred Shares designated for any existing class or series by a
resolution adding to such class or series authorized but unissued shares of
Non-Voting Preferred Shares not designated for any other class or series
thereof. The Board of Directors or any designated committee thereof may from
time to time decrease the number of shares of Non- Voting Preferred Shares
designated for any existing class or series by a resolution subtracting from
such class or series any unissued shares of Non-Voting Preferred Shares
designated for such class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of Non-Voting Preferred Shares.
4.4 Common Shares.
(a) Powers, Preferences and Rights. Except as may otherwise be
provided by the Delaware General Corporation Law, the powers, preferences and
rights of the Common Shares, and the qualifications, limitations or
restrictions thereof, shall be in all respects identical.
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(b) Voting Rights. Except as may otherwise be provided by the
Delaware General Corporation Law, each holder of Common Shares shall be
entitled to one vote for each share held of record on the applicable record
date on all matters presented for a vote of the stockholders of the
Corporation, including, without limitation, the election of directors.
(c) Dividends. Except as may otherwise be provided in this
Certificate of Incorporation or by the Delaware General Corporation Law, if,
as and when dividends on the Common Shares are declared payable from time to
time by the Board of Directors as provided in this Section 4.4(c), whether
payable in cash, property, stock or other securities, the holders of Common
Shares shall be entitled to share equally, on a per share basis, in such
dividends.
(d) Liquidating Distributions. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, or upon
any sale or conveyance of all or substantially all of the assets of the
Corporation, after payment or provision for payment of all the liabilities of
the Corporation and the expenses of liquidation, and after the holders of the
Preferred Shares shall have been paid in full the amounts, if any, to which
they are entitled or a sum sufficient for such payment in full shall have been
set aside, the remaining assets of the Corporation available for distribution
shall be distributed ratably to the holders of the Common Shares. For the
purpose of this Section 4.4(d), a merger, consolidation, sale or conveyance
shall not be deemed to be a liquidation or winding up of the Corporation
unless the transaction provides for the cessation of the business of the
Corporation."
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ANNEX B
1998 KEY EMPLOYEE SHARE INCENTIVE PLAN
[New material underlined. Material to be deleted shown as stricken.)
* * *
6. SHARES SUBJECT TO THE PLAN; ADJUSTMENTS TO OPTIONS; GRANTS.
Upon the approval of the Plan by the shareholders, [Five-Hundred Thousand
(500,000)] ONE MILLION (1,000,000) 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.
[This is struck out text.]
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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ANNEX C
CERES GROUP, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
(ADOPTED FEBRUARY 4, 2000)
1. PURPOSE. The purpose of this Plan is to advance the interests of
CERES GROUP, INC., a Delaware corporation (the "Company"), and its affiliated
companies by providing their employees with an opportunity to acquire a
proprietary interest in the Company through the purchase of stock of the
Company. It is the intention of the Company to have this Plan qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of this Plan will, accordingly, be construed so
as to extend and limit participation in a manner consistent with the
requirements of that Section of the Code.
2. DEFINITIONS. As used herein, the following terms will have the
meaning indicated:
(a) "Account" will mean the funds accumulated with respect to an
individual Employee as a result of deductions from his or her Compensation as
provided under and for purposes of this Plan. The funds allocated to an
Employee's Account will remain the property of the Employee at all times but
may be commingled with the general funds of the Company.
(b) "Affiliated Company" will mean any parent or subsidiary
corporation of the Company, as defined in Code Sections
424(e) and (f). For the purposes of this Plan, an
"Affiliated Company" will include any limited liability
company of which the Company or another Affiliated
Company is the sole member.
(c) "Board" will mean the Board of Directors of the Company.
(d) "Code" will mean the Internal Revenue Code of 1986, as
amended.
(e) "Compensation" will mean the total cash remuneration (before
taxes) which a Participant receives during an Offering as salary or wages,
including overtime pay, bonuses, holiday pay, vacation pay, sickpay and
short-term disability payments (and grossed up to reflect salary deferrals
under any Code Section 401(k) retirement plan or Code Section 125 cafeteria
plan) and excluding all other forms of non-cash remuneration such as payments
under this or any other form of equity or fringe benefit programs and
compensation attributable to the vesting of any restricted stock or exercise
of a stock option.
(f) "Commencement Date" will have the meaning assigned to it in
Section 4 of this Plan.
(g) "Committee" will mean any compensation committee appointed by
the Board pursuant to Section 17 hereof or, if not appointed, the full Board.
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(h) "Common Stock" will mean the Company's shares of common stock,
par value $0.001 per share.
(i) "Director" will mean a member of the Board.
(j) "Disability" will mean permanent and total disability as
defined in Code Section 22(e)(3).
(k) "Disposition" will have the meaning assigned to it in Section
10(c) of this Plan.
(l) "Effective Date" will mean May 1, 2000.
(m) "Employee" will mean any person, including, but not limited to,
an officer, who is customarily employed by the Company or any Affiliated
Company for more than 20 hours per week but shall not include temporary
employees.
(n) "Enrollment Agreement" will have the meaning assigned to it in
Section 5 of this Plan.
(o) "Enrollment Date" will mean the last business day prior to 15
days before the Commencement Date of each Offering.
(p) "Exercise Date" will mean the last business day of a particular
Offering.
(q) "Fair Market Value" of a Share on any date of reference will be
the "Closing Price" (as defined below) of the Common Stock on the business day
immediately preceding such date. For the purpose of determining Fair Market
Value, the "Closing Price" of the Common Stock on any business day will be (i)
if the Common Stock is listed or admitted for trading on any United States
national securities exchange, or if actual transactions are otherwise reported
on a consolidated transaction reporting system, the last reported sale price
of Common Stock on such exchange or reporting system, as reported in any
newspaper of general circulation, (ii) if the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), or any similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and low
asked quotations for such day of Common Stock on such system, or (iii) if
neither clause (i) or (ii) is applicable, the mean between the high bid and
low asked quotations for the Common Stock as reported by the National
Quotation Bureau, Incorporated if at least two securities dealers have
inserted both bid and asked quotations for Common Stock on at least five of
the ten preceding days. Notwithstanding any provision of this Plan to the
contrary, no determination made with respect to the Fair Market Value of the
Common Stock subject to an Option shall be inconsistent with Code Section 423.
(r) "Holding Period" will mean, with respect to Shares purchased by
a Participant under this Plan, the period commencing on the date of the
purchase of such Shares
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and ending on the latter of (i) the date two years after the date of the grant
of the Option under which such Shares were purchased by the Participant, or (ii)
the date one year after the date such Shares were purchased by the Participant.
(s) "Offering" will have the meaning assigned to it in Section 4 of
this Plan.
(t) "Offering Date" will mean the Commencement Date of a particular
Offering, if such date is a regular business day, or if not a regular business
day, the first regular business day following such Commencement Date; provided
however, that a different Offering Date may be set by the Committee.
(u) "Option" (when capitalized) will have the same meaning assigned
to it in Section 7 of this Plan.
(v) "Participant" will have the meaning assigned to it in Section 5
of this Plan.
(w) "Plan" will mean this 2000 Employee Stock Purchase Plan of the
Company.
(x) "Retirement" is a termination of Participant's employment on or
after the first day of the month of Participant's 55th birthday.
(y) "Rule 16b-3" will mean Rule 16b-3 under the Securities Exchange
Act of 1934 or any successor rule to the same effect.
(z) "Share(s)" will mean a share or shares of the Common Stock.
3. ELIGIBILITY.
(a) Any Employee who will be employed by the Company or any
Affiliated Company on the Enrollment Date of an Offering will be eligible to
participate in such Offering under this Plan, subject to the limitations
imposed by Section 3(b) hereunder.
(b) Any provision of this Plan to the contrary notwithstanding, no
Employee will be granted an Option if, immediately after the grant:
(i) such Employee would own Shares, and/or hold outstanding
Options to purchase Shares, possessing five percent or more of the total
combined voting power or value of all classes of Shares of the Company or of
any Affiliated Company (for purposes of determining Share ownership under this
paragraph, the constructive ownership rules of Section 424(b) of the Code will
apply); or
(ii) such Option would permit his or her rights to purchase
Shares under all employee stock purchase plans of the Company and any
Affiliated Company to accrue at a rate which exceeds $25,000 (determined by
the Fair Market Value of the Shares at the time
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such Option is granted) for each calendar year in which such Option is
outstanding at any time, in accordance with Section 423(b)(8) of the Code.
(c) All eligible Employees shall have the same rights and
privileges under the Plan, except that the amount of Shares which may be
purchased under Options granted under this Plan shall bear a uniform
relationship to the Compensation of eligible Employees. All rules and
determinations of the Committee in the administration of the Plan shall be
uniformly and consistently applied to all persons in similar circumstances.
4. OFFERING. There will be separate consecutive six month offerings
pursuant to this Plan (each, an "Offering") each commencing on May 1 or November
1, as applicable (each, a "Commencement Date"). (The first Offering commences on
May 1, 2000 and ends on October 31, 2000.) If the Plan is terminated, then the
Offering in which it is terminated will end on the date immediately preceding
the effective date of such termination.
5. PARTICIPATION. In order to become eligible to purchase Shares under
this Plan, an Employee must sign an enrollment agreement (an "Enrollment
Agreement"), and any other necessary papers required by the Committee by the
Enrollment Date of the particular Offering in which he or she wishes to
participate. Upon delivering the Enrollment Agreement to the Company, an
Employee will become a participant (a "Participant") with respect to that
Offering and each subsequent Offering, unless the Employee delivers a withdrawal
notice to the Company pursuant to Section 11 of this Plan. The Enrollment
Agreement will permit the Employee to elect to have deductions made from his or
her pay to purchase Shares under this Plan. Participation in one Offering under
this Plan will neither limit, nor require, participation in any other Offering.
Payroll deductions for a Participant will commence on the Offering Date of the
particular Offering and will end on the Exercise Date of the Offering. At the
termination of each Offering, the Company will automatically re-enroll the
Employee in the next Offering, and the balance in the Employee's Account will be
used for Option exercises in the new Offering, unless the Employee has advised
the Company otherwise or Participant has exceeded the withholding rate specified
in Section 3(b)(ii), in which case the balance will be refunded to the Employee.
Upon termination of this Plan, the balance of each Employee's Account will be
returned to him or her.
6. PAYROLL DEDUCTIONS. As set forth on the Enrollment Agreement, the
Participant will elect to have deductions made from his or her pay on each
payday during the Offering at the rate in whole percentages from 1% to 15% of
such Participant's Compensation. All payroll deductions made for a Participant
will be credited to his or her Account. A Participant may not make any separate
cash payments into his or her Account. A Participant may discontinue his or her
participation by withdrawing from an Offering as provided in Section 11. Payroll
deductions may be increased by a Participant only for a subsequent Offering by
providing written notice to the Company in the manner specified by the Committee
by the Enrollment Date for such Offering. Payroll deductions may be decreased
upon the Participant's written notice to the Company in the manner specified by
the Company and will be effective as of the first payroll period for which it is
administratively practical to put the decrease into effect.
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7. GRANTING OF OPTION. On the Offering Date of each Offering, a
Participant will be granted an Option for as many full Shares as he or she will
be able to purchase with the payroll deductions credited to his or her Account
during that particular Offering (an "Option"). The purchase price per Share will
be the lesser of (i) 85% of the Fair Market Value of a Share on the Offering
Date, or (ii) 85% of the Fair Market Value of a Share on the Exercise Date of
the Offering (the "Option Price").
8. EXERCISE OF OPTION. Unless a Participant withdraws from an Offering
pursuant to Section 11 of this Plan, the Option granted to the Participant on
the Offering Date will be deemed to be exercised on the Exercise Date of that
Offering and he or she will be deemed to have purchased from the Company such
number of whole Shares (plus any fractional interest in a Share) reserved for
the purpose of this Plan as the accumulated payroll deductions credited to his
or her Account on such date will pay for at the applicable Option Price.
Fractional Shares will be carried forward in a Participant's ESPP Broker Account
until they equal a whole Share or until termination of such Participant's
participation in the Plan, in which event an amount in cash equal to the value
of such fractional interest will be paid to the Participant in cash.
9. EMPLOYEE'S RIGHTS AS A STOCKHOLDER AND EMPLOYEE. No Employee will
have any rights as a stockholder of the Company until Shares have been purchased
in accordance with the terms and conditions of this Plan and it is agreed and
understood that nothing in this Plan is intended to grant to any Employee any
right to continued employment by the Company.
10. EVIDENCE OF STOCK OWNERSHIP.
(a) Promptly following the end of each Offering, the number of
Shares purchased by each Participant will be deposited into an account
established in the Participant's name at a stock brokerage or other financial
services firm designated by the Company in its sole discretion (the "ESPP Broker
Account"). The monthly fees for the ESPP Broker Account will be paid by the
Company. Any broker fees relating to the sale of Shares by a Participant or
transfer fees relating to the transfer of the Shares to a brokerage account by a
Participant shall be the responsibility of the Participant.
(b) The Participant may direct, by written notice to the
Company at any time, that his or her ESPP Broker Account be established in the
names of the Participant and one other person designated by the Participant, as
joint tenants with right of survivorship, tenants in common, or community
property, to the extent and in the manner permitted by applicable law.
(c) A Participant may undertake the disposition, as that term
is defined in Section 424(c) of the Code (a "Disposition"), of the Shares in his
or her ESPP Broker Account at any time, whether by sale, exchange, gift, or
other transfer of legal title, but in the absence of a Disposition of the
Shares, the Shares must remain in the Participant's ESPP Broker Account until
the Holding Period has been satisfied. With respect to Shares for which the
Holding Period has been satisfied, the Participant may move those Shares to
another brokerage account of the Participant's choosing or request that a stock
certificate be issued and delivered to him or her. If
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a stock certificate is issued, an amount in cash equal to the value of a
fractional Share in such Participant's account will be paid to such Participant
in cash.
(d) A Participant who is not subject to payment of U.S. income
taxes may move his or her Shares to another brokerage account of his or her
choosing or request that a stock certificate be issued and delivered to him at
any time, without regard to the satisfaction of the Holding Period. If a stock
certificate is issued, an amount in cash equal to the value of a fractional
Share in such Participant's account will be paid to such Participant in cash.
11. WITHDRAWAL.
(a) An Employee may withdraw from an Offering, in whole but
not in part, at any time at least 10 days prior to the Exercise Date of such
Offering by delivering a written withdrawal notice to the Company, in which
event the Company will refund the entire balance of his accumulated payroll
deductions credited to his or her Account and no further payroll deductions will
be made from his or her pay, except in accordance with the terms and conditions
of a new Enrollment Agreement subsequently executed by the Employee (each, a
"Withdrawal").
(b) To re-enter this Plan, an Employee who has previously
withdrawn must file a new Enrollment Agreement in accordance with Section 5. The
Employee's re-entry into this Plan will not become effective before the
beginning of the next Offering following the Withdrawal, and if the withdrawing
Employee is an "officer" of the Company within the meaning of Section 16 of the
Securities Exchange Act of 1934 he or she may not re-enter this Plan before the
beginning of the second Offering following his or her Withdrawal.
(c) A Participant's Withdrawal will not have any effect upon
his or her eligibility to participate in a succeeding Offering or in any similar
plan which may hereafter be adopted by the Company.
(d) Withdrawal shall be deemed to occur with respect to a
Participant upon the occurrence of any of the following:
(i) VOLUNTARY DISCONTINUANCE While Employed. A
Participant's withdrawal pursuant to Section 11(a).
(ii) TERMINATION OF EMPLOYMENT. Unless employment has
terminated due to Retirement, Disability or death, a Participant will be deemed
to have discontinued participation on the first day of the Offering in which
termination of employment occurs and amounts withheld from compensation during
the Offering will be refunded without election by the Participant.
(iii) RETIREMENT OR DISABILITY. In the event a
Participant's employment terminates as a result of Retirement or Participant's
Disability during the first three months of an Offering, the Participant will
be deemed to have discontinued participation on the first day of the Offering
in which Retirement or Participant's Disability occurs and amounts withheld
from
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Compensation during the Offering will be refunded. If Retirement or
Participant's Disability occurs during the last three months of the Offering,
the Participant will continue to participate through the balance of the Offering
in which Retirement or Participant's Disability occurs (without further
withholding) unless he or she elects otherwise by providing written notice to
the Company in the manner specified by the Committee prior to the Exercise Date
in that Offering.
(iv) DEATH. In the event the employment of the Participant
by the Company or an Affiliated Company terminates as a result of the
Participant's death, the Participant will be deemed to participate (without
further withholding) through the balance of the Offering in which death occurs,
unless the executor elects a voluntary discontinuance at least 10 days prior to
the Exercise Date in that Offering.
(v) LEVY OR ATTACHMENT. The filing with or levying upon the
Company or the custodian of any judgment, attachment, garnishee, or other Court
order affecting the Participant's Account under this Plan will terminate his or
her participation during the time such order remains in effect, with respect to
the account.
(vi) PLAN TERMINATION/ EXPIRATION. The termination of this
Plan by the Company prior to its expiration or its expiration upon allocation
of all available shares will terminate his or her participation.
(e) A Participant's employment shall not be deemed terminated
by reason of a transfer to another employer which is the Company or an
Affiliated Company. A Participant who has elected participation under the Plan
who is absent from work with the Company or with an Affiliated Company because
of temporary disability (any disability other than a permanent and total
Disability) or who is on leave of absence for a period of less than 90 days
shall not, during the period of any such absence, be deemed, by virtue of such
absence alone, to have terminated employment with the Company or with an
Affiliated Company. In the case of a leave of absence which is longer than 90
days, a Participant will not be deemed to have terminated employment until the
later of the 91st day of such leave or, if later, such date as the
Participant's reemployment rights are not protected by contract or law.
(f) Upon a Withdrawal from this Plan by a Participant, all
withheld amounts in the Account which are attributable to such Participant shall
be transferred to such Participant within thirty (30) days of such Withdrawal,
except to the extent such withheld amounts are applied to the exercise of an
Option as provided above. In no event shall any amounts be withheld from a
Participant's Compensation for allocation to such Participant's Account after
the date such Participant's employment by the Company or an Affiliated Company
shall cease.
(g) In no event may any Participant's Withdrawal from this
Plan be in respect to a portion rather than all of such Participant's Account on
such date.
12. INTEREST. No interest will be paid or allowed on any moneys
credited to a Participant's Account.
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13. NUMBER OF SHARES OFFERED. The aggregate number of Shares available
for grant as Options pursuant to this Plan and the Ceres Group, Inc. 2000 Agent
Stock Purchase Plan is 1,000,000, subject to adjustment as set forth in Section
14. The Committee may, in its sole discretion, specify and limit the total
number of Shares offered to all Participants in any specific Offering. Shares
granted pursuant to this Plan may either be authorized but unissued Shares,
Shares now or hereafter held in the treasury of the Company or Shares purchased
on the open market. If the total number of Shares for which Options are to be
granted on any date in accordance with Section 7 exceeds the number of Shares
then available under this Plan, the Company will make a pro rata allocation of
the Shares remaining available in as nearly a uniform manner as will be
practicable and as it will determine to be equitable. In such event, the payroll
deductions to be made pursuant to the authorizations therefor will be reduced
accordingly and the Company will give written notice of such reduction to each
Participant affected thereby.
14. ADJUSTMENT OF SHARES.
(a) If at any time while this Plan is in effect, there shall
be any increase or decrease in the number of issued and outstanding Shares
through the declaration of a stock dividend or through any recapitalization
resulting in a stock split-up, combination or exchange of Shares, then and in
such event appropriate adjustment will be made in the maximum number of Shares
available for grant under this Plan, so that the same percentage of the
Company's issued and outstanding Shares will continue to be subject to this
Plan.
(b) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, will not affect, and no
adjustment by reason thereof will be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under this
Plan.
(c) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan will not affect in any
manner the right or power of the Company to make, authorize or consummate: (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, lease, exchange, transfer, assignment or other disposition of all or any
part of the assets or business of the Company; or (vi) any other corporate act
or proceeding, whether of a similar character or otherwise.
15. TRANSFERABILITY OF RIGHTS UNDER PLAN.
(a) Neither payroll deductions credited to a Participant's
Account nor any rights with regard to the exercise of an Option or the receipt
of Shares or other "derivative security" (as that term is used in Rule 16b-3)
under this Plan may be assigned, transferred,
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pledged, or otherwise disposed of in any way by the Participant, other than by
will or the laws of descent and distribution. Any such attempted assignment,
transfer, pledge, or other disposition will be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 11. An Option may not be exercised during a Participant's lifetime
except by the Participant or, in the event of the Participant's legal
incapacity, by his guardian or legal representative acting in a fiduciary
capacity on behalf of the Participant under state law and court supervision.
(b) Participants in the Plan who wish to avail themselves of
the favorable tax benefits of Code Section 423 may not transfer or otherwise
dispose of Shares acquired by them or on their behalf under this Plan (other
than in the case of Participant's death) until the Holding Period has been
satisfied. In the case of any person subject to Section 16 of the Securities
Exchange Act of 1934, Shares purchased under this Plan must be held for six
months from the Exercise Date in order for the Participant to obtain the benefit
of Rule 16b-3.
(c) Each Employee who receives Shares pursuant to this Plan
agrees, by electing to participate, to notify the Company, in writing,
immediately before such Participant makes a Disqualifying Disposition of any
Shares acquired pursuant to the exercise of an Option under this Plan. A
"Disqualifying Disposition" is any disposition (including any sale) of such
Shares before the Holding Period has been satisfied. If the Participant has died
before such Shares are sold, the Holding Period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
16. ISSUANCE OF SHARES. Notwithstanding any other provision of this
Plan, the Company's obligation to sell and deliver Shares under this Plan is
subject to the approval of any governmental authority required in connection
with the authorization, issuance, or sale of such Shares. As a condition of any
sale or issuance of Shares upon exercise of any Option, the Committee may
require such agreements or undertakings, if any, as the Committee may deem
necessary or advisable to assure compliance with any such federal or state
securities or other law or regulation including, but not limited to, the
following:
(a) a representation and warranty by the Participant to the
Company, at the time any Option is exercised, that he or she is acquiring the
Shares to be issued to him or her for investment and not with a view to, or for
sale in connection with, the distribution of any such Shares; and
(b) a representation, warranty and/or agreement to be bound by
any legends that are, in the opinion of the Committee, necessary or appropriate
to comply with the provisions of any securities law deemed by the Committee to
be applicable to the issuance of the Shares and are endorsed upon the Share
certificates.
17. ADMINISTRATION OF THIS PLAN.
(a) This Plan will be administered by the Committee, which
will consist of not less than two Directors, each of whom will be a
"disinterested person" within the meaning of
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Rule 16b-3. The Committee will have all of the powers of the Board with respect
to this Plan. The Board may change the membership of the Committee at any time
and fill any vacancy occurring in the membership of the Committee by
appointment.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The Committee's
determinations and its interpretation and construction of any provision of this
Plan will be final and conclusive.
(c) Any and all decisions or determinations of the Committee
will be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written consent of the
members of the Committee.
18. INTERPRETATION.
(a) This Plan will be administered and interpreted so that
this Plan will qualify as an "employee stock purchase plan" under Section 423 of
the Code. If any provision of this Plan should be held invalid for purposes of
an "employee stock purchase plan"or illegal for any reason, such determination
will not affect the remaining provisions hereof, but instead this Plan will be
construed and enforced as if such provision had never been included in this
Plan.
(b) This Plan will be governed by the laws of the State of
Delaware.
(c) Headings contained in this Plan are for convenience only
and will in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter
gender will be a reference to such other gender as is appropriate.
19. AMENDMENT AND DISCONTINUATION OF THIS PLAN. Either the Board or the
Committee may from time to time amend or terminate this Plan or any Option;
provided, however, that no such amendment may, without approval by the
stockholders of the Company, (i) materially increase the benefits accruing to
Participants under this Plan, (ii) materially increase the number of securities
which may be issued under this Plan, or (iii) materially modify the requirements
as to eligibility for participation in this Plan; and provided further, that no
amendment or suspension of this Plan or any Option issued hereunder will
substantially impair any Option previously granted to any Participant without
the consent of such Participant.
20. NOTICES. All notices or other communications by a Participant to
the Company under or in connection with this Plan will be deemed to have been
duly given when received by the Committee or when received in the form specified
by the Committee at the location, or by the person designated by the Company for
receipt thereof.
21. EFFECTIVE DATE AND TERMINATION DATE. This Plan will be effective
upon the Effective Date and will terminate on the earliest of the following
dates:
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(a) the date the Board terminates this Plan;
(b) the date when all Shares reserved for issuance under this
Plan have been purchased; or
(c) the date of the earlier occurrence of any of the
following events:
(i) any transaction (which will include a series of
transactions occurring within sixty days or occurring pursuant to a plan), that
has the result that stockholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of the Company or of
any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) approval by the stockholders of the Company of a plan
of merger, consolidation, reorganization, liquidation or dissolution in which
the Company will not survive and, if any entity will result from the
participation of the Company in such merger, consolidation, reorganization,
liquidation or dissolution, the stockholders of the Company immediately before
approval of such plan will not own at least 51% of the voting stock of the
entity or entities that result immediately following such transaction(unless
the approved merger, consolidation, reorganization, liquidation or dissolution
is subsequently abandoned); or
(iii) approval by the stockholders of the Company of a plan
for the sale, lease, exchange, transfer, assignment or other disposition of all
or substantially all the property and assets of the Company to an entity or
entities in which the stockholders of the Company immediately before approval
of such sale, lease, exchange, transfer, assignment or other disposition will
not own at least 51% of the voting stock of such entity or entities immediately
following such transaction (unless such plan is subsequently abandoned).
Prior to the termination of this Plan, the Company may permit a Participant to
exercise the Option to purchase Shares for as many full Shares as the balance of
his or her Account will allow at the Option Price. If the Participant elects to
purchase Shares, the remaining balance of his or her Account will be refunded to
him or her after such purchase. Notwithstanding the foregoing, upon the
occurrence of an event described under Section 21(c) hereof, the holder of each
Option then outstanding under the Plan will thereafter be entitled to receive on
the Exercise Date upon exercise of such Option for each share as to which such
Option would otherwise be exercised if this Plan was not terminated, as nearly
as reasonably as determined, the cash, securities and/or property which a holder
of one Share was entitled to receive upon and at the time of such transaction.
The Board shall take such steps in connection with such transactions as the
Board shall deem necessary to assure that the provisions of this Section 21
shall thereafter be applicable, as nearly as reasonably may be determined, in
relation to the said cash, securities and/or property as to which such holder of
such Option might thereafter be entitled to receive.
22. STOCKHOLDER APPROVAL.
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This Plan is subject to approval by the holders of Shares (and the
holders of any other class of stock to the extent required by agreement or Code
Section 423) within 12 months before or after the date of adoption of this Plan
by the Board. This Plan shall be null and void and of no effect if the foregoing
condition is not fulfilled.
23. MISCELLANEOUS.
(a) LEGAL AND OTHER REQUIREMENTS. The obligations of the
Company to sell and deliver the Shares under this Plan shall be subject to all
applicable laws, regulations, rules and approvals, including, but not limited
to, the effectiveness of a registration statement under the Securities Act of
1933 if deemed necessary or appropriate by the Company. In addition, no federal
or state agency has made any finding or determination as to the fairness for
public or private investment in, nor any recommendation or endorsement of, the
Options or the Shares. Certificates for Shares issued hereunder may be legended
as the Board shall deem appropriate.
(b) APPLICATION OF FUNDS. The proceeds received by the
Company from the sale of Shares pursuant to the Options will be used for
general corporate purposes.
(c) WITHHOLDING TAXES. Upon a Disqualifying Disposition,
within the meaning of Section 15(c), of any Shares received pursuant to the
exercise of any Option under this Plan, the Company shall have the right to
require the Participant to remit to the Company an amount sufficient to satisfy
all federal, state and local requirements as to the income tax withholding and
employee contributions to employment taxes or, alternatively, in the Board's
sole discretion, the Company may withhold all such amounts from other cash
compensation then being paid to the Participant by the Company.
(d) RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or any
agreement entered into pursuant to this Plan shall confer upon any Employee or
other optionee the right to continue in the employment of the Company or any
Affiliated Company or affect any right which the Company or any Affiliated
Company may have to terminate the employment of such Employee or other optionee.
*
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DETACH CARD
- --------------------------------------------------------------------------------
CERES GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS ON JUNE 27, 2000.
The undersigned hereby constitutes and appoints Charles E. Miller, Jr. and Glen
A. Laffoon, and each of them, his true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned at the 2000 Annual
Meeting of Stockholders of Ceres Group, Inc. to be held at 17800 Royalton Road,
Cleveland, Ohio 44136 on Tuesday, June 27, 2000, at 10:00 a.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" EACH OF PROPOSALS 2, 3, 4 AND 5.
1. Directors: Andrew A. Boemi; Michael A. Cavataio; Bradley E. Cooper; Susan S.
Fleming; Rodney L. Hale; Peter W. Nauert; William J. Ruh; Robert A. Spass;
and Mark H. Tabak.
FOR [ ] WITHHELD [ ]
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S): [ ]
- --------------------------------------------------------------------------------
2. Approval of an amendment to our Certificate of Incorporation to increase the
number of authorized shares of our common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of an amendment to our 1998 Key Employee Share Incentive Plan to
increase the number of shares of our common stock available for issuance
under the plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of the Ceres Group, Inc. 2000 Employee Stock Purchase Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SEE REVERSE SIDE
<PAGE> 72
DETACH CARD
- --------------------------------------------------------------------------------
5. Ratification of Ernst & Young LLP as our independent accountants for the
fiscal year ending December 31, 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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 _____________________, 2000
----------------------------------
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.
