Severance Benefit Plan For Directors And Officers,

I. Establishment of Plan
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This arrangement, to be known as the "Central Reserve Life Insurance Company Severance Benefit Plan For Directors and Officers" (Plan), constitutes a severance pay plan within the meaning of 29 C.F.R. ss.2510.3-2(b), and an employee welfare benefit plan, within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Board of Directors of Central Reserve Life Insurance Company (CRL Board) has established this Plan to pay severance benefits to certain Eligible Employees (as hereinafter defined) of Central Reserve Life Insurance Company (Company) who separate from service under specified conditions while the Plan is in effect. This Plan is solely for the benefit of those individuals who are determined, pursuant to the terms and conditions of this Plan, to be Eligible Employees of Central Reserve Life Insurance Company. It is not intended, nor should it be construed, as providing benefits for any other individual, including, but not limited to, any employees or officers of any affiliates or subsidiaries of Company, including, but not limited to, Central Reserve Life Corporation (CRLC). This Plan, as revised, is effective as of December 16, 1997, and replaces in its entirety any previous severance plans, and will continue until modified, amended, changed, or terminated, as provided in Article VII hereof.


II. Plan Eligibility
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(1) The employees of the Company who are eligible to participate in the Plan are those Company employees who hold a position classified as:


(i) Director-Level [employee Class IV] (Director); or
(ii) Officer-Level [employee Classes V, VI, & VII] (Officer).


In order to receive Plan Benefits under the terms of this Plan, a Company employee must hold a position with one of the above-designated classifications on the day before the date of a "Qualifying Separation," and must not have a separate, written employment agreement or contract with Company (Eligible Employee).


(2) Except as otherwise provided in this Section (2), "Qualifying Separation" means an Eligible Employee's separation from service with the Company, which shall occur upon an involuntary termination.


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Notwithstanding the foregoing, an Eligible Employee shall not receive any benefits under the Plan if such employee separates from service (i) by death; (ii) by disability under circumstances which result in his/her receiving either short or long-term disability benefits funded, in whole or in part, directly or indirectly by the Company; or (iii) as a result of actions or omissions which the Executive Committee, in its sole discretion, determines constitute misconduct or gross neglect of duty by the employee.


(3) As a condition of eligibility to receive certain Plan Benefits, as described in Section (1) of Article III hereof, and as consideration for the covenants, payments and benefits described therein, an Eligible Employee must execute an appropriate "General Release and Waiver of all Claims" (Release and Waiver) (the forms of which are attached hereto as Exhibits A-1 [Group Waiver] and A-2 [Individual Waiver]) under which the Eligible Employee for himself or herself, and for his or her executors, administrators, assigns and heirs, irrevocably and unconditionally releases, remits, acquits and discharges the Company, CRLC, and any person or entity connected with them in any manner, including, but not limited to members of their boards of directors, their officers, shareholders, agents, employees, affiliates, related companies or entities, successors and assigns, jointly and individually, from any and all claims, issues, charges, disputes, allegations, liabilities, obligations, demands, damages, debts or sums of money or causes of action of any nature or kind whatsoever, known or unknown, which the Eligible Employee, his heirs, successors or assigns have or may be able to assert in the future against such persons or parties, including but not limited to, those based upon, related to, or arising from the creation, existence, or termination of the "employer/employee" relationship, including but not limited to claims of discrimination under any federal, state or local law, rule or regulation prohibiting age, sex, race, or other forms of discrimination, whether those claims are past or present, whether they arise from labor laws or discrimination laws, such as the Americans With Disabilities Act, Employee Retirement Income Security Act; Age Discrimination in Employment Act, as amended by the Older Workers' Benefit Protection Act of 1990 (OWBPA), including the provisions of 29 U.S.C. ss.626(f)(1) regarding specific requirements for the waiver of rights and claims thereunder in any way arising prior to the execution of the Release and Waiver; Title VII of the Civil Rights Act of 1964, as amended; Ohio Revised Code, ss.4112 et seq., Ohio Revised Code, ss.4101.17, or any other law, rule or regulation. The Release and Waiver also applies to any claim, whether or not based on any contract, express or implied, oral, or in writing, to continued employment with the Company. Further, the Release and Waiver applies to claims for any relief, no matter how called, including but not limited to actions sounding in or related to tort, contract, wages,


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backpay, frontpay, compensatory damages, punitive damages, or damages for pain or suffering.


III. Plan Benefits and Limitations
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(1) Each Eligible Employee who separates from service as a result of a Qualifying Separation shall be entitled to receive "Plan Benefits," calculated and paid as follows:
(a) Directors of Company:1 In the case of an Eligible Employee who is a Director (designated as employee Class IV) of the Company, he or she shall receive the equivalent of one (1) month of his or her Base Salary for each twelve (12) months of service to a maximum of three (3) months; however, if such Eligible Employee executes a "Release and Waiver" in accordance with the provisions of Section (5) of Article II hereof, such Eligible Employee shall receive the equivalent of two (2) months of his or her Base Salary for each twelve (12) months of service to a maximum of six (6) months of Base Salary. If the Eligible Employee executing the aforementioned "Release and Waiver" is age forty (40) or over, the Eligible Employee shall receive an additional one (1) month of Base Salary.


As an example, the maximum amount that an Eligible Employee who is a Director-level employee of the Company, under age forty (40) and who signs an appropriate Release and Waiver, could receive pursuant to the terms of this Plan is six (6) months of Base Salary. If the Director is over age forty (40), the maximum amount that the individual could receive is seven (7) months of Base Salary.


(b) Officers of Company: In the case of an Eligible Employee who is an Officer (designated as employee classes V, VI, or VII) of the Company and who has been an employee of Company for a total of fifteen (15) or more years as of the day before the Qualifying Separation, he or she shall receive the equivalent of one (1) month of his or her "Base Salary" for each twelve (12) months of service to a maximum of six (6) months; however, if such Eligible Employee executes a "Release and Waiver" in accordance with the provisions of Section (5) of Article II hereof, such Eligible Employee shall receive the equivalent of two (2) months of his or her Base Salary for each twelve (12) months of service to a maximum of twelve (12) months of Base Salary. If the Eligible Employee executing the aforementioned "Release and Waiver" is age forty (40) or over, the Eligible Employee shall receive an additional one (1) month of Base Salary.


- -------- 1 The term "Director," as used herein to describe those individuals who may be deemed Eligible Employees under the terms of this Plan, refers only to the Company's classification of certain managerial employees as "directors" (Class IV) employees. The term does not refer to nor is it to be construed to include those individuals who serve as members of Company's Board of Directors or CRLC's Board of Directors, who are referred to, due to their membership on the board(s), as "directors."


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In the case of an Eligible Employee who is an Officer (designated as employee classes V, VI, or VII) of the Company and who has been an employee of Company for fewer than fifteen (15), he or she shall receive the equivalent of one (1) month of his or her "Base Salary" for each twelve (12) months of service to a maximum of three (3) months; however, if such Eligible Employee executes a "Release and Waiver" in accordance with the provisions of Section (5) of Article II hereof, such Eligible Employee shall receive the equivalent of two (2) months of his or her Base Salary for each twelve (12) months of service to a maximum of six (6) months of Base Salary. If the Eligible Employee executing the aforementioned "Release and Waiver" is age forty (40) or over, the Eligible Employee shall receive an additional one (1) month of Base Salary.


As an example, the maximum amount that an Eligible Employee who is an Officer of the Company (a Class V, VI, or VII employee) under age forty (40) and has been an employee of Company for fifteen (15) or more years and who signs an appropriate Release and Waiver, could receive pursuant to the terms of this Plan is twelve (12) months of Base Salary. If that Officer is over age forty (40), the maximum amount that the individual could receive is thirteen (13) months of Base Salary.


(c) If the Plan Benefits provided for under Section III, subsection (1) (a) or (b) are to be distributed to an Eligible Employee in installments, the installment payments shall be paid at the same interval as the regular pay period for employees of the Eligible Employee's class, as in effect on the date of the Eligible Employee's Qualifying Separation.


(d) "Base Salary," for the purpose of this Plan, shall mean an Eligible Employee's monthly gross salary for services as an employee of the Company (including days actually worked and, paid time off [PTO], and holidays), for the last full month preceding his or her Qualifying Separation; provided Base Salary includes compensation which is included in such employee's gross income for federal tax purposes. Base salary shall specifically exclude (i) amounts paid by the Company for services performed in a capacity other than as an Eligible Employee, and (ii) any amounts received as benefits under this Plan or any other employee benefit plan (within the meaning of Section 3(3) of ERISA) of the company.


(e) Any payments made under this Plan shall be subject to any and all applicable withholding taxes as required by federal, state or local law.


(2) In addition to the benefits payable under this Plan, an Eligible Employee who separates from service as a result of a Qualifying Separation shall be entitled to receive his or her unpaid paid time off (PTO) accrued to the date of his


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or her Qualifying Separation in one lump sum payment within sixty (60) days after the date of such Qualifying Separation.


(3) Benefits paid or payable to an Eligible Employee under the Plan shall not increase, decrease, modify or change the amount of any benefits such employee may be entitled to receive under the Pension Plan for Employees of Central Reserve Life of North America Insurance Company, the Defined Contribution 401(k) Profit Sharing Plan of Central Reserve Life Insurance Company nor any other plan providing benefits, including, but not limited to, any qualified or nonqualified plan.


IV. Funding
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Benefits under the Plan shall not be funded but rather shall be payable from the general assets of the Company.


V. Entitlement to Benefits
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An Eligible Employee shall have no vested right to benefits under the Plan unless and until the date of his or her Qualifying Separation.


VI. Administrative Responsibility
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(1) The Plan shall be administered by the Company's Executive Committee, which shall be deemed the Plan Administrator.


(2) The Company's Executive Committee shall have all powers necessary to enable it to carry out its duties, including, but not limited to, the discretionary authority to interpret the Plan, the discretionary authority to determine all questions relating to the rights and status of employees, and the discretionary authority to make such rules and regulations for the administration of the Plan as are not in ...