<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report: December 17, 1997
(Date of earliest event reported)
Central Reserve Life Corporation
(Exact Name of Registrant as specified in its charter)
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Ohio 0-8483 34-1017531
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(State or other jurisdiction of (Commission File Number) (IRS Employee Identification
incorporation) Number)
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17800 Royalton Road, Strongsville, Ohio 44136
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(Address of Principal Executive Offices) (Zip Code)
(440) 572-2400
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
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On December 17, 1997, Central Reserve Life Corporation, an
Ohio corporation ("Central Reserve"), announced that through Strategic
Acquisition Partners, LLC ("Strategic Partners"), it had received the proceeds
of a $20 million interim loan due April 1, 1998. Approximately $14 million of
the net proceeds from the interim loan have been loaned to Central Reserve's
insurance subsidiary, Central Reserve Life Insurance Company ("CRL"). The loan
to CRL is evidenced by a surplus note, which is subject to certain restrictions
determined by the Ohio Department of Insurance regarding payment of interest
and principal. The balance of the net proceeds were used to satisfy Central
Reserve's $5.2 million loan from Huntington National Bank. In conjunction with
the funding of the interim loan, CRL entered into a $10 million reinsurance
transaction with the Reassurance Company of Hannover ("RCH") pursuant to which
RCH assumed $24.5 milion of CRL's reserves for group accident and health
policies in consideration of a ceding allowance of $10.0 million and a cash
payment of $14.5 million by CRL. Central Reserve also issued warrants to
acquire 800,000 of its common shares ("Common Shares") at $6.00 per share on
the terms previously announced.
As was previously announced, on November 26, 1997, Central
Reserve and Strategic Partners entered into a definitive stock purchase
agreement (the "Stock Purchase Agreement"), pursuant to which Central Reserve
agreed to issue to Strategic Partners 5,000,000 Common Shares and warrants to
acquire up to 2,500,000 Common Shares for an aggregate price of $27.5 million
(the "Issuance"). In connection with receiving the interim loan, Central Reserve
and Strategic Partners amended the Stock Purchase Agreement to increase the
termination fee required to be paid by Central Reserve under certain
circumstances.
As conditions to receiving the interim loan Central Reserve
executed (i) a promissory note in favor of Strategic Partners, (ii) a credit
agreement, (iii) a pledge agreement, and (iv) an amendment to its severance
benefit plan for officers and directors. Several of the directors and officers
of Central Reserve and CRL executed meeting voting agreements pursuant to which
they agreed to vote their Common Shares in favor of the Issuance at the special
meeting of shareholders at which the Issuance will be voted upon. To satisfy
additional conditions for the interim loan to Central Reserve, Mr. Fred Lick,
Jr., Chairman, President and Chief Executive Officer of Central Reserve, entered
into a new two year employment contract, commencing January 1, 1998, with each
of Central Reserve and CRL, and Mr. Frank Grimone, Senior Executive Vice
President and Chief Financial Officer of Central Reserve, entered into a new
employment contract, commencing January 1, 1998, with Central Reserve and CRL.
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Item 7. Financial Statements and Exhibits
(c) Exhibits
2.1 Amendment No. 1 to Stock Purchase Agreement, dated as of
December 16, 1997, by and between Strategic Partners and
Central Reserve.
10.1 Credit Agreement, dated as of December 16, 1997, by and
between Central Reserve and Strategic Partners.*
10.2 Pledge Agreement, dated as of December 16, 1997, by and
between Central Reserve and Strategic Partners.
10.3 Promissory Note, dated December 16, 1997, by Central Reserve
in favor of Strategic Partners.
10.4 Warrant to purchase Common Shares, dated December 16, 1997,
by Central Reserve in favor of Peter W. Nauert.
10.5 Warrant to purchase Common Shares, dated December 16, 1997,
by Central Reserve in favor of the Turkey Vulture Fund XIII,
Ltd.
10.6 Employment Agreement, dated December 15, 1997, by and
between Fred Lick, Jr. and Central Reserve.
10.7 Employment Agreement, dated December 15, 1997, by and
between Fred Lick Jr. and CRL.
10.8 Employment Agreement, dated December 16, 1997 by and between
Frank Grimone and Central Reserve and CRL.
10.9 The Central Reserve Life Insurance Company Severance Benefit
Plan.
99.1 Form of Meeting Voting Agreement, dated December 16, 1997
99.2 Press Release dated December 17, 1997.
* The Exhibits to the Credit Agreement are omitted. The parties agree to
furnish supplementally a copy of the Exhibits to the Securities and
Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 17, 1997 CENTRAL RESERVE LIFE CORPORATION
By: Frank W. Grimone
Frank W. Grimone, Chief Financial Officer
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Exhibit 2.1
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT is made as of the 16th day of December, 1997 by and
between Strategic Acquisition Partners, LLC, a Nevada limited liability company
("Purchaser") and Central Reserve Life Corporation, an Ohio corporation (the
"Company").
WHEREAS, the parties hereto are parties to that certain Stock Purchase
Agreement, dated as of November 26, 1997 (the "Purchase Agreement"); and
WHEREAS, the parties hereto desire to amend the Purchase Agreement to
increase the Termination Fee (as defined in the Purchase Agreement) to $950,000.
NOW THEREFORE, in consideration of the mutual promises and conditions
of this Amendment, and other good and valuable consideration, the parties hereto
agree as follows:
1. Section 7.5 of the Purchase Agreement is hereby amended and restated
in its entirety to read as follows:
"7.5. TERMINATION FEE. In the event that (a) a proposal with
respect to a transaction relating to the acquisition of a material portion of
the capital stock of the Company or any of the Company's Subsidiaries, its or
their assets or business, whether in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation or otherwise (an
"Acquisition Transaction") is commenced by the Company, publicly proposed,
publicly disclosed or communicated to the Company or any representative or agent
thereof after the date of this Agreement and prior to the date of termination of
this Agreement, (b) this agreement is thereafter terminated by the Company
pursuant to Section 13.1(e), and (c) within six (6) months following such
termination an Acquisition Transaction is consummated or the Company enters into
an agreement relating thereto, then in any such event, the Company shall pay the
Purchaser $950,000.00 in same day funds (the "Termination Fee") plus
reimbursement of Purchaser's expenses incurred in connection with the
Transactions contemplated hereby, including, without limitation, all due
diligence expenses and expenses of counsel."
2. Except as specifically amended herein, the Purchase Agreement shall
remain in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the internal substantive laws of the State of Ohio applicable to contracts made
and to be performed wholly within said State.
4. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed as of the date first above written.
Strategic Acquisition Partners, LLC
By: /s/ Val Rajic
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Its: Manager
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Central Reserve Life Corporation
By: /s/ Frank W. Grimone
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Its: CFO
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Exhibit 10.1
================================================================================
$20,000,000
CREDIT AGREEMENT
dated as of December 16, 1997
between
CENTRAL RESERVE LIFE CORPORATION
as Borrower
and
STRATEGIC ACQUISITION PARTNERS, LLC
as Lender
================================================================================
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THE FOLLOWING TABLE OF CONTENTS HAS BEEN INSERTED FOR CONVENIENCE ONLY AND DOES
NOT CONSTITUTE A PART OF THIS AGREEMENT.
TABLE OF CONTENTS
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PAGE
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SECTION I DEFINITIONS AND ACCOUNTING TERMS....................................................................... 1
1.1 Certain Defined Terms.............................................................................. 1
1.2 Other Definitional Provisions...................................................................... 6
1.3 Accounting and Financial Determinations............................................................ 6
SECTION II THE COMMITMENT....................................................................................... 7
2.1 Commitment......................................................................................... 7
2.2 Borrowing Procedures............................................................................... 7
2.3 Repayment of Loan.................................................................................. 7
SECTION III NOTE EVIDENCING LOANS .............................................................................. 7
3.1 Note............................................................................................... 7
3.2 Recordation of Loan and Payments................................................................... 7
SECTION IV INTEREST, FEES, ETC. ................................................................................ 8
4.1 Loan Interest Rate................................................................................. 8
4.2 Default Interest Rate.............................................................................. 8
4.3 Interest Payment Dates............................................................................. 8
4.4 Fees............................................................................................... 8
4.5 Computation of Interest............................................................................ 8
SECTION V PAYMENTS AND PREPAYMENTS ............................................................................. 9
5.1 Voluntary Prepayments.............................................................................. 9
5.2 Mandatory Prepayments.............................................................................. 9
5.3 Making of Payments................................................................................. 9
5.4 Due Date Extension................................................................................. 9
5.5 Use of Proceeds.................................................................................... 10
SECTION VI SECURITY............................................................................................. 10
6.1 Collateral Documents............................................................................... 10
6.2 Further Assurances................................................................................. 10
SECTION VII REPRESENTATIONS AND WARRANTIES...................................................................... 10
7.1 Representations and Warranties..................................................................... 10
7.1.1 Ownership, No Liens, etc................................................................ 11
7.1.2 No Default or Event of Default.......................................................... 11
7.1.3 Proceeds................................................................................ 11
7.1.4 Securities Laws......................................................................... 11
7.1.5 Margin Regulations...................................................................... 11
7.1.6 Incorporation by Reference.............................................................. 11
7.1.7 Other Agreements........................................................................ 12
SECTION VIII CONDITIONS PRECEDENT............................................................................... 12
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8.1 Condition Precedent to Loan........................................................................ 12
8.2 Additional Deliveries.............................................................................. 15
SECTION IX COVENANTS AND OTHER AGREEMENTS....................................................................... 15
9.1 Affirmative Covenants.............................................................................. 15
(c) Books, Records and Inspections............................................... 16
(d) Pension Plans and Welfare Plans.............................................. 16
9.2 Negative Covenants................................................................................. 19
SECTION X EVENTS OF DEFAULT..................................................................................... 21
10.1 Events of Default................................................................................. 21
10.2 Remedies.......................................................................................... 23
SECTION XI MISCELLANEOUS........................................................................................ 23
11.1 Amendments, Etc................................................................................... 23
11.2 Notices, Etc...................................................................................... 23
11.3 No Waiver; Remedies............................................................................... 23
11.4 Successors and Assigns............................................................................ 24
11.5 Costs, Expenses, and Taxes........................................................................ 24
11.6 Right of Setoff................................................................................... 25
11.7 Governing Law..................................................................................... 25
11.8 Severability of Provisions........................................................................ 25
11.9 Headings.......................................................................................... 25
11.10 Submission to Jurisdiction; Waiver of Venue; Service of Process.................................. 25
11.11 WAIVER OF JURY TRIAL............................................................................. 26
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EXHIBITS AND SCHEDULES
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EXHIBITS
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EXHIBIT A Form of Note
EXHIBIT B Form of Surplus Note
EXHIBIT C Form of Opinion of Latham & Watkins, counsel to the
Borrower and its Subsidiaries
EXHIBIT D Form of Pledge Agreement
EXHIBIT E Business Plan
SCHEDULES
SCHEDULE 7.1.6 Representations and Warranties
SCHEDULE 7.1.7 Other Agreements
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iii
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 16, 1997, is made
by and between CENTRAL RESERVE LIFE CORPORATION, an Ohio corporation (the
"Borrower"), and STRATEGIC ACQUISITION PARTNERS, LLC, a Nevada limited liability
company (together with its successors and assigns, the "Lender"). Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings provided in the Purchase Agreement (as hereinafter defined).
RECITALS
WHEREAS, Borrower desires that Lender extend financing to
Borrower pursuant to the terms of this Agreement;
WHEREAS, Lender is willing to extend financing to Borrower
pursuant to the terms of this Agreement for the purposes specified herein; and
WHEREAS, Borrower and Lender have entered into that certain
Stock Purchase Agreement, dated as of November 26, 1997 (the "Purchase
Agreement"), whereby Lender will purchase 5,000,000 shares of common stock,
without par value, of Borrower;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, and subject to the terms and conditions hereof, the parties
hereto agree as follows:
SECTION I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"Adjusted Capital" means, as to any Borrower Insurance
Subsidiary, as of any date, the total amount shown on line 27, page 23, column 1
of the Annual Statement of such Borrower Insurance Subsidiary, or an amount
determined in a consistent manner for any date other than one as of which an
Annual Statement is prepared.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, owns, holds, controls, is controlled by or is under
common control with such Person (including all beneficial control as a trustee,
guardian or other fiduciary). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or
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indirectly, power (a) to vote 5% or more of the securities having ordinary
voting power for the election of directors or managing general partners; or (b)
to direct or cause the direction of the management and policies of such Person
whether through the ownership of voting securities, membership interests, by
contract or otherwise.
"Agreement" means this Credit Agreement, as the same may
hereafter be amended or modified from time to time in whole or in part.
"ANB" means American National Bank and Trust Company of
Chicago, or any successor thereto.
"ANB Credit Agreement" means that certain Credit Agreement,
dated as of December 16, 1997, by and between ANB and Lender, as the same may be
amended or modified from time to time in whole or in part.
"ANB Prime Rate" means, for any day, the rate per annum
announced from time to time by ANB as its "prime commercial rate" or equivalent
rate of interest. The prime commercial rate is a rate set by ANB based upon
various factors including ANB's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in the prime rate announced by ANB shall take effect at the opening of business
on the date specified in the public announcement of such change.
"Annual Statement" means, as to any Borrower Insurance
Subsidiary, the annual financial statement of such Borrower Insurance Subsidiary
as required to be filed with the applicable Department, together with all
exhibits or schedules filed therewith, prepared in conformity with SAP.
References to amounts on particular exhibits, schedules, lines, pages and
columns of the Annual Statement are based on the format promulgated by the NAIC
for 1996 Life, Accident and Health Insurance Company Annual Statements. If such
format is changed in future years so that different information is contained in
such items or they no longer exist, it is understood that the reference is to
information consistent with that reported in the referenced item in the 1996
Annual Statement of such Borrower Insurance Subsidiary.
"Applicable Insurance Code" means, as to any Borrower
Insurance Subsidiary, the insurance code of any state where such Borrower
Insurance Subsidiary is domiciled or doing insurance business and any successor
statute of similar import, together with the regulations thereunder, as amended
or otherwise modified and in effect from time to time. References to sections of
the
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Applicable Insurance Code shall be construed to also refer to successor
sections.
"Authorized Officer" means any one of the following officers
of Borrower: chief executive officer or chief financial officer.
"Borrower" - see PREAMBLE.
"Borrower Subsidiary" means any Company Subsidiary as defined
under the Purchase Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago, Illinois or Cleveland, Ohio are
authorized or required by law to close.
"Closing Date" means the date on which all conditions
precedent set forth in SECTION VIII are satisfied or waived by Lender and the
Loan is made under this Agreement.
"Collateral" mean all of the collateral security described or
provided for in SECTION 6.1 together with all property and/or rights on or in
which a Lien is now or hereafter granted by any Person to Lender (or to any
agent, trustee or other party acting on behalf of Lender) to secure the
Liabilities.
"Commitment" - see SECTION 2.1.
"Company Material Adverse Effect" has the meaning provided in
the Purchase Agreement; provided that for purposes of this Agreement, Company
Material Adverse Effect shall also include any change, event, action, condition
or effect which individually or in the aggregate adversely affects the
perfection or priority of any Lien granted under any of the Related Documents.
"CRL" means Central Reserve Life Insurance Company, an Ohio
insurance company.
"Default" means any event which if it continues uncured would,
with lapse of time or notice, or both, constitute an Event of Default.
"Department" means, with respect to any Borrower Insurance
Subsidiary, the Governmental Authority of such Borrower Insurance Subsidiary's
state of domicile with whom such Borrower Insurance Subsidiary is required to
file its Annual Statement.
"Dollars" and the sign "$" means lawful money of the United
States of America.
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"Effective Date" means the date of this Agreement as set forth
in the Preamble.
"Event of Default" means any of the events described in
SECTION 10.1.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Borrower Insurance Subsidiary" means any Borrower Subsidiary
that is authorized or admitted to carry on or transact one or more aspects of
the business of selling, issuing or underwriting insurance or reinsurance.
"Interest Payment Date" means the last Business Day of each
calendar month.
"Lender" - see PREAMBLE.
"Liabilities" means all obligations of Borrower to Lender
howsoever created, arising or evidenced, whether direct or indirect, joint or
several, absolute or contingent, or now or hereafter existing, or due or to
become due, which arise out of or in connection with this Agreement, the Note or
any other Related Document.
"Lien" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), claim or other priority or preferential arrangement of any kind or
nature whatsoever.
"Loan" - see SECTION 2.1.
"NAIC" means the National Association of Insurance
Commissioners, or any successor organization.
"Note" - see SECTION 3.1.
"Official Bodies" means any governmental or political
subdivision or any agency, authority, bureau, commission, department or
instrumentality of either or any court or arbitrator.
"Permitted Encumbrance(s)" shall have the meaning provided in
the Purchase Agreement and shall include the Liens listed on Schedule 4.10(c) of
the Purchase Agreement.
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"Person" means any individual, sole proprietorship,
partnership, limited liability company, limited liability partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Pledge Agreement" - see SECTION 6.1.
"Proxy Statement" shall have the meaning provided in the
Purchase Agreement.
"Purchase Agreement" - see third recital.
"Reference Department" means the State of Ohio.
"Reinsurance Agreements" means any agreement, contract,
treaty, certificate or other arrangement (including any Surplus Relief
Reinsurance Agreement) by which any Borrower Insurance Subsidiary agrees to
transfer or cede to another insurer all or part of the liability assumed or
assets held by it under a policy or policies of insurance or under a reinsurance
agreement assumed by it. Reinsurance Agreements shall include, but not be
limited to, any agreement, contract, treaty, certificate or other arrangement
(including any Surplus Relief Reinsurance Agreement) which is treated as such by
the applicable Department or Reference Department.
"Related Documents" means the Note, the Pledge Agreement, and
any and all other documents or instruments furnished or required to be furnished
in connection with any of the foregoing, as the same may be amended or modified
in accordance with this Agreement.
"Reportable Event" shall have the meaning assigned to such
term in ERISA.
"Surplus Note" means the surplus note of CRL dated December
16, 1997 in the original principal amount of $14,000,000, substantially in the
form attached hereto as EXHIBIT B.
"Surplus Relief Reinsurance Agreements" means any agreement
whereby any insurance company assumes or cedes business under a reinsurance
agreement that would be considered a "financing-type" reinsurance agreement as
determined in accordance with the Statement of Financial Accounting Standards
113 or any successor thereto.
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"Termination Date" means the earlier of (a) April 1, 1998 and
(b) the date of termination in whole of the Commitment or the Loan pursuant to
SECTION 5.1, 5.2 or 10.2; provided that (i) if the Closing of the transactions
contemplated by the Purchase Agreement has not occurred prior to April 1, 1998,
(ii) the Purchase Agreement has not been terminated pursuant to Section 13(e)
thereof, and (iii) an Event of Default does not exist under this Agreement, the
Termination Date shall be extended to May 1, 1998 without any further action
being required by the parties.
"U.C.C." means the Uniform Commercial Code or comparable
statute or any successor statute thereto, as in effect from time to time in the
relevant jurisdiction.
. SECTION I.2 OTHER DEFINITIONAL PROVISIONS
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in any certificate, report or other document
made or delivered pursuant to this Agreement, unless the context therein shall
clearly otherwise require.
(b) The words "hereof," "herein," "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(c) The words "amended or modified" when used in this
Agreement shall mean with respect to this Agreement or any Related Document,
this Agreement or Related Document as from time to time, in whole or in part,
amended, modified, supplemented, restated, refinanced, refunded or renewed.
(d) In the computation of periods of time in this Agreement
from a specified date to a later specified date, the word "from" shall mean
"from and including" and the words "to" and "until" each means "to but
excluding."
(e) This Agreement and the Related Documents are the result of
negotiations among and have been reviewed by counsel to Lender and Borrower, and
are the products of all parties. Accordingly, to the extent permitted by
applicable law, it is agreed that they shall not be construed against Lender
merely because of Lender's involvement in their preparation.
SECTION 1.3 ACCOUNTING AND FINANCIAL DETERMINATIONS. For
purposes of this Agreement, unless otherwise specified, all accounting terms
used herein shall be interpreted, all accounting determinations and computations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP or SAP, as the case may be,
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applied in the preparation of the financial statements referred to in Section
4.5 of the Purchase Agreement.
SECTION II THE COMMITMENT
SECTION 2.1 COMMITMENT. Subject to the terms and conditions
hereof, on the Closing Date, Lender agrees to make a loan (herein called the
"Loan") to Borrower in an aggregate principal amount not to exceed $20,000,000
(or such reduced amount as may be fixed pursuant to SECTIONS 5.1 or 10.2). The
Loan to Borrower shall be disbursed in accordance with SECTION 2.2 and once
repaid may not thereafter be reborrowed. The foregoing commitment of Lender is
herein called its "Commitment."
SECTION 2.2 BORROWING PROCEDURES. Any Authorized Officer of
Borrower may request the Loan prior to the Termination Date in Dollars on any
Business Day by giving Lender telephonic or facsimile notice (which notice shall
be irrevocable once given and shall be promptly confirmed in writing if given
telephonically) on the date of the proposed borrowing. Subject to satisfaction
of the applicable conditions precedent set forth in SECTION 8 hereof, Lender
shall make the proceeds of the Loan available to Borrower by causing an amount
of same day funds equal to the principal amount of the Loan to be credited to
the account of Borrower at a bank designated by Borrower.
SECTION 2.3 REPAYMENT OF LOAN. Subject to the provisions of
SECTIONS 5.2 and 10.1, the Loans shall be payable (and Borrower agrees to pay
such Loans) in full in immediately available funds on the Termination Date.
SECTION III NOTE EVIDENCING LOANS
SECTION 3.1 NOTE. The Loan of Lender shall be evidenced by a
promissory note (herein called the "Note") substantially in the form set forth
in EXHIBIT A, with appropriate insertions, payable to the order of Lender in a
principal amount equal to $20,000,000.
SECTION 3.2 RECORDATION OF LOAN AND PAYMENTS. The date and
amount of the Loan made by Lender and of each repayment of principal thereon
received by Lender shall be recorded by Lender in its records, or at its option
on a schedule attached to the Note. The aggregate unpaid principal amount so
recorded shall be conclusive evidence of the principal amount owing and unpaid
on the Note, in the absence of manifest error. The failure to so record or any
error in so recording any such amount shall not, however, limit or otherwise
affect the obligations of Borrower
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hereunder or under the Note to repay the principal amount of the Loan together
with all interest accrued thereon.
SECTION IV INTEREST, FEES, ETC.
SECTION 4.1 LOAN INTEREST RATE. Prior to the occurrence of an
Event of Default, with respect to the Loan, Borrower hereby promises to pay
interest on the unpaid principal amount thereof for the period commencing on the
date such Loan is made until such Loan is paid in full at a rate per annum equal
to the ANB Prime Rate as in effect from time to time.
SECTION 4.2 DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default, Borrower hereby promises to pay interest on the unpaid
principal amount of the Loan for the period commencing on the date such Event of
Default occurs until the Loan is paid in full (or such Event of Default is
waived in writing by Lender) at a rate per annum equal to the sum of: (a) the
interest rate effective on the day of such Default, changing as and when such
interest rate changes but never to fall below the interest rate effective on the
day of the Event of Default, PLUS (b) five percent (5%) per annum.
SECTION 4.3 INTEREST PAYMENT DATES. Accrued interest on the
Loan shall be paid on each Interest Payment Date, commencing with the first of
such dates to occur after the Closing Date. After maturity (whether by
acceleration, required prepayment or otherwise), accrued interest on Loan shall
be payable on demand.
SECTION 4.4 FEES. Borrower agrees to pay Lender the following
nonrefundable fees at the times set forth below:
(a) On the Closing Date, a loan commitment fee equal to
$50,000; and
(b) On the date CRL and Reassurance Company of Hannover enter
into and fund the Reinsurance Agreement as contemplated by SECTION
8.1(P), a fee (in addition to the fee set forth in CLAUSE (A) above) in
the amount of $150,000.
SECTION 4.5 COMPUTATION OF INTEREST. All interest on the Loan
shall be computed for the actual number of days elapsed on the basis of a
360-day year.
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SECTION V PAYMENTS AND PREPAYMENTS
SECTION 5.1 VOLUNTARY PREPAYMENTS. Borrower may from time to
time prepay the Loan in whole or in part, PROVIDED THAT (a) each partial
prepayment of the Loan shall be in a principal amount of $100,000 or an integral
multiple thereof, and (b) any prepayment of the entire principal amount of the
Loan shall include accrued interest to the date of prepayment.
SECTION 5.2 MANDATORY PREPAYMENTS. Borrower shall make
mandatory repayments of the Loan as follows:
(a) If the Purchase Agreement shall be terminated by Borrower
pursuant to Section 13.1(e) thereof (i.e., acceptance of a Superior
Proposal as provided in the Purchase Agreement), Borrower shall,
immediately on demand, repay the Loan (including interest accrued
thereon) and any other Liabilities in full in immediately available
funds; and
(b) Concurrently with the Closing under the Purchase
Agreement, Borrower shall, immediately on demand, repay the Loan
(including interest accrued thereon) and any other Liabilities in full
in immediately available funds.
SECTION 5.3 MAKING OF PAYMENTS. Except as otherwise provided,
all payments in respect of the Loan shall be made by Borrower to Lender in
immediately available funds. All such payments shall be made to Lender at its
account at:
ABA No.: 071-000-770
Account No.:5300048437
American National Bank and Trust Company of Chicago
33 North LaSalle Street
Chicago, IL 60690
Reference: Strategic Acquisition Partners, LLC
or as otherwise directed by Lender, not later than 12:30 P.M., Chicago time, on
the date due; and funds received after that hour shall be deemed to have been
received by Lender on the next following Business Day.
SECTION 5.4 DUE DATE EXTENSION. If any payment provided for
hereunder falls due on a day which is not a Business Day, then such due date
shall be extended to the next following Business Day (except as provided in the
last sentence of SECTION 4.3), and additional interest shall accrue and be
payable for the period of such extension.
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SECTION 5.5 USE OF PROCEEDS. The proceeds of the Loans shall
be used by Borrower as follows: (a) $6,000,000 to refinance the indebtedness of
Borrower owed to Huntington Bank, to establish an interest reserve for Borrower
which shall be used solely to pay interest accrued on the Loan and to pay the
fees and expenses of Borrower as set forth in this Agreement; and (b)
$14,000,000 to be used to invest in the surplus of CRL, which investment shall
be evidenced by the Surplus Note. Borrower will not, directly or indirectly, use
any part of such proceeds for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation G or Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any Person for
the purpose of purchasing or carrying any such margin stock.
SECTION VI SECURITY
SECTION 6.1 COLLATERAL DOCUMENTS. On the Closing Date,
Borrower will execute and deliver to Lender, a pledge agreement, substantially
in the form of EXHIBIT C (herein, as the same may be amended or modified, called
the "Pledge Agreement"), covering, among other things, all of the issued and
outstanding capital stock of CRL and the Surplus Note.
SECTION 6.2 FURTHER ASSURANCES. Borrower agrees that upon
request of Lender (a) Borrower shall promptly deliver or cause to be delivered
to Lender, in due form for transfer, all chattel paper, instruments, securities
and documents of title, if any, at any time representing all or any of the
Collateral, and (b) Borrower shall forthwith execute and deliver or cause to be
executed and delivered to Lender, in due form for filing or recording (and pay
the cost of filing or recording the same in all public offices deemed necessary
by Lender), such further assignment agreements, security agreements, pledge
agreements, instruments, consents, waivers, financing statements, stock or bond
powers, searches, releases, and other documents, and do such other acts and
things, all as Lender may from time to time reasonably request to establish and
maintain to the satisfaction of Lender a valid perfected Lien on all Collateral
(free of all other Liens other than Permitted Encumbrances) to secure payment of
the Liabilities, in each case, subject to any applicable insurance laws of the
State of Ohio.
SECTION VII REPRESENTATIONS AND WARRANTIES
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SECTION 7.1 REPRESENTATIONS AND WARRANTIES. To induce Lender
to enter into this Agreement and make the Loan hereunder, Borrower represents
and warrants to Lender as set forth in this SECTION 7.
SECTION 7.1.1 OWNERSHIP, NO LIENS, ETC. Borrower is the legal
and beneficial owner of the Collateral free and clear of any Lien, security
interest, charge or encumbrance except for the security interest created by this
Agreement and Permitted Encumbrances. No effective financing statement or other
document similar in effect covering all or any part of the Collateral is on file
in any recording office, except such as may have been filed by Borrower relating
to this Agreement and Permitted Encumbrances.
SECTION 7.1.2 NO DEFAULT OR EVENT OF DEFAULT. No Default or
Event of Default has occurred and is continuing with respect to Borrower and no
violation or material breach of any provision has occurred and is continuing
under the Purchase Agreement.
SECTION 7.1.3 PROCEEDS. The proceeds of the Loans will be
used by Borrower as follows: (a) $6,000,000 to refinance the indebtedness of
Borrower owed to Huntington Bank, to establish an interest reserve for Borrower
which shall be used solely to pay interest accrued on the Loan and to pay the
fees and expenses of Borrower as set forth in this Agreement; and (b)
$14,000,000 to be used to invest in the surplus of CRL, which investment shall
be evidenced by the Surplus Note.
SECTION 7.1.4 SECURITIES LAWS. Neither Borrower nor, to the
best of Borrower's knowledge, any of its Affiliates, nor anyone acting on behalf
of any such Person, has directly or indirectly offered any interest in the Loan
or any other Liabilities for sale to, or solicited any offer to acquire any such
interest from, or has sold any such interest to, any Person that would subject
the making of the Loan or any other Liabilities to registration under the
Securities Act.
SECTION 7.1.5 MARGIN REGULATIONS. Neither Borrower nor any
Borrower Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation G or Regulation U
promulgated by the Federal Reserve Board).
SECTION 7.1.6 INCORPORATION BY REFERENCE. Except as set forth
on SCHEDULE 7.1.6, Borrower agrees that the representations and warranties of
Borrower set forth in Article IV of the Purchase Agreement shall be incorporated
by reference in this Agreement in their entirety as if fully set forth herein
with
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the same effect as if applied to this Agreement. All capitalized terms set
forth in Article IV of the Purchase Agreement shall have the same meanings when
used in this Purchase Agreement; PROVIDED that for purposes of this Agreement,
to the extent set forth in the Purchase Agreement, (a) the term "Company" shall
be deemed to refer to Borrower under this Agreement, (b) the term "Company
Subsidiaries" shall be deemed to refer to Borrower Subsidiaries under this
Agreement, (c) the term "Company Insurance Subsidiary" shall be deemed to refer
to Borrower Insurance Subsidiary under this Agreement, (d) the term "Purchaser"
shall be deemed to refer to Lender under this Agreement, (e) the term
"Agreement" shall be deemed to refer to this Agreement, (f) the term "Closing
Date" shall be deemed to refer to the Closing Date as defined in this Agreement.
Such representations and warranties shall not be affected in any manner by the
termination of the Purchase Agreement.
SECTION 7.1.7 OTHER AGREEMENTS. Except as set forth on
SCHEDULE 7.1.7, neither Borrower nor any Borrower Subsidiary is a party to any
indenture, loan, or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction which could have
a Company Material Adverse Effect, or adversely affect the ability of Borrower
or any Borrower Subsidiary to carry out its respective obligations under this
Agreement or any Related Document. Neither Borrower nor any Borrower Subsidiary
is in default in any respect in the performance, observance, or fulfillment of
any of the obligations, covenants, or conditions contained in any agreement or
instrument material to its business.
SECTION VIII CONDITIONS PRECEDENT
SECTION 8.1 CONDITION PRECEDENT TO LOAN. The obligation of
Lender to make the Loan to Borrower is subject to the condition precedent that
Lender shall have received on or before the day of such Loan each of the
following, in form and substance satisfactory to Lender and its counsel:
(a) NOTE. The Note duly executed by Borrower;
(b) PLEDGE AGREEMENT. The Pledge Agreement duly executed by
Borrower together with (i) all share certificates and the surplus note
under such Pledge Agreement and (ii) appropriate stock powers for such
shares executed in blank;
(c) FINANCING STATEMENTS. (i) financing statements (UCC-1) to
be filed under the U.C.C. of all jurisdictions necessary or, in the
opinion of Lender or its counsel, desirable to perfect the security
interest
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created by the Pledge Agreement; and (ii) certified copies of
Requests for Information (Form UCC-11) identifying all of the
financing statements on file with respect to Borrower and each
Borrower Subsidiary in all jurisdictions referred to under
clause (i) herein, indicating that no party claims an interest
in any of the Collateral;
(d) CERTIFICATE OF BORROWER. A certificate dated as of the
Closing Date of the Secretary of Borrower certifying: (i) a copy of the
articles of incorporation of Borrower and CRL as theretofore amended;
(ii) a copy of the bylaws of Borrower and CRL, as theretofore amended;
(iii) copies of all corporate action taken by Borrower and CRL,
including resolutions of Borrower's and CRL's Board of Directors, and
their respective shareholders (if required) authorizing the execution,
delivery, and performance of this Agreement and the Related Documents
and authorizing the borrowing by each of the Authorized Officers; and
(iv) the names and true signatures of the officers of Borrower and CRL
authorized to sign this Agreement and the Related Documents to which it
is a party;
(e) CERTIFIED CHARTER AND GOOD STANDING. A certificate of the
due formation, valid existence and good standing of Borrower and CRL in
its state of incorporation, issued by the appropriate authorities of
such jurisdictions;
(f) OPINIONS OF COUNSEL FOR BORROWER. Favorable opinions of
Latham & Watkins and John Novatney, counsel for Borrower and the
Borrower Subsidiaries, in substantially the form of EXHIBIT D and as to
such other matters as Lender may reasonably request;
(g) PURCHASE AGREEMENT. The Purchase Agreement shall be in
full force and effect;
(h) REPAYMENT AND TERMINATION OF HUNTINGTON BANK LOANS. Lender
shall have received a pay-off letter in form and substance satisfactory
to it from Huntington Bank confirming that all amounts outstanding with
respect to its loans to Borrower have been or on the Closing Date will
be paid in full and all commitments to make additional loans or
financial accommodations to Borrower shall have been terminated, [and
evidence satisfactory to Lender that all liens securing Borrower's
obligations to Huntington Bank shall have been or on the Closing Date
will be released;
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(i) PAYMENT OF FEES AND EXPENSES. Executed direction letter of
Borrower to Lender directing Lender to pay the fees and expenses
provided for herein from the proceeds of the Loan;
(j) CONSENTS. Certified copies of each material consent,
license and approval (including, without limitation, any insurance
commission approvals) required in connection with the execution,
delivery, performance, validity and enforceability of this Agreement
and the Related Documents; such consents, licenses and approvals shall
be in full force and effect, shall be satisfactory in form and
substance to Lender and shall be all of the material consents required
to be obtained or made on or before the consummation of the financing
contemplated by this Agreement;
(k) A certificate of an Authorized Officer of Borrower that
(a) there are no material insurance regulatory proceedings pending or
threatened against any Borrower Insurance Subsidiary and (b) as to the
matters set forth in SECTION 8.2(A);
(l) REMOVAL AND APPOINTMENT OF DIRECTORS. Evidence
satisfactory to Lender that Borrower shall have received the
resignation of three (3) of its directors and duly elected three (3)
persons nominated by Lender to serve on the board of directors of
Borrower;
(m) SCHEDULES AND EXHIBITS. Schedules and Exhibits
satisfactory to Lender;
(n) REINSURANCE AGREEMENT. Evidence satisfactory to Lender
that CRL and Reassurance Company of Hannover shall have entered into a
Reinsurance Agreement on terms satisfactory to Lender by which CRL will
transfer or cede at least $10,000,000 of liability;
(o) NAUERT WARRANT. Borrower shall have executed and delivered
to Peter Nauert and his designees shall have received a warrant,
substantially in the form of Exhibit A to the Purchase Agreement,
entitling Mr. Nauert and such designees to purchase (in the aggregate)
800,000 shares of Borrower's common stock at an exercise price of $6.00
per share;
(p) CONTRACT MODIFICATIONS. Evidence satisfactory to Lender
that (i) the employee contract modifications set forth in the
Integration Agreement shall have been completed and
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(ii) Borrower has complied with Section 9.2 of the Purchase Agreement;
(q) ANB FINANCING. Lender and ANB shall have entered into the
ANB Credit Agreement and Lender shall be permitted to borrow at least
$20,000,000 thereunder;
(r) Lender shall have received such other approvals, opinions,
or documents as Lender may reasonably request.
SECTION 8.2 ADDITIONAL DELIVERIES. The obligation of Lender
to make the Loan shall be subject to the further conditions precedent that on
the date of such Loan:
(a) The following statements shall be true and correct and
Lender shall have received a certificate signed by an Authorized
Officer of Borrower dated the date of the Loan, stating that:
(i) The representations and warranties contained in
SECTION 7 of this Agreement and ARTICLE IV of the Purchase
Agreement are true and correct on and as of the date of such
Loan as though made on and as of such date; and
(ii) No Default or Event of Default has occurred and
is continuing, or would result from the borrowing of such
Loan;
(b) Lender shall have received such other approvals, opinions,
or documents as Lender may reasonably request.
SECTION IX COVENANTS AND OTHER AGREEMENTS
-------------------------------
SECTION 9.1 AFFIRMATIVE COVENANTS. Borrower agrees that, on
and after the Closing Date until the termination or expiration of the Commitment
and for so long thereafter as any of the Liabilities remain unpaid or
outstanding, Borrower will, except as permitted by the Purchase Agreement:
(a) INSURANCE. Maintain with responsible insurance companies,
insurance with respect to its properties and business against such
casualties and contingencies and of such types and in such amounts as
is customary in the case of similar businesses.
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(b) TAXES AND LIABILITIES.
(i) Pay, and cause each Borrower Subsidiary to pay, when due
all of their respective Taxes and other material liabilities, except as
contested in good faith and by appropriate proceedings with respect to
which reserves have been established, and are being maintained, in
accordance with GAAP; and
(ii) cause each Borrower Insurance Subsidiary to continue to
qualify as life insurance companies under Section 816 of the Code;
. (c) BOOKS, RECORDS AND INSPECTIONS
(i) Maintain, and cause each Borrower Subsidiary to maintain,
books and records which are complete and correct in all material
respects;
(ii) permit, and cause each of Borrower Subsidiary to permit,
access at reasonable times by Lender to its books and records;
(iii) permit, and cause each Borrower Subsidiary to permit,
Lender to inspect at reasonable times its properties and operations;
and
(iv) permit, and cause each Borrower Subsidiary to permit,
Lender to discuss its business, operations and financial condition with
its directors, officers and accounts.
(d) PENSION PLANS AND WELFARE PLANS. Except as otherwise
required by the Purchase Agreement, maintain, and cause each Borrower
Subsidiary to maintain, each Pension Plan and Welfare Plan sponsored by
it or any Borrower Subsidiary as to which it may have any liability, in
compliance in all material respects with all applicable requirements of
law.
(e) COMPLIANCE WITH LAWS. Comply, and cause each Borrower
Subsidiary to comply in all material respects, with all federal, state
and local laws, rules and regulations related to its businesses
including, without limitation, the various Applicable Insurance Codes.
(f) MAINTENANCE OF PERMITS. Maintain, and cause each Borrower
Subsidiary to maintain, all permits, licenses and consents as may be
required for the conduct of its business by any state, federal or local
government agency or instrumentality including, without limitation, the
insurance
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licenses, except where such failure to maintain could not reasonably be
expected to have a Company Material Adverse Effect.
(g) ENVIRONMENTAL COMPLIANCE. Maintain, and cause each
Borrower Subsidiary to maintain, (a) all necessary permits, approvals,
certificates, licenses and other authorizations relating to
environmental matters in effect and use and operate all of its
facilities and properties in compliance with all Environmental Laws,
and (b) appropriate procedures for the handling of all hazardous
materials in material compliance with all applicable Environmental
Laws, and comply with such procedures at all times;
(h) INSURANCE HOLDING COMPANY FILINGS. Provide Lender with
copies of all material Insurance Holding Company System Act filings
with Governmental Authorities by Borrower or any Borrower Subsidiary
not later than five (5) Business Days after such filings are made,
including, without limitation, filings which seek approval of
Governmental Authorities with respect to transactions between Borrower
and its Affiliates to the extent permitted hereunder;
(i) INSURANCE LICENSES. Within five (5) Business Days of its
receipt of notice, give Lender written notice of actual suspension,
termination or revocation of any insurance license or restriction
thereon (material to the Borrower Insurance Subsidiaries taken as a
whole) of any of Borrower Insurance Subsidiaries by any Governmental
Authority or of receipt of notice from any Governmental Authority
notifying any Borrower Insurance Subsidiary of a hearing (which is not
withdrawn within ten (10) days) relating to such a suspension,
termination, revocation or restriction, including any request by a
Governmental Authority which commits any Borrower Insurance Subsidiary
to take, or refrain from taking, any action or which otherwise
materially and adversely affects the authority of any such Borrower
Insurance Subsidiary to conduct its business;
(j) INSURANCE PROCEEDINGS. Within three (3) Business Days of
its receipt of such notice, give the Lender written notice of any
pending or threatened investigation or regulatory proceeding by any
Governmental Authority concerning the business, practices or operations
of any Borrower Insurance Subsidiary, including any agent or managing
general
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agent thereof which could have a Company Material Adverse Effect;
(k) CHANGES IN APPLICABLE INSURANCE CODE. Promptly, upon
knowledge of Borrower, give Lender written notice of any actual or
proposed material changes in any Applicable Insurance Code which could
have a Company Material Adverse Effect;
(l) REINSURANCE AGREEMENTS.
(i) Promptly give Lender written notice of any material change
or modification to any Reinsurance Agreements or Surplus Relief
Reinsurance Agreements whether entered into before or, if consented to
by Lender, after the Closing Date including Reinsurance Agreements, if
any, which are in a runoff mode on the Closing Date;
(ii) promptly give Lender written notice of any notice
received by any Borrower Insurance Subsidiary of any material denial of
coverage, litigation or arbitration arising out of any material Surplus
Relief Reinsurance Agreement or any material Reinsurance Agreement to
which any Borrower Insurance Subsidiary is a party; and
(iii) promptly give Lender such other financial, actuarial and
other information with respect to Surplus Relief Reinsurance Agreements
and Reinsurance Agreements as Borrower may reasonably request;
(m) ACTUARIAL IMPLEMENTATION. Within 30 days of the Closing
Date, fully implement (i) the actuarial recommendations previously
submitted to Borrower by Milliman & Robertson including, without
limitation, rating actions and pricing adjustments on new products and
(ii) a surcharge on business currently underwritten at a loss as
previously recommended by Milliman & Robertson;
(n) TAX FILINGS; PAYMENT OF TAXES. At the time of filing
thereof, copies of all tax returns hereafter filed with any
Governmental Authority;
(o) REPORTS TO OTHER CREDITORS. Promptly after the furnishing
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to Lender pursuant
to any other clause of this SECTION 9;
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(p) BUSINESS PLAN. Commence implementation of the business
plan attached hereto as EXHIBIT E (the "Business Plan") in accordance
with the timelines provided therein. Borrower shall provide Lender with
such information regarding the progress of any of the foregoing upon
its request;
(q) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notify Lender of all actions, suits, and proceedings before
any court or governmental department, commission, board, bureau,
agency, or instrumentality, domestic or foreign, to which Borrower or
any Borrower Subsidiary is a party, which, if determined adversely to
Borrower or such Borrower Subsidiary, could have a Company Material
Adverse Effect;
(r) NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. As soon as
possible and in any event within five (5) days after the occurrence of
each Default or Event of Default, a written notice setting forth the
details of such Default or Event of Default and the action which is
proposed to be taken by Borrower with respect thereto;
(s) ISSUANCE OF ADDITIONAL WARRANTS AND APPROVAL. As promptly
as practicable after the date of this Agreement, the Borrower shall
prepare and file with Commission a proxy statement (which may be the
Proxy Statement) relating to a meeting of the Company's stockholders to
be held in connection with the issuance of additional warrants,
substantially in the form of Exhibit A to the Purchase Agreement, to
Peter Nauert and his designees entitling Mr. Nauert and such designees
to purchase (in the aggregate) 200,000 shares of Borrower's common
stock at an exercise price of $6.00 per share. Such proxy statement
shall include the recommendation of the board of directors of the
Borrower approving such issuance. In the event that the Borrower's
shareholders do not approve the issuance of such warrant, as promptly
as practicable after such shareholder vote, the Borrower agrees to
solicit an appropriate waiver from the Nasdaq National Market System to
permit the issuance of such warrants;
(t) GENERAL INFORMATION. Such other information respecting the
condition or operations, financial or otherwise, of Borrower or any
Borrower Subsidiary as Lender may from time to time reasonably request
including, without limitation, policy loss rates, claims information
(including inventories and other statistical information), new business
placement rates and other operating statistics.
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SECTION 9.2 NEGATIVE COVENANTS. Except as set forth in the
last sentence hereof, Borrower agrees that, on and after the Effective Date
until the termination or expiration of the Commitment and for so long thereafter
as any of the Liabilities remain unpaid or outstanding, Borrower will:
(a) DEBT. Not, and not permit any Borrower Subsidiary to,
incur or at any time be liable with respect to any indebtedness
(contingent or otherwise);
(b) LIENS. Not, and not permit any Borrower Subsidiary to,
create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except for Permitted Encumbrances;
(c) TRANSACTIONS WITH AFFILIATES. Not, and not permit any
Borrower Subsidiary to, enter into, or cause, suffer or permit to exist
any arrangement, Reinsurance Agreement, Surplus Relief Reinsurance
Agreement or contract with any of its Affiliates.
(d) BUSINESS ACTIVITIES. Not, and not permit any Borrower
Subsidiary to, fundamentally change the type of business in which it is
engaged as of the Closing Date;
(e) INVESTMENTS. Not, and not permit any Borrower Subsidiary
to, make any investment (whether by means of share purchase, capital
contribution, loan, time deposit or otherwise) in any Real Estate or
real estate business or related Person, except for the Real Estate
representing Borrower's home office located at 17800 Royalton Road,
Strongsville, Ohio 44136, and no investments in any debt or equity
securities which are rated below investment-grade by Standard and
Poor's Rating Agency or Moody's Investors Service, Inc. or any
successor thereto; and
(f) INCORPORATION BY REFERENCE. Comply with the covenants and
other agreements set forth in Article VI and Article VII of the
Purchase Agreement and the terms and provisions set forth therein shall
be incorporated by reference in this Agreement in their entirety as if
fully set forth herein with the same effect as if applied to this
Agreement. All capitalized terms set forth in Article VI and Article
VII of the Purchase Agreement shall have the same meanings when used in
this Agreement; PROVIDED that for purposes of this Agreement, to the
extent set forth in the Purchase Agreement, (a) the term "Company"
shall be deemed to refer to Borrower under this Agreement, (b) the term
"Company Subsidiaries" shall be deemed to refer to Borrower
Subsidiaries under this Agreement, (c) the term "Company Insurance
Subsidiary" shall be deemed to refer to Borrower Insurance Subsidiary
under this Agreement, (d) the term "Purchaser" shall be deemed to refer
to Lender under this Agreement, (e) the term "Agreement" shall be
deemed to refer to this Agreement, and (f) the term
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"Closing Date" shall be deemed to refer to the Closing Date as
defined in this Agreement.
Notwithstanding the foregoing to the contrary, nothing contained in
this SECTION 9.2 shall prohibit any act or omission of Borrower which would be
allowed by the terms of the Purchase Agreement or required to implement the
Business Plan.
SECTION X EVENTS OF DEFAULT
---------------------------
SECTION 10.1 EVENTS OF DEFAULT. If any of the following events
("Events of Default") shall occur:
(a) Borrower shall fail to pay the principal of, or interest
on, the Note or any of the other Liabilities as and when due and
payable;
(b) Any representation or warranty made or deemed made by
Borrower or any Borrower Subsidiary in this Agreement or any Related
Document or which is contained in any certificate, document, opinion,
or financial or other statement furnished at any time under or in
connection with this Agreement or any Related Document shall prove to
have been incorrect in any material respect on the date originally
made;
(c) Default in the payment when due (subject to any applicable
grace period), whether by acceleration or otherwise, of any
indebtedness of Borrower or any Borrower Subsidiary in an amount in
excess of $100,000; or default in the performance or observance of any
obligation or condition with respect to any such indebtedness if the
effect of such default is to accelerate or could result in the
acceleration of the maturity of any such indebtedness or to permit the
holder or holders thereof, or any trustee or agent for such holders, to
cause such indebtedness to become due and payable prior to its
expressed maturity.
(d) Borrower shall fail to perform or observe in any material
respect any term, covenant or agreement contained in SECTIONS
9.2(A)-(E) of this Agreement;
(e) Borrower or any Borrower Subsidiary shall fail to perform
or observe any other term, covenant, or agreement contained in this
Agreement or any Related Document (other than the Note and those
Sections referenced in the foregoing CLAUSE (C)) to which it is a party
on its part to be performed or observed, which failure is not cured
within ten (10) days after notice thereof by Lender to Borrower;
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(f) Borrower or any Borrower Subsidiary (i) shall generally
not, or shall be unable to, or shall admit in writing its inability to
pay its debts as such debts become due; or (ii) shall make an
assignment for the benefits of creditors, petition or apply to any
tribunal for the appointment of a custodian, receiver, or trustee for
it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangements,
readjustment of debt, dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
any such petition or application filed or any such proceeding commenced
against it in which an order for relief is entered or adjudication or
appointment is made and which remains undismissed for a period of
thirty (30) days or more; or (v) by any act or omission shall indicate
its consent to, approval of, or acquiescence in any such petition,
application, or proceeding, or order for relief, or the appointment of
a custodian, receiver, or trustee for all or any substantial part of
its properties; or (vi) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of
thirty (30) days or more;
(g) This Agreement or any Related Document, as the case may
be, shall at any time after their execution and delivery for any reason
cease: (i) to create a valid and perfected first priority security
interest in and to the Collateral covered thereby or (ii) to be in full
force and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by Borrower or any Borrower
Subsidiary, or Borrower or any Borrower Subsidiary shall deny it has
any further liability or obligation under or shall fail to perform any
of its obligations under any of the foregoing in any material respect;
(h) One or more final judgments or decrees shall be entered
against Borrower or any Borrower Subsidiary involving, individually or
in the aggregate, a liability
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(other than a liability of a Borrower Insurance Subsidiary in
the ordinary course of business) of $100,000 or more, and all
such judgments or decrees shall not have been vacated,
satisfied, discharged or stayed or bonded pending appeal
within ten (10) consecutive days from the entry thereof.
SECTION 10.2 REMEDIES. If any Event of Default described in
SECTION 10(F) shall occur and be continuing, the Commitment shall immediately
terminate (if it has not theretofore terminated) and all Liabilities of Borrower
shall become immediately due and payable, all without presentment, demand,
protest or notice of any kind; and, in the case of any other Event of Default,
Lender may declare the Commitment to be terminated (if it has not theretofore
terminated) and all Liabilities with respect to Borrower to be due and payable,
whereupon the Commitment shall immediately terminate (if it has not theretofore
terminated) and all Liabilities with respect to Borrower shall become
immediately due and payable, all without presentment, demand, protest or notice
of any kind. Lender shall promptly advise Borrower of any such declaration, but
failure to do so shall not impair the effect of such declaration.
SECTION XI MISCELLANEOUS
------------------------
SECTION 11.1 AMENDMENTS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement or any Related
Document to which Borrower is a party, nor consent to any departure by Borrower
from this Agreement or any Related Document to which it is a party, shall in any
event be effective unless the same shall be in writing and signed by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 11.2 NOTICES, ETC. All notices and other
communications provided for under this Agreement and under the other Related
Documents to which Borrower is a party shall be in writing (including
telegraphic or facsimile communication) and mailed or telecommunicated or
delivered, if to Borrower or Lender at the addresses set forth in the Purchase
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party complying as to delivery with
the terms of this SECTION 11.2. All such notices and communications shall, when
mailed or telecommunicated, be effective when deposited in the mails,
transmitted by facsimile or delivered to the telegraph company, respectively,
addressed as aforesaid, except that notices to Lender pursuant to the
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<PAGE> 28
provisions of SECTION 2 shall not be effective until received by Lender.
SECTION 11.3 NO WAIVER; REMEDIES. No failure on the part of
Lender to exercise, and no delay in exercising, any right, power, or remedy
under this Agreement or any Related Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any right under this Agreement or
any Related Document preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided in the this Agreement and the
Related Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 11.4 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights under this Agreement or any Related Document to which
Borrower is a party without the prior written consent of Lender.
SECTION 11.5 COSTS, EXPENSES, AND TAXES. Borrower agrees to
pay on demand all reasonable costs and expenses in connection with the
preparation, execution, delivery, filing, recording, and administration of any
of this Agreement, the Related Documents and the ANB Credit Agreement and the
documents and instruments executed and delivered in connection therewith,
including, without limitation, the reasonable fees and expenses of counsel for
Lender and ANB, and local counsel who may be retained by said counsel, with
respect thereto and with respect to advising Lender and ANB as to its rights and
responsibilities under this Agreement, any of the Related Documents, or the ANB
Credit Agreement, as the case may be, and all costs and expenses, if any, in
connection with the enforcement of this Agreement or any of the Related
Documents. In addition, Borrower shall pay any and all stamp and other taxes and
fees payable or determined to be payable in connection with the execution,
delivery, filing, and recording of this Agreement, any of the Related Documents,
the ANB Credit Agreement and the other documents to be delivered under this
Agreement, any Related Document or the ANB Credit Agreement, and agrees to save
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
Notwithstanding anything contained in the foregoing to the contrary, Borrower
shall not be responsible or liable for the payment of (a) any cost or expenses
of Borrower under the ANB Credit Agreement (but only as amended or modified with
the consent of the Borrower, which consent shall not be unreasonably withheld or
delayed) resulting from any event of default of Lender thereunder unless such
event of default results from or arises out of Borrower's Default under this
Agreement or (b) the commitment fee payable by Lender to ANB under the ANB
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<PAGE> 29
Credit Agreement; provided that Borrower has paid all fees and expenses then due
and payable under this Agreement (including, without limitation, under SECTION
4.4).
SECTION 11.6 RIGHT OF SETOFF. Upon the occurrence of any Event
of Default, Lender is hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by Borrower),
to set off and apply any and all amounts at any time held and other indebtedness
at any time owing by Lender to or for the credit or the account of Borrower
against any and all of the obligations of Borrower now or hereafter existing
under this Agreement, the Note or any other Related Document, irrespective of
whether or not Lender shall have made any demand under this Agreement, the Note
or such other Related Document and although such obligations may be unmatured.
Lender agrees promptly to notify Borrower after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of Lender under this SECTION 11.6 are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Lender may have.
SECTION 11.7 GOVERNING LAW. This Agreement, the Note and
the other Related Documents shall be governed by, and construed in accordance
with, the laws of the State of Illinois (without giving effect to any conflict
of law principles).
SECTION 11.8 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or any Related Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Related Document or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 11.9 HEADINGS. Section headings in this Agreement and
the Related Documents are included in this Agreement and such Related Documents
for the convenience of reference only and shall not constitute a part of this
Agreement or the applicable Related Documents for any other purpose.
SECTION 11.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE;
SERVICE OF PROCESS. Borrower, on behalf of itself and each Borrower Subsidiary
(a) hereby irrevocably submits to the jurisdiction of any Illinois State or
Federal court sitting in Chicago, Illinois over any action or proceeding arising
out of or relating to this Agreement or the Related Documents, and Borrower
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such Illinois State or Federal court
and (b) agrees not to institute any legal
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<PAGE> 30
action or proceeding against Lender or the directors, officers, employees,
agents or property of any thereof, arising out of or relating to this Agreement,
in any court other than as hereinabove specified in this SECTION 11.10.
Borrower, on behalf of itself and each Borrower Subsidiary, hereby irrevocably
waives, to the fullest extent permitted by law, any objection it may now or
hereafter have to the laying of venue in any action or proceeding (whether
brought by Borrower, any Borrower Subsidiary, Lender or otherwise) in any court
hereinabove specified in this SECTION 11.10 as well as any right it may now or
hereafter have, to remove any such action or proceeding, once commenced, to
another court on the grounds of FORUM NON CONVENIENS or otherwise. Borrower on
behalf of itself and each Borrower Subsidiary agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
SECTION 11.11 WAIVER OF JURY TRIAL. BORROWER AND LENDER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT, ANY RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL
INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
--------------------------------
Name: Frank W. Grimone
------------------------------
Title: CFO
-----------------------------
STRATEGIC ACQUISITION PARTNERS, LLC
By: /s/ Val Rajic
-------------------------------
Name: Val Rajic
-----------------------------
Title: Manager
----------------------------
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<PAGE> 1
Exhibit 10.2
================================================================================
PLEDGE AGREEMENT
dated as of December 16, 1997
between
CENTRAL RESERVE LIFE CORPORATION
and
STRATEGIC ACQUISITION PARTNERS, LLC
================================================================================
<PAGE> 2
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of December
16, 1997, is made between CENTRAL RESERVE LIFE CORPORATION, an Ohio corporation
(herein, called the "Pledgor"), and STRATEGIC ACQUISITION PARTNERS, LLC, a
Nevada limited liability company (herein, called the "Lender"). This is the
Pledge Agreement referred to in that certain Credit Agreement (as from time to
time, in whole or in part, amended, modified, supplemented, restated,
refinanced, refunded or renewed, the "Credit Agreement"), dated as of December
16, 1997 between Pledgor and Lender.
WHEREAS, as security for the Loan and as a condition precedent
to the making thereof, Lender has required that the Pledgor execute and deliver
this Agreement.
NOW, THEREFORE, in consideration of any Loan or other
financial accommodation heretofore or hereafter at any time made or granted by
Lender to the Pledgor and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Pledgor agrees with Lender
that:
SECTION 1 DEFINITIONS. Capitalized terms used herein, unless
otherwise specified, shall have the meanings assigned thereto in the Credit
Agreement; PROVIDED that such definitions shall survive any termination of the
Credit Agreement. In addition, when used herein the following terms shall have
the following meanings:
"Collateral" see SECTION 2.
"Permitted Actions" see SECTION 5(B).
"Pledged Shares" see SECTION 2.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of Illinois.
SECTION 2 PLEDGE. To secure the prompt and complete payment
and performance of the Liabilities, the Pledgor hereby pledges, hypothecates,
assigns, transfers, sets over and delivers unto Lender and hereby grants to
Lender a continuing security interest in the following (herein collectively
called the "Collateral"):
(a) the shares of stock of CRL described in ATTACHMENT 1
hereto (herein called the "Pledged Shares") and the certificates
representing or evidencing the
<PAGE> 3
Pledged Shares, and all cash, securities, interests, dividends, rights,
notes, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of such Pledged Shares;
(b) all additional shares of stock of CRL from time to time
acquired by the Pledgor in any manner (which additional shares of stock
shall constitute a part of, and be, "Pledged Shares") and the
certificates representing or evidencing such additional shares, and all
cash, securities, interest, dividends, rights, notes, instruments and
other property at any time and from time to time received, receivable
or otherwise distributed in respect of or in exchange for any and all
of such additional shares;
(c) all other property hereafter delivered to Lender in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such other
property and all cash, securities, interest, dividends, rights and
other property at any time and from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all
thereof;
(d) the surplus note in respect of indebtedness to the Pledgor
issued by CRL and listed in ATTACHMENT 2 hereto (herein called the
"Pledged Surplus Note") and all cash, securities, interests, rights,
notes, instruments and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Surplus Note;
(e) all additional surplus notes acquired by the Pledgor in
any manner and issued by CRL (which additional surplus debentures shall
constitute a part of, and each being a, "Pledged Surplus Note"), and
all cash, securities, interests, rights, notes, instruments and other
property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any and all of
the additional surplus notes; and
(f) all proceeds, rents, issues, profits and returns of and
from all of the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests,
privileges and preferences appertaining or
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<PAGE> 4
incidental thereto, unto Lender, its successors and assigns, forever; SUBJECT,
HOWEVER, to the terms, covenants and conditions hereafter set forth.
The Pledgor agrees to deliver to Lender, promptly upon receipt
and in the case of the Pledged Shares in due form for transfer (i.e., endorsed
in blank accompanied by stock or bond powers executed in blank or registered on
the books of CRL) and, subject to the provisions of SECTION 6 hereof, any
Collateral which may at any time or from time to time be in or come into
possession or control of the Pledgor; and prior to the delivery thereof to
Lender, such Collateral shall be held by the Pledgor separate and apart from its
other property and in express trust for Lender.
SECTION 3 REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) The Pledgor represents and warrants to Lender that: (i)
the Pledged Shares are duly authorized and validly issued and are fully paid and
non-assessable; (ii) except for liens, claims and rights of third parties
arising solely through acts of Lender, Lender has and, assuming Lender or its
agent retains continuous possession of the Collateral, will continue to have at
all times as security for the Liabilities a valid, first priority perfected
security interest in the Collateral and the proceeds thereof free of all Liens
(except for Permitted Encumbrances), claims and rights of third parties
whatsoever; (iii) to the extent any Collateral is evidenced by certificates, the
Pledgor has delivered to Lender for pledge under this Agreement on the date
hereof the certificates representing all the Collateral which it owns; and (iv)
the Pledged Shares represent all of the issued and outstanding capital stock of
CRL. The Pledgor agrees to endorse and deliver to Lender for pledge hereunder,
promptly upon its obtaining thereof, any additional Collateral and to hold such
Collateral, pending such delivery, in trust for Lender, separate and distinct
from any other property of the Pledgor. As of the date of any such delivery of
additional shares, surplus notes, certificates or instruments to Lender, the
Pledgor represents and warrants that (1) it will own such shares, surplus notes,
certificates and instruments free and clear of any rights of any other Person
(other than the rights created in Lender hereunder), (2) it will have good and
marketable title to said shares, surplus notes, certificates and instruments and
have the right to pledge such shares, surplus notes, certificates or instruments
to Lender pursuant to this Agreement and (3) it will have pledged to Lender, as
at such date, all of the capital stock and surplus notes of CRL. The Pledgor
shall have represented and warranted by delivery of any additional shares,
surplus notes, certificates or instruments, that at the time of such delivery
Lender has a valid, first priority perfected security interest in said shares,
surplus notes, certificates or instruments and the proceeds thereof free of all
liens, claims and rights of
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<PAGE> 5
third parties whatsoever. All documentary, stamp or other taxes or fees owing in
connection with the issuance, transfer and/or pledge of the Pledged Shares,
Pledged Surplus Note and other certificates or instruments have been paid and
will hereafter be paid by the Pledgor as such become due and payable.
(b) The Pledgor further represents and warrants to Lender that
it is the lawful owner of the Collateral, free of all Liens, other than the Lien
granted hereunder and Permitted Encumbrances and security interest hereunder,
with full right to deliver, pledge, assign and transfer such Collateral to
Lender as Collateral hereunder. The pledge of the Collateral effected by this
Agreement is effective to vest in Lender the rights of Lender in the Collateral
set forth herein.
(c) The Pledged Surplus Note constitutes all or will
constitute all of the surplus notes issued by CRL and held by the Pledgor which
are required to be pledged hereunder by the terms of the Credit Agreement.
(d) The Pledgor additionally represents and warrants to Lender
that (i) each of the Pledgor and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (ii) the execution and delivery of this Agreement and the
performance by the Pledgor of its obligations hereunder are within its corporate
powers, have been duly authorized by all necessary corporate action (including,
without limitation, shareholder approval if required), (iii) each of the Pledgor
and its Subsidiaries has received all governmental consents and approvals (if
any shall be required) necessary for such execution, delivery and performance
(except governmental consents required by any Applicable Insurance Code to
foreclose on the Pledged Shares or Pledged Surplus Note), and such execution,
delivery and performance do not and will not contravene or conflict with, result
in any breach of, or constitute a default under, any material agreement or
instrument binding on it or result in the creation or imposition of or the
obligation to create or impose any Lien (except for Permitted Encumbrances) and
(iv) this Agreement is the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except to the
extent such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
the enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity (including, without limitation, good faith, materiality and
reasonableness) or at law).
(e) The Pledgor additionally covenants and agrees with Lender
that, so long as any of the Liabilities remain outstanding,
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<PAGE> 6
the Pledgor will, unless Lender shall otherwise consent in writing:
(i) at the Pledgor's sole expense, promptly deliver to Lender,
from time to time upon request of Lender, such stock powers and other
documents, satisfactory in form and substance to Lender, with respect
to the Collateral as Lender may reasonably request, to preserve and
protect, and to enable Lender to enforce, its rights and remedies
hereunder;
(ii) except as otherwise may be permitted by the Credit
Agreement, not sell, assign, exchange, pledge or otherwise dispose or
transfer any of its rights to any of the Collateral;
(iii) except as otherwise may be permitted by the Credit
Agreement, not create or suffer to exist any Lien in or with respect to
any of the Collateral except for the pledge hereunder and the Lien and
security interest created hereby;
(iv) except as otherwise may be permitted by the Credit
Agreement, not make or consent to any amendment or other modification
or waiver with respect to any of the Collateral, or enter into any
agreement or permit to exist any restriction with respect to any of the
Collateral other than pursuant hereto; and
(v) except as otherwise may be permitted by the Credit
Agreement, not take or fail to take any action which would in any
manner impair the enforceability of Lender's lien on and security
interest in any of the Collateral.
(f) The information contained in ATTACHMENTS 1 and 2 is true
and accurate in all respects.
SECTION 4 CARE OF COLLATERAL. Lender shall exercise reasonable
care in the custody and preservation of the Collateral. In addition, Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if it takes such action for that purpose as the
Pledgor requests in writing, but failure of Lender to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care, and
no failure of Lender to preserve or protect any rights with respect to the
Collateral against prior or other parties, or to do any act with respect to
preservation of the Collateral not so requested by the Pledgor, shall be deemed
a failure to exercise reasonable care in the custody or preservation of the
Collateral.
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<PAGE> 7
SECTION 5 CERTAIN RIGHTS REGARDING COLLATERAL AND LIABILITIES.
(a) Subject to SECTIONS 5(c) and 6 hereof, Lender may, from
time to time, after the occurrence and during the continuance of a Default
pursuant to SECTION 10.1(f) of the Credit Agreement or an Event of Default,
without notice to the Pledgor, (i) transfer all or any part of the Collateral
into the name of Lender or its nominee or sub-agent, with or without disclosing
that such Collateral is subject to the Lien and security interest hereunder,
(ii) notify any Person obligated on any of the Collateral to make payment to
Lender of any amounts due or to become due thereunder, and (iii) enforce
collection of any of the Collateral by suit or otherwise.
(b) If at any time Lender takes any or all of the Permitted
Actions (as hereinafter defined) whether such actions are taken before or after
any of the Liabilities shall be due and payable and without notice to the
Pledgor, such actions shall not affect the enforceability of this Agreement.
Lender shall have taken a "Permitted Action" if it shall (i) retain or obtain a
Lien upon or a security interest in, any property to secure payment and
performance of any of the Liabilities or any obligation hereunder, (ii) retain,
obtain or release the primary or secondary obligation of any Person, in addition
to the Borrower with respect to one or more of the Liabilities, (iii) create,
extend or renew for any periods (whether or not longer than the original period)
or alter or exchange any of the Liabilities, or release or compromise any
obligation of any nature of any Person with respect to any of the Liabilities
hereunder, (iv) release or fail to perfect its Lien upon or security interest
in, or impair, surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities or any
obligation hereunder, or create, extend or renew for one or more periods
(whether or not longer than the original period) or release, compromise, alter
or exchange any obligations of any nature of any Person with respect to any such
property or (v) resort to the Collateral for payment of any of the Liabilities
whether or not Lender (1) shall have resorted to any other property securing any
of the Liabilities or any obligation hereunder or (2) shall have proceeded
against any Person primarily or secondarily obligated with respect to any of the
Liabilities (all of the actions referred to in preceding CLAUSES (1) and (2)
being hereby expressly waived by the Pledgor).
(c) Lender shall have no right to vote the Pledged Shares or
other Collateral or give consents, waivers or ratifications in respect thereof
prior to the occurrence and during the continuance of a Default pursuant to
SECTION 10.1(f) of the Credit Agreement or an Event of Default. After the
occurrence and
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<PAGE> 8
during the continuance of a Default pursuant to SECTION 10.1(f) of the Credit
Agreement or an Event of Default, the Pledgor shall have the right to vote any
and all of the Pledged Shares and other Collateral and give consents, waivers
and ratifications in respect thereof unless and until it receives notice from
Lender that such right has been terminated. The Pledgor agrees to deliver
(properly endorsed when required) to Lender, after a Default pursuant to SECTION
10.1(f) of the Credit Agreement or an Event of Default shall have occurred and
shall be continuing, promptly upon request of Lender, such proxies and other
documents as may be necessary for Lender to exercise the voting power with
respect to the Pledged Shares and other Collateral then or previously owned by
the Pledgor.
SECTION 6 DIVIDENDS, ETC.
(a) So long as no Default pursuant to SECTION 10.1(f) of the
Credit Agreement or an Event of Default shall have occurred and shall be
continuing:
(i) Subject to the provisions of the Credit Agreement and
notwithstanding the provisions of PARAGRAPH 2(a) of this Agreement, the
Pledgor shall be entitled to receive any and all cash dividends and
payments on the Collateral which it is otherwise entitled to receive,
but any and all securities and/or liquidating dividends, payments,
distributions in property, returns of capital made on or in respect of
the Collateral, whether resulting from a subdivision, combination,
reclassification or conversion of the outstanding capital stock of CRL,
or received in exchange for the Collateral or any part thereof, or as a
result of any merger, consolidation, acquisition or other exchange of
assets to which CRL may be a party or otherwise, and any and all cash
and other property received in exchange for any Collateral shall be and
become part of the Collateral pledged hereunder and, if received by the
Pledgor, shall forthwith be delivered to Lender or its designated
nominee (accompanied, if appropriate, by proper instruments of
assignment and/or stock powers executed by the Pledgor in accordance
with Lender's instructions) to be held subject to the terms of this
Agreement.
(ii) If the Collateral or any part thereof shall have been
registered in the name of Lender or its sub-agent, Lender shall execute
and deliver (or cause to be executed and delivered) to the Pledgor all
such dividend orders and other instruments as the Pledgor may request
for the purpose of enabling the Pledgor to
-7-
<PAGE> 9
receive the dividends or other payments which it is authorized to
receive and retain pursuant to SECTION 6(a)(i) above.
(b) Upon the occurrence and during the continuance of a
Default pursuant to SECTION 10.1(f) of the Credit Agreement or an Event of
Default, all rights of the Pledgor pursuant to SECTION 6(a)(i) hereof shall
cease and Lender shall have the sole and exclusive right and authority to
receive and retain the dividends and other payments of the Collateral which the
Pledgor would otherwise be authorized to retain. All such dividends, payments,
and all other distributions made on or in respect of the Collateral which may at
any time and from time to time be held by the Pledgor, shall, until delivery to
Lender, be held by the Pledgor separate and apart from its other property in
trust for Lender. Any and all money and other property paid over to or received
by Lender pursuant to the provisions of this PARAGRAPH (b) shall be retained by
Lender as additional Collateral hereunder and be applied in accordance with the
provisions hereof.
SECTION 7 DEFAULT.
(a) Upon the occurrence and during the continuance of a
Default pursuant to SECTION 10.1(f) of the Credit Agreement or an Event of
Default, Lender may exercise from time to time any rights and remedies available
to it under the Credit Agreement, the Uniform Commercial Code as in effect from
time to time in the State of Illinois, or the Related Documents or otherwise
available to it, including, without limitation, sale, assignment, or other
disposal of the Collateral in exchange for cash or credit. If any notification
of intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
to the Pledgor at least five (5) days before such disposition as provided in
SECTION 11.2(f) of the Credit Agreement, with copies sent on the same date to
Mark Gerstein by facsimile c/o Latham & Watkins at (312) 993-9767 and the
General Counsel of Borrower at the address of Borrower set forth in the Purchase
Agreement. Any proceeds of any disposition of Collateral shall be applied as
provided in SECTION 8 hereof. No rights and remedies of Lender expressed
hereunder are intended to be exclusive of any other right or remedy, but every
such right or remedy shall be cumulative and shall be in addition to all other
rights and remedies herein conferred, or conferred upon Lender under any other
agreement or instrument relating to any of the Liabilities or security therefor
or now or hereafter existing at law or in equity or by statute. No delay on the
part of Lender in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by Lender of any right or remedy
shall preclude other or further exercise thereof or the exercise of any other
right or remedy.
-8-
<PAGE> 10
(b)(i) The Pledgor agrees that in any sale of any of the
Collateral, Lender is authorized to comply with any limitation or restriction in
connection with such sale as counsel may advise Lender is necessary in order to
avoid any violation of applicable law (including, without limitation, compliance
with such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Pledgor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Lender be liable or accountable to the Pledgor for any discount
allowed by reason of the fact that such Collateral is sold in compliance with
any such limitation or restriction.
Without limiting the foregoing paragraph, if Lender decides to
exercise its right to sell all or any of the Pledged Shares or other Collateral,
upon written request, the Pledgor shall furnish or cause to be furnished to
Lender all such information as Lender may request in order to qualify such
Pledged Shares or other Collateral as exempt securities, or the sale or resale
of such Pledged Shares or other Collateral as exempt transactions, under federal
and state securities laws. The Pledgor agrees to allow, and to cause CRL to
allow, upon request by Lender, Lender access at reasonable times and places to
the books, records and premises of CRL; the Pledgor further agrees to assist,
and cause CRL to assist, Lender, any agent, counsel, accountant or other expert
for any thereof, in inspection, evaluation, and any other "due diligence" action
of or with respect to any such books, records and premises.
(ii) The Pledgor, upon the occurrence and during the
continuance of a Default under Section 10.1(f) of the Credit Agreement or an
Event of Default, further agrees that Lender shall have the right, for and in
the name, place and stead of the Pledgor to execute endorsements, assignments,
stock powers and other instruments of conveyance or transfer with respect to all
or any of the Collateral, and may, without demand, presentment or notice of any
kind appropriate and apply toward the payment of the Liabilities in order of
application set forth in SECTION 8 any balances, credits, deposits, accounts or
monies of the Pledgor held by Lender.
(iii) Without limiting the foregoing paragraph, upon the
occurrence and during the continuance of a Default pursuant to SECTION 10.1(f)
of the Credit Agreement or an Event of Default,
-9-
<PAGE> 11
Lender may, to the fullest extent permitted by applicable law, without notice,
advertisement, hearing or process of law of any kind, (x) sell any or all of the
Collateral, free of all rights and claims of the Pledgor therein and thereto at
any public or private sale or brokers' board, and (y) bid for and purchase any
or all of the Collateral at any such public sale free from rights of redemption,
stay or appraisal of the Pledgor.
(iv) The Pledgor and Lender acknowledge that the commissioners
or departments of insurance of various states under all applicable insurance
laws, rules and regulation may have to consent to or approve any such sale,
transfer or other disposition of the Collateral and the terms and conditions
thereof. The Pledgor hereby waives and agrees not to assert against Lender any
claim that any such sale, transfer or other disposition hereunder, or the terms
or conditions thereof, were not commercially reasonable because of any provision
of any such insurance law, rule or regulation or any matter related thereto.
SECTION 8 APPLICATION OF PROCEEDS. The proceeds of sale of
Collateral sold pursuant to the terms of SECTION 7 hereof and/or, after a
Default pursuant to SECTION 10.1(f) of the Credit Agreement or an Event of
Default, the cash held as Collateral hereunder shall be applied by Lender as
follows:
FIRST: to the payment of all of the reasonable costs and
expenses of Lender incurred by retaking, holding, preparing for sale or
lease, selling, leasing and the like, including (i) the reasonable
costs and expenses incurred by Lender and the reasonable fees and costs
and expenses of counsel employed incurred by Lender (whether or not
such costs and expenses are incurred by Lender), and (ii) the payment
of all reasonable costs and expenses incurred by Lender in connection
with the administration and enforcement of this Agreement, to the
extent that such advances, costs and expenses shall not have been
reimbursed to Lender;
SECOND: to the payment in full of the Liabilities in such
order as Lender may determine from time to time in its sole discretion;
and
THIRD: the balance, if any, of such proceeds shall be paid
to the Pledgor, its successors and assigns, or as a court of competent
jurisdiction may direct.
SECTION 9 AUTHORITY OF LENDER. Lender may execute any of its
duties hereunder by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of such counsel concerning
all matters pertaining to its
-10-
<PAGE> 12
duties hereunder. Neither Lender nor any director, officer or employee thereof
shall be liable for any action taken or omitted to be taken by it hereunder or
in connection herewith, except for its own gross negligence or willful
misconduct. The Pledgor agrees to reimburse Lender, on demand, for all
reasonable costs and expenses incurred by Lender in connection with the
administration and enforcement of this Agreement and for all costs and expenses
of the enforcement of this Agreement (including, without limitation, reasonable
costs and expenses incurred by any agent employed by Lender) and agrees to
indemnify (which indemnification shall survive any termination of this
Agreement) and hold harmless Lender (and any such agent) from and against any
and all liability incurred by Lender or any such agent thereof hereunder or in
connection herewith, unless such liability shall be due to gross negligence, or
willful misconduct on the part of Lender or such agent, as the case may be.
SECTION 10 TERMINATION. The Pledgor agrees that its pledge
hereunder shall (notwithstanding, without limitation, that at any time or from
time to time all Liabilities may have been paid in full) terminate only when all
Liabilities (including, without limitation, any extensions or renewals of any
thereof) and all expenses (including, without limitation, reasonable attorneys'
fees and legal expenses) paid or incurred by Lender or the holder or the holders
of the Note in endeavoring to enforce this Agreement, the Credit Agreement and
the Related Documents to which Lender is a party or of which it is a beneficiary
shall have been finally paid in full and all other obligations of the Pledgor
hereunder and thereunder have been fully performed, and all Commitments under
the Credit Agreement have been terminated, at which time Lender shall reassign
and redeliver (or cause to be reassigned and redelivered) to the Pledgor, or to
such Person or Persons as the Pledgor shall designate, such of the Collateral
(if any) as shall not have been sold or otherwise applied by Lender pursuant to
the terms hereof and shall still be held by it hereunder, together with
appropriate instruments of reassignment and release. Any such reassignment shall
be without recourse upon, or representation or warranty by, Lender and at the
sole cost and expense of the Pledgor.
SECTION 11 MISCELLANEOUS.
(a) All notices or other communications hereunder shall be
given in the manner specified under SECTION 11.2 of the Credit Agreement,
whether or not then in effect.
(b) This Agreement, and the terms, covenants and conditions
hereof, shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors and assigns, except the Pledgor shall not be
permitted to assign this Agreement nor any interest herein nor in the
Collateral, nor any part
-11-
<PAGE> 13
thereof, nor otherwise pledge, encumber or grant any option with respect to the
Collateral, nor any part thereof.
(c) SUBMISSION TO JURISDICTION; WAIVER OF VENUE. EACH OF THE
PLEDGOR AND LENDER (i) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
ILLINOIS STATE OR FEDERAL COURT SITTING IN CHICAGO, ILLINOIS OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE RELATED
DOCUMENTS, AND EACH OF THE PLEDGOR AND LENDER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH ILLINOIS STATE OR FEDERAL COURT, AND (ii) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST THE OTHER PARTY HERETO OR THE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY OF ANY THEREOF, ARISING OUT OF OR RELATING TO THIS
AGREEMENT, IN ANY COURT OTHER THAN AS HEREINABOVE SPECIFIED IN THIS SECTION
11(c). EACH OF THE PLEDGOR AND LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE IN ANY ACTION OR PROCEEDING (WHETHER BROUGHT BY THE PLEDGOR, ANY
OF ITS SUBSIDIARIES, LENDER OR OTHERWISE) IN ANY COURT HEREINABOVE SPECIFIED IN
THIS SECTION 11(c) AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE
ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS
OF FORUM NON CONVENIENS OR OTHERWISE. EACH OF THE PLEDGOR AND LENDER AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.
(d) At the option of Lender, this Agreement, or a carbon,
photographic or other reproduction of this Agreement or of any Uniform
Commercial Code financing statement covering the Collateral or any portion
thereof, shall be sufficient as a Uniform Commercial Code financing statement
and may be filed as such.
(e) No amendment to, modification or waiver of, or consent
with respect to, any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed and delivered by Lender, and then
any such amendment, modification, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
(f) The section headings in this Agreement are inserted for
convenience of reference and shall not be considered a part of this Agreement or
used in its interpretation.
(g) The Pledgor hereby expressly waives: (i) notice of the
acceptance by Lender of this Agreement, (ii) notice of the existence or creation
or non-payment of all or any of the Liabilities, (iii) presentment, demand,
notice of dishonor, protest, and all other notices whatsoever (except as
otherwise
-12-
<PAGE> 14
required herein), and (iv) all diligence in collection or protection of or
realization upon the Liabilities hereunder, or any security for or guaranty of
any of the foregoing.
(h) Lender may, from time to time, without notice to the
Pledgor, assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this Agreement, and each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were Lender; provided, however, that, unless
Lender shall otherwise consent in writing, Lender shall have an unimpaired
right, prior and superior to that of any such assignee or transferee, to enforce
this Agreement, for the benefit of Lender, as to those of the Liabilities which
Lender has not assigned or transferred.
(i) The Pledgor agrees that, if at any time all or any part of
any payment theretofore applied by Lender to any of the Liabilities is or must
be rescinded or returned by Lender for any reason whatsoever, such Liabilities
shall, for the purposes of this Agreement, to the extent that such payment is or
must be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by Lender, and the pledge by the Pledgor
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such Liabilities, all as though such application by Lender had not been
made.
(j) No action of Lender permitted hereunder shall in any way
affect or impair the rights of Lender and the obligations of the Pledgor under
this Agreement. The Pledgor hereby acknowledges that there are no conditions to
the effectiveness of this Agreement.
(k) All obligations of the Pledgor and rights of Lender or
obligation expressed in this Agreement shall be in addition to and not in
limitation of those provided in applicable law or in any other written
instrument or agreement relating to any of the Liabilities.
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE
UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES. ALL OBLIGATIONS OF THE PLEDGOR AND RIGHTS OF
LENDER SHALL BE IN ADDITION TO AND NOT IN LIMITATION OF THOSE PROVIDED BY
APPLICABLE LAW.
(m) This Agreement may be executed in any number of
-13-
<PAGE> 15
counterparts, each of which shall for all purposes be deemed an original, but
all such counterparts shall constitute but one and the same Agreement. The
Pledgor hereby acknowledges receipt of a true, correct and complete counterpart
of this Agreement.
(n) Lender acts herein as agent for itself and any and all
future holders of the Liabilities.
(o) WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND LENDER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
* * *
-14-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
STRATEGIC ACQUISITION PARTNERS, LLC
By: /s/ Val Rajic
-------------------------------------
Name: Val Rajic
----------------------------------
Its: Manager
-------------------------------------
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
-------------------------------------
Name: Frank W. Grimone
----------------------------------
Its: CFO
-------------------------------------
-15-
<PAGE> 17
ATTACHMENT 1
LISTING OF CRL'S STOCK PLEDGED
------------------------------
Number of
Certificate Shares of
Number Stock % Ownership
- ------------ ---------- -----------
0052 1,250,000 100
<PAGE> 18
ATTACHMENT 2
Listing Of Surplus Notes Pledged
--------------------------------
14 Million Dollar Surplus Note executed by Central Reserve Life Insurance
Company in favor of Central Reserve Life Corporation dated December 16, 1997.
<PAGE> 1
Exhibit 10.3
NOTE
Chicago, Illinois
$20,000,000 December 16, 1997
The undersigned, FOR VALUE RECEIVED, promises to pay to the
order of STRATEGIC ACQUISITION PARTNERS, LLC, a Nevada limited liability company
("Lender"), TWENTY MILLION DOLLARS ($20,000,000) or, if less, the aggregate
unpaid principal amount of the Loan made by the Lender to the undersigned
pursuant to the Credit Agreement referred to below. The principal amount due
under this Note shall be payable as set forth in the Credit Agreement (as
hereinafter defined).
The undersigned also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date hereof until
maturity (whether by acceleration or otherwise) and, after maturity, until paid,
at the rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in
lawful money of the United States of America in same day or immediately
available funds.
This Note is the Note described in, and is subject to the
terms and provisions of, that certain Credit Agreement, dated as of December 16,
1997 (as from time to time, in whole or in part, amended, modified,
supplemented, restated, refinanced, refunded or renewed, the "Credit
Agreement"), between the undersigned and Lender. Terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement.
Payment of this Note is secured by a security interest and pledge of certain
property and assets of the Borrower as more fully set forth in the Pledge
Agreement and the Related Documents. Reference is hereby made to the Credit
Agreement and the Related Documents for a statement of the prepayment rights and
obligations of the undersigned, the nature and extent of the collateral security
and the rights of the parties to the Related Documents in respect of such
collateral security, and for a statement of the terms and conditions under which
the due date of this Note may be accelerated.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement and the Related Documents, the undersigned
further agrees, subject only to any limitation imposed by applicable law, to pay
all reasonable expenses actually incurred, including reasonable attorneys' fees
and legal expenses, incurred by the holder of this Note in endeavoring to
collect any amounts payable hereunder which are not paid when due, whether by
acceleration or otherwise.
<PAGE> 2
The undersigned, whether as maker, endorser, or otherwise,
waives presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
------------------------------------
Name: Frank W. Grimone
------------------------------------
Title: Exec. Senior V.P. and Chief
Financial Officer (CFO)
------------------------------------
<PAGE> 1
Exhibit 10.4
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. THIS
WARRANT IS SUBJECT TO THE AGREEMENT DATED DECEMBER 16, 1997 BY AND AMONG PETER
NAUERT, RICHARD OSBORNE, STRATEGIC ACQUISITION PARTNERS, LLC AND TURKEY VULTURE
FUND XIII, LTD. EXERCISE OF THIS WARRANT MAY BE SUBJECT TO THE PRIOR APPROVAL OF
THE OHIO DEPARTMENT OF INSURANCE.
------------------------------------------
CENTRAL RESERVE LIFE CORPORATION
COMMON SHARES PURCHASE WARRANT
------------------------------------------
This certifies that, for good and valuable consideration, Central
Reserve Life Corporation, an Ohio corporation (the "Company"), grants to Peter
Nauert (the "Warrantholder"), the right to purchase from the Company five
hundred sixty thousand (560,000) validly issued, fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Shares, without par value
(the "Common Shares"), at the purchase price per share of $6.00 (the "Exercise
Price"), at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, all subject to the terms, conditions and adjustments herein set forth.
I. DURATION AND EXERCISE OF WARRANT.
1.1 Duration and Exercise of Warrant. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
by the Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day prior to
the Expiration Date; and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check
or any other means approved by
<PAGE> 2
the Company, of the Exercise Price for the number of Warrant Shares
specified in the Exercise Form in lawful money of the United States of
America.
(c) In addition to and without limiting the rights of the
Warrantholder under any other terms set forth herein, the Warrantholder
shall have, upon written request by the Warrantholder delivered or
transmitted to the Company together with this Warrant, the right (the
"Conversion Right") to require the Company to convert this Warrant into
Common Shares as follows: upon exercise of the Conversion Right, the
Company shall deliver to the Warrantholder (without payment by the
Warrantholder of any Exercise Price) the number of Common Shares that
is equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to
the exercise of the Conversion Right from the aggregate Current Market
Price (determined as provided in Section 10 below) of the Common Shares
issuable upon exercise of this Warrant immediately prior to the
exercise of the Conversion Right) by (y) the Current Market Price of
one Common Share (determined as provided in Section 10 below)
immediately prior to the exercise of the Conversion Right.
The Conversion Right referred to in this Section 1.1(c) may be
exercised by the Warrantholder by surrender of this Warrant at the
principal office of the Company or at the offices of its Shares
transfer or warrant agent, if any, together with a written statement
specifying that the Warrantholder thereby intends to exercise the
Conversion Right.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Notwithstanding the foregoing,
no such surrender shall be effective to constitute the Person entitled to
receive such shares as the record holder thereof while the transfer books of the
Company for the Common Shares are closed for any purpose (but not for any period
in excess of five days); but any such surrender of this Warrant for exercise
during any period while such books are so closed shall become effective for
exercise immediately upon the reopening of such books, as if the exercise had
been made on the date this Warrant was surrendered and for the number of shares
of Common Shares and at the Exercise Price in effect at the date of such
surrender.
1.2 WARRANT SHARES CERTIFICATE. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder within three Business Days after receipt of the
Exercise Form by the Company and payment of the purchase price or exercise of
the Conversion Right. No fractional shares shall be issued upon the exercise of
this Warrant, provided that the Warrantholder shall receive, in lieu of any
fractional shares, cash in an amount equal to the product of the fraction
multiplied by the Current Market Price per Common Share. If this Warrant shall
been exercised only in part, the Company shall, at the time of delivery of the
stock certificate or certificates, deliver to the Warrantholder a new
2
<PAGE> 3
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant.
2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1 This Warrant, including the registration rights pursuant
to Section 7 hereof, may be offered, sold, transferred, pledged or otherwise
disposed of in whole or in part, to any person, subject to compliance with any
applicable securities laws.
2.2 Except as otherwise permitted by this Section 2, each
stock certificate for Warrant Shares issued upon the exercise of any Warrant and
each stock certificate issued upon the direct or indirect transfer of any such
Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST HEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS THAT, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant or a stock certificate for Warrant
Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for
resale under the Securities Act, (ii) the Warrantholder has delivered
to the Company an opinion of legal counsel (from a firm reasonably
satisfactory to the Company) which opinion shall be addressed to the
Company and be reasonably satisfactory in form and substance to the
Company's counsel, to the effect that such registration is not required
with respect to such Warrant or such Warrant Shares, as the case may
be, or (iii) such Warrant or Warrant Shares are sold in compliance with
Rule 144 or Rule 144(k) (or any successor provision then in effect)
under the Securities Act, the Company receives customary
representations to such effect and the Company receives an opinion of
counsel to the Company in customary form that such legend may be
removed.
3. RESERVATION AND RESIGNATION OF SHARES.
The Company covenants and agrees as follows:
3
<PAGE> 4
(a) All Warrant Shares that are issued upon the exercise of
this Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with
respect to the issuance thereof.
(b) During the period within which this Warrant may be
exercised, the Company shall at all times have authorized and reserved,
and keep available free from preemptive rights, a sufficient number of
Common Shares to provide for the exercise of the rights represented by
this Warrant.
4. LOSS OR DESTRUCTION OF WARRANT
Subject to the terms and conditions hereof, upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, or destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
5. OWNERSHIP OF WARRANT
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) STOCK DIVIDENDS, SPLITS, COMBINATIONS. If at any time
after the date of the issuance of this Warrant the Company (i) declares
a dividend or other distribution payable in Common Shares or securities
convertible into Common Shares or subdivides its outstanding Common
Shares into a larger number or (ii) combines its outstanding Common
Shares into a smaller number, then (x) the number of Warrant Shares to
be delivered upon exercise of this Warrant will, upon the occurrence of
an event set forth in clause (i) above, be increased and, upon the
occurrence of an event set forth in clause (ii) above, be decreased so
that such Warrantholder will be entitled to receive the number of
Common Shares that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior
thereto and (y) the Exercise Price in effect immediately prior to such
dividend, other distribution, subdivision or combination, as the case
may be, shall be adjusted proportionately by multiplying such Exercise
Price by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon exercise of this Warrant immediately
prior to such adjustment
4
<PAGE> 5
and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(b) DISTRIBUTION OF STOCK, OTHER SECURITIES, EVIDENCE OF
INDEBTEDNESS. In case the Company shall distribute to the holders of
Common Shares, shares of its capital stock (other than Common Shares or
shares convertible into Common Shares for which adjustment is made
under Section 6.1(a)), stock or other securities of the Company or any
other Person, evidences of indebtedness issued by the Company or any
other Person, assets (excluding cash dividends) or options, Warrants or
rights to subscribe for or purchase the foregoing, then, and in each
such case, immediately following the record date fixed for the
determination of the holders of Common Shares entitled to receive such
distribution, the Exercise Price then in effect shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such
record date by a fraction (i) the numerator of which shall be the
Current Market Price applicable to one Common Share less the aggregate
Fair Market Value (as determined by the Board of Directors or a duly
appointed committee thereof) of the portion of the stock, other
securities, evidences of indebtedness so distributed or of such
options, warrants or rights applicable to one Common Share (but such
numerator shall not be less than one) and (ii) the denominator of which
shall be the Current Market Price of one Common Share on such record
date (i.e. prior to such shares trading "ex-"). Such adjustment shall
become effective at the opening of business on the Business Day
following the record date for the determination of stockholders
entitled to such distribution.
(c) REORGANIZATION, MERGER, SALE OF ASSETS. In case of any
capital reorganization or reclassification or other change of
outstanding Common Shares (other than a change in par value), any
consolidation or merger of the Company with or into another Person
(other than a consolidation or merger of the Company in which the
Company is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock) or the
sale of all or substantially all of the assets of the Company or
another Person, upon exercise of this Warrant the Warrantholder shall
have the right to receive the kind and amount of shares of stock or
other securities or property to which a holder of the number of Common
Shares of the Company deliverable upon exercise of this Warrant would
have been entitled upon such reorganization, reclassification, other
change, consolidation, merger or sale had this Warrant been exercised
immediately prior to such event; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors or a
duly appointed committee thereof) shall be made in the application of
the provisions of this Section 6 with respect to the rights and
interest thereafter of the Warrantholder, to the end that the
provisions set forth in this Section 6 (including provisions with
respect to changes in and other adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter
deliverable upon exercise of this Warrant.
5
<PAGE> 6
(d) CARRYOVER. Notwithstanding any other provision of this
Section 6.1, no adjustment shall be made to the number of Common Shares
or other securities to be delivered to the Warrantholder (or to the
Exercise Price) if such adjustment represents less than 1% of the
number of shares to be so delivered, but any lesser adjustment shall be
carried forward and shall be made at the time and together with the
next subsequent adjustment that together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to
be so delivered, PROVIDED HOWEVER, that, upon exercise of this warrant
pursuant to Section 1 hereof, any adjustment called for by Sections
6.1(a), (b) or (c) which has not been made as a result of this Section
6.1(d) shall be made.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Shares prior to the date as of which the Warrantholder shall be
deemed to be the record holder of such Warrant Shares.
6.3. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares shall be adjusted, as provided in Section
6.1, the Company shall forthwith file, at the principal office of the Company
(or at such other place as may be designated by the Company), a statement,
certified by the chief financial officer of the Company, showing in detail the
facts requiring such adjustment, the computation by which such adjustment was
made and the Exercise Price that shall be in effect after such adjustment. The
Company shall also cause a copy of such statement to be sent by first class mail
postage prepaid, to the Warrantholder, at such Warrantholder's address as shown
in the records of the Company.
7. REGISTRATION STATEMENT. The Company shall, at its expense, file a
registration statement with the United States Securities and Exchange Commission
within 30 days after the date hereof to effect the registration of the resale of
the Warrant Shares under the Securities Act; provided that the Warrantholder
shall not sell any Warrant Shares pursuant to such registration statement unless
and until it provides to the Company such information as the Company may
reasonably request for use in connection with the identification of the
Warrantholder as a selling stockholder in such registration statement, or any
prospectus included therein, and no such sale shall be made by the Warrantholder
pursuant to such registration statement unless and until such information is
included by the Company in such registration statement or prospectus. The
Company shall in good faith use its best efforts and at its expense to cause
such registration statement to be declared effective as promptly as practicable
thereafter, to amend such registration statement to include additional or
revised information with respect to the selling stockholders and to include in
such registration statement the information provided by the Warrantholder as a
selling stockholder and shall notify the Warrantholder of the effectiveness
thereof and agrees to use its best efforts to maintain the effectiveness of such
registration statement until the Warrant expires according to its terms. The
Company shall indemnify and hold harmless the Warrantholder, its officers,
directors and agents and employees, each person who controls the Warrantholder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
1934
6
<PAGE> 7
Act) and the officers, directors, agents and employees of any such controlling
person, from and against all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
("Losses") incurred or suffered and arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any such registration
statement, or related prospectus, or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, except to the extent the same are based upon information
furnished in writing to the Company by or on behalf of the Warrantholder
expressly for use therein; provided, that the Company shall not be liable to the
Warrantholder to the extent that any such Losses arise out of or are based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) the Warrantholder failed to
send or deliver a copy of the final prospectus with or prior to the delivery of
written confirmation of the sale by the Warrantholder of a Warrant Share to the
person asserting the claim from which such Losses arise and (ii) the prospectus
would have completely corrected such untrue statement or alleged untrue
statement or such omission or alleged omission; or (B)(i) such untrue statement
or alleged untrue statement, omission or alleged omission is completely
corrected in an amendment or supplement to the prospectus and (ii) having
previously been furnished by or on behalf of the Company with copies of the
prospectus as so amended or supplemented, the Warrantholder thereafter fails to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Warrant Share to the person asserting the claim from which
such Losses arise.
With respect to each third party claim subject to this Section (a
"Third Party Claim"), the party seeking indemnification (the "Indemnified
Party") shall give prompt notice to the indemnifying party (the "Indemnifying
Party") of the Third Party Claim, provided that failure to give such notice
promptly shall not relieve or limit the obligation of the Indemnifying Party
except to the extent the Indemnifying Party is materially prejudiced thereby. If
the remedy sought in the Third Party Claim is solely money damages or if the
Indemnified Party otherwise permits, then the Indemnifying Party, at its sole
cost and expense, may, upon notice to the Indemnified Party within fifteen (15)
days after the Indemnifying Party receives notice of the Third Party Claim,
assume the defense of the Third Party Claim. If it assumes the defense of a
Third Party Claim, then the Indemnifying Party shall select counsel reasonably
satisfactory to the Indemnified Party to conduct the defense. The Indemnifying
Party shall not consent to a settlement of, or the entry of any judgment arising
from, any Third Party Claim, unless (i) the settlement or judgment is solely for
money damages and the Indemnifying Party admits in writing its liability to hold
the Indemnified Party harmless from and against any losses, damages, expenses
and liabilities arising out of such settlement or (ii) the Indemnified Party
consents thereto, which consent shall not be unreasonably withheld. The
Indemnifying Party shall provide the Indemnified Party with fifteen (15) days
prior notice before it consents to a settlement of, or the entry of a judgment
arising from, any Third Party Claim. The Indemnified Party shall be entitled to
participate in the defense of any Third Party Claim, the defense of which is
assumed by the Indemnifying Party, with its own counsel and at its own expense.
With respect to Third Party Claims in which the remedy sought is not solely
money damages, (i) the Indemnifying
7
<PAGE> 8
Party shall, upon notice to the Indemnified Party within fifteen (15) days after
the Indemnifying Party receives notice of the Third Party Claim, be entitled to
participate in the defense with its own counsel at its own expense and (ii) the
Indemnified Party shall not consent to any settlement of, or entry of any
judgment arising from, such Third Party Claim unless the Indemnifying Party
consents thereto, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not elect to assume or participate in the defense of any
Third Party Claim in accordance with the terms of this Section, then the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to the Third Party Claim. The parties shall cooperate in the
defense of any Third Party Claim and the relevant records of each party shall be
made available on a timely basis.
8. AMENDMENTS.
Any provision of this Warrant may be amended and the observance thereof
waived only with the written consent of the Company and the Warrantholder.
9. NOTICES OF CORPORATE ACTION.
So long as this Warrant has not been exercised in full, in the event of
(a) any taking by the Company of a record of all holders of
Common Shares for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than cash dividends or
distributions paid from the retained earnings of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right;
(b) any capital reorganization of the Company, any
reclassification (other than a change in par value of the Common
Shares) or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or
any transfer of all or substantially all the assets of the Company to
any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right or (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution,
8
<PAGE> 9
liquidation or winding-up is to take place and the time, if any such time is to
be fixed, as of which the holders of record of Common Shares shall be entitled
to exchange their Common Shares for the securities or other property, if any,
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be delivered at least 5 days prior to the date therein specified,
in the case of any date referred to in the foregoing subdivisions (i) and (ii).
10. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings;
"AFFILIATE" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law to close in the State of Ohio.
"COMMON SHARES" has the meaning specified on the cover of this Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CONVERSION RIGHT" has the meaning specified in Section 1.1(c).
"CURRENT MARKET PRICE" of a share of the Common Shares as of a
particular date (the "Determination Date") shall mean:
(i) If the Common Shares are listed or admitted for trading on
a national securities exchange (including The Nasdaq National Market
System or Small Cap Market), then the Current Market Price shall be the
average of the last 10 "daily sales prices" of the Common Shares on the
principal national securities exchange on which the Common Shares are
listed or admitted for trading on the last 10 trading days prior to the
Determination Date, or if not listed or traded on any such exchange,
then the Current Market Price shall be the average of the last 10
"daily sales prices" of the Common Shares on the over-the-counter
market on the last 10 trading days prior to the Determination Date. The
"daily sales price" shall be the closing price of the Common Shares at
the end of each day; or
(ii) If the Common Shares not so listed or admitted to
unlisted trading privileges or if no such sale is made on at least 5 of
such days, then the Current Market Price shall be reasonably determined
in good faith by the Company's Board of Directors or a duly appointed
committee of the Board of Directors (which determination shall be
reasonably described in the written notice delivered to the
Warrantholder together with the Common Shares certificates).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
9
<PAGE> 10
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXERCISE PRICE" has the meaning specified on the cover of this Warrant
as adjusted from time to time in accordance herewith.
"EXPIRATION DATE" means December 16, 2002.
"FAIR MARKET VALUE" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Act, shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"WARRANTHOLDER" has the meaning specified on the cover of this Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant constitutes the
entire agreement between the Company and the Warrantholder with respect to this
Warrant.
11.2 BINDING EFFECT; BENEFIT. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
11.4 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
10
<PAGE> 11
(a) if to Warrantholder:
Peter W. Nauert
Strategic Acquisition Partners, LLC
20 North Wacker Drive, Suite 3118
Chicago, Illinois 60606
with a copy to:
McDermott, Will & Emery
227 W. Monroe Street
Chicago, Illinois 60606
Telecopy: (312) 984-3669
Attention: Stanley H. Meadows, P.C.
(b) if to the Company:
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Attention: Fred Lick
with a copy to:
Latham & Watkins
233 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 993-9767
Attention: Mark D. Gerstein
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 11.4 designate another
address or Person for receipt of notices hereunder.
11.5 SEVERABILITY. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceability the terms and provisions of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11
<PAGE> 12
11.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF.
11.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
containing in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
-----------------------------------
Name: Frank W. Grimone
-----------------------------------
Title: CFO
------------------------------------
Dated: December 16, 1997
<PAGE> 14
EXHIBIT A
EXERCISE OF WARRANT
The undersigned, , pursuant to the provisions of the within
Warrant, hereby elects to purchase Common Shares of CENTRAL RESERVE LIFE
CORPORATION, covered by the within Warrant, and tenders herewith payment of the
Exercise Price in full in the form of certified or bank cashier's check or wire
transfer.
Please issue a certificate or certificates for such Common Shares in
the following name or names and denominations:
If said number of shares are not all the Common Shares issuable upon exercise of
the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares less any faction of a share
paid in cash.
Signature
---------------------------------
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
Dated:
------------------------
<PAGE> 1
Exhibit 10.5
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. THIS
WARRANT IS SUBJECT TO THE AGREEMENT DATED DECEMBER 16, 1997 BY AND AMONG PETER
NAUERT, RICHARD OSBORNE, STRATEGIC ACQUISITION PARTNERS, LLC AND TURKEY VULTURE
FUND XIII, LTD. EXERCISE OF THIS WARRANT MAY BE SUBJECT TO THE PRIOR APPROVAL OF
THE OHIO DEPARTMENT OF INSURANCE.
------------------------------------------
CENTRAL RESERVE LIFE CORPORATION
COMMON SHARES PURCHASE WARRANT
------------------------------------------
This certifies that, for good and valuable consideration, Central
Reserve Life Corporation, an Ohio corporation (the "Company"), grants to Turkey
Vulture Fund XIII, Ltd. (the "Warrantholder"), the right to purchase from the
Company two hundred forty thousand (240,000) validly issued, fully paid and
nonassessable shares (the "Warrant Shares") of the Company's Common Shares,
without par value (the "Common Shares"), at the purchase price per share of
$6.00 (the "Exercise Price"), at any time prior to 5:00 p.m., New York City
time, on the Expiration Date, all subject to the terms, conditions and
adjustments herein set forth.
I. DURATION AND EXERCISE OF WARRANT.
1.1 Duration and Exercise of Warrant. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
by the Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day prior to
the Expiration Date; and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check
or any other means approved by
<PAGE> 2
the Company, of the Exercise Price for the number of Warrant Shares
specified in the Exercise Form in lawful money of the United States of
America.
(c) In addition to and without limiting the rights of the
Warrantholder under any other terms set forth herein, the Warrantholder
shall have, upon written request by the Warrantholder delivered or
transmitted to the Company together with this Warrant, the right (the
"Conversion Right") to require the Company to convert this Warrant into
Common Shares as follows: upon exercise of the Conversion Right, the
Company shall deliver to the Warrantholder (without payment by the
Warrantholder of any Exercise Price) the number of Common Shares that
is equal to the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price in effect immediately prior to
the exercise of the Conversion Right from the aggregate Current Market
Price (determined as provided in Section 10 below) of the Common Shares
issuable upon exercise of this Warrant immediately prior to the
exercise of the Conversion Right) by (y) the Current Market Price of
one Common Share (determined as provided in Section 10 below)
immediately prior to the exercise of the Conversion Right.
The Conversion Right referred to in this Section 1.1(c) may be
exercised by the Warrantholder by surrender of this Warrant at the
principal office of the Company or at the offices of its Shares
transfer or warrant agent, if any, together with a written statement
specifying that the Warrantholder thereby intends to exercise the
Conversion Right.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Notwithstanding the foregoing,
no such surrender shall be effective to constitute the Person entitled to
receive such shares as the record holder thereof while the transfer books of the
Company for the Common Shares are closed for any purpose (but not for any period
in excess of five days); but any such surrender of this Warrant for exercise
during any period while such books are so closed shall become effective for
exercise immediately upon the reopening of such books, as if the exercise had
been made on the date this Warrant was surrendered and for the number of shares
of Common Shares and at the Exercise Price in effect at the date of such
surrender.
1.2 WARRANT SHARES CERTIFICATE. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder within three Business Days after receipt of the
Exercise Form by the Company and payment of the purchase price or exercise of
the Conversion Right. No fractional shares shall be issued upon the exercise of
this Warrant, provided that the Warrantholder shall receive, in lieu of any
fractional shares, cash in an amount equal to the product of the fraction
multiplied by the Current Market Price per Common Share. If this Warrant shall
been exercised only in part, the Company shall, at the time of delivery of the
stock certificate or certificates, deliver to the Warrantholder a new
2
<PAGE> 3
Warrant evidencing the rights to purchase the remaining Warrant Shares, which
new Warrant shall in all other respects be identical with this Warrant.
2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1 This Warrant, including the registration rights pursuant
to Section 7 hereof, may be offered, sold, transferred, pledged or otherwise
disposed of in whole or in part, to any person, subject to compliance with any
applicable securities laws.
2.2 Except as otherwise permitted by this Section 2, each
stock certificate for Warrant Shares issued upon the exercise of any Warrant and
each stock certificate issued upon the direct or indirect transfer of any such
Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST HEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS THAT, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant or a stock certificate for Warrant
Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for
resale under the Securities Act, (ii) the Warrantholder has delivered
to the Company an opinion of legal counsel (from a firm reasonably
satisfactory to the Company) which opinion shall be addressed to the
Company and be reasonably satisfactory in form and substance to the
Company's counsel, to the effect that such registration is not required
with respect to such Warrant or such Warrant Shares, as the case may
be, or (iii) such Warrant or Warrant Shares are sold in compliance with
Rule 144 or Rule 144(k) (or any successor provision then in effect)
under the Securities Act, the Company receives customary
representations to such effect and the Company receives an opinion of
counsel to the Company in customary form that such legend may be
removed.
3. RESERVATION AND RESIGNATION OF SHARES.
The Company covenants and agrees as follows:
<PAGE> 4
(a) All Warrant Shares that are issued upon the exercise of
this Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with
respect to the issuance thereof.
(b) During the period within which this Warrant may be
exercised, the Company shall at all times have authorized and reserved,
and keep available free from preemptive rights, a sufficient number of
Common Shares to provide for the exercise of the rights represented by
this Warrant.
4. LOSS OR DESTRUCTION OF WARRANT
Subject to the terms and conditions hereof, upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, or destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
5. OWNERSHIP OF WARRANT
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) STOCK DIVIDENDS, SPLITS, COMBINATIONS. If at any time
after the date of the issuance of this Warrant the Company (i) declares
a dividend or other distribution payable in Common Shares or securities
convertible into Common Shares or subdivides its outstanding Common
Shares into a larger number or (ii) combines its outstanding Common
Shares into a smaller number, then (x) the number of Warrant Shares to
be delivered upon exercise of this Warrant will, upon the occurrence of
an event set forth in clause (i) above, be increased and, upon the
occurrence of an event set forth in clause (ii) above, be decreased so
that such Warrantholder will be entitled to receive the number of
Common Shares that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior
thereto and (y) the Exercise Price in effect immediately prior to such
dividend, other distribution, subdivision or combination, as the case
may be, shall be adjusted proportionately by multiplying such Exercise
Price by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon exercise of this Warrant immediately
prior to such adjustment
4
<PAGE> 5
and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(b) DISTRIBUTION OF STOCK, OTHER SECURITIES, EVIDENCE OF
INDEBTEDNESS. In case the Company shall distribute to the holders of
Common Shares, shares of its capital stock (other than Common Shares or
shares convertible into Common Shares for which adjustment is made
under Section 6.1(a)), stock or other securities of the Company or any
other Person, evidences of indebtedness issued by the Company or any
other Person, assets (excluding cash dividends) or options, Warrants or
rights to subscribe for or purchase the foregoing, then, and in each
such case, immediately following the record date fixed for the
determination of the holders of Common Shares entitled to receive such
distribution, the Exercise Price then in effect shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such
record date by a fraction (i) the numerator of which shall be the
Current Market Price applicable to one Common Share less the aggregate
Fair Market Value (as determined by the Board of Directors or a duly
appointed committee thereof) of the portion of the stock, other
securities, evidences of indebtedness so distributed or of such
options, warrants or rights applicable to one Common Share (but such
numerator shall not be less than one) and (ii) the denominator of which
shall be the Current Market Price of one Common Share on such record
date (i.e. prior to such shares trading "ex-"). Such adjustment shall
become effective at the opening of business on the Business Day
following the record date for the determination of stockholders
entitled to such distribution.
(c) REORGANIZATION, MERGER, SALE OF ASSETS. In case of any
capital reorganization or reclassification or other change of
outstanding Common Shares (other than a change in par value), any
consolidation or merger of the Company with or into another Person
(other than a consolidation or merger of the Company in which the
Company is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock) or the
sale of all or substantially all of the assets of the Company or
another Person, upon exercise of this Warrant the Warrantholder shall
have the right to receive the kind and amount of shares of stock or
other securities or property to which a holder of the number of Common
Shares of the Company deliverable upon exercise of this Warrant would
have been entitled upon such reorganization, reclassification, other
change, consolidation, merger or sale had this Warrant been exercised
immediately prior to such event; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors or a
duly appointed committee thereof) shall be made in the application of
the provisions of this Section 6 with respect to the rights and
interest thereafter of the Warrantholder, to the end that the
provisions set forth in this Section 6 (including provisions with
respect to changes in and other adjustments of the Exercise Price)
shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter
deliverable upon exercise of this Warrant.
5
<PAGE> 6
(d) CARRYOVER. Notwithstanding any other provision of this
Section 6.1, no adjustment shall be made to the number of Common Shares
or other securities to be delivered to the Warrantholder (or to the
Exercise Price) if such adjustment represents less than 1% of the
number of shares to be so delivered, but any lesser adjustment shall be
carried forward and shall be made at the time and together with the
next subsequent adjustment that together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to
be so delivered, PROVIDED HOWEVER, that, upon exercise of this warrant
pursuant to Section 1 hereof, any adjustment called for by Sections
6.1(a), (b) or (c) which has not been made as a result of this Section
6.1(d) shall be made.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Shares prior to the date as of which the Warrantholder shall be
deemed to be the record holder of such Warrant Shares.
6.3. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares shall be adjusted, as provided in Section
6.1, the Company shall forthwith file, at the principal office of the Company
(or at such other place as may be designated by the Company), a statement,
certified by the chief financial officer of the Company, showing in detail the
facts requiring such adjustment, the computation by which such adjustment was
made and the Exercise Price that shall be in effect after such adjustment. The
Company shall also cause a copy of such statement to be sent by first class mail
postage prepaid, to the Warrantholder, at such Warrantholder's address as shown
in the records of the Company.
7. REGISTRATION STATEMENT. The Company shall, at its expense, file a
registration statement with the United States Securities and Exchange Commission
within 30 days after the date hereof to effect the registration of the resale of
the Warrant Shares under the Securities Act; provided that the Warrantholder
shall not sell any Warrant Shares pursuant to such registration statement unless
and until it provides to the Company such information as the Company may
reasonably request for use in connection with the identification of the
Warrantholder as a selling stockholder in such registration statement, or any
prospectus included therein, and no such sale shall be made by the Warrantholder
pursuant to such registration statement unless and until such information is
included by the Company in such registration statement or prospectus. The
Company shall in good faith use its best efforts and at its expense to cause
such registration statement to be declared effective as promptly as practicable
thereafter, to amend such registration statement to include additional or
revised information with respect to the selling stockholders and to include in
such registration statement the information provided by the Warrantholder as a
selling stockholder and shall notify the Warrantholder of the effectiveness
thereof and agrees to use its best efforts to maintain the effectiveness of such
registration statement until the Warrant expires according to its terms. The
Company shall indemnify and hold harmless the Warrantholder, its officers,
directors and agents and employees, each person who controls the Warrantholder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
1934
6
<PAGE> 7
Act) and the officers, directors, agents and employees of any such
controlling person, from and against all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Losses") incurred or suffered and arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any such
registration statement, or related prospectus, or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, except to the extent the same are based
upon information furnished in writing to the Company by or on behalf of the
Warrantholder expressly for use therein; provided, that the Company shall not be
liable to the Warrantholder to the extent that any such Losses arise out of or
are based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if either (A)(i) the
Warrantholder failed to send or deliver a copy of the final prospectus with or
prior to the delivery of written confirmation of the sale by the Warrantholder
of a Warrant Share to the person asserting the claim from which such Losses
arise and (ii) the prospectus would have completely corrected such untrue
statement or alleged untrue statement or such omission or alleged omission; or
(B)(i) such untrue statement or alleged untrue statement, omission or alleged
omission is completely corrected in an amendment or supplement to the prospectus
and (ii) having previously been furnished by or on behalf of the Company with
copies of the prospectus as so amended or supplemented, the Warrantholder
thereafter fails to deliver such prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Warrant Share to the person asserting the
claim from which such Losses arise.
With respect to each third party claim subject to this Section (a
"Third Party Claim"), the party seeking indemnification (the "Indemnified
Party") shall give prompt notice to the indemnifying party (the "Indemnifying
Party") of the Third Party Claim, provided that failure to give such notice
promptly shall not relieve or limit the obligation of the Indemnifying Party
except to the extent the Indemnifying Party is materially prejudiced thereby. If
the remedy sought in the Third Party Claim is solely money damages or if the
Indemnified Party otherwise permits, then the Indemnifying Party, at its sole
cost and expense, may, upon notice to the Indemnified Party within fifteen (15)
days after the Indemnifying Party receives notice of the Third Party Claim,
assume the defense of the Third Party Claim. If it assumes the defense of a
Third Party Claim, then the Indemnifying Party shall select counsel reasonably
satisfactory to the Indemnified Party to conduct the defense. The Indemnifying
Party shall not consent to a settlement of, or the entry of any judgment arising
from, any Third Party Claim, unless (i) the settlement or judgment is solely for
money damages and the Indemnifying Party admits in writing its liability to hold
the Indemnified Party harmless from and against any losses, damages, expenses
and liabilities arising out of such settlement or (ii) the Indemnified Party
consents thereto, which consent shall not be unreasonably withheld. The
Indemnifying Party shall provide the Indemnified Party with fifteen (15) days
prior notice before it consents to a settlement of, or the entry of a judgment
arising from, any Third Party Claim. The Indemnified Party shall be entitled to
participate in the defense of any Third Party Claim, the defense of which is
assumed by the Indemnifying Party, with its own counsel and at its own expense.
With respect to Third Party Claims in which the remedy sought is not solely
money damages, (i) the Indemnifying
7
<PAGE> 8
Party shall, upon notice to the Indemnified Party within fifteen (15) days after
the Indemnifying Party receives notice of the Third Party Claim, be entitled to
participate in the defense with its own counsel at its own expense and (ii) the
Indemnified Party shall not consent to any settlement of, or entry of any
judgment arising from, such Third Party Claim unless the Indemnifying Party
consents thereto, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not elect to assume or participate in the defense of any
Third Party Claim in accordance with the terms of this Section, then the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party with respect to the Third Party Claim. The parties shall cooperate in the
defense of any Third Party Claim and the relevant records of each party shall be
made available on a timely basis.
8. AMENDMENTS.
Any provision of this Warrant may be amended and the observance thereof
waived only with the written consent of the Company and the Warrantholder.
9. NOTICES OF CORPORATE ACTION.
So long as this Warrant has not been exercised in full, in the event of
(a) any taking by the Company of a record of all holders of
Common Shares for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than cash dividends or
distributions paid from the retained earnings of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right;
(b) any capital reorganization of the Company, any
reclassification (other than a change in par value of the Common
Shares) or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or
any transfer of all or substantially all the assets of the Company to
any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right or (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Shares shall be entitled to exchange their Common Shares for the securities or
other property, if any, deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
8
<PAGE> 9
liquidation or winding-up. Such notice shall be delivered at least 5 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivisions (i) and (ii).
10. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings;
"AFFILIATE" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law to close in the State of Ohio.
"COMMON SHARES" has the meaning specified on the cover of this Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CONVERSION RIGHT" has the meaning specified in Section 1.1(c).
"CURRENT MARKET PRICE" of a share of the Common Shares as of a
particular date (the "Determination Date") shall mean:
(i) If the Common Shares are listed or admitted for trading on
a national securities exchange (including The Nasdaq National Market
System or Small Cap Market), then the Current Market Price shall be the
average of the last 10 "daily sales prices" of the Common Shares on the
principal national securities exchange on which the Common Shares are
listed or admitted for trading on the last 10 trading days prior to the
Determination Date, or if not listed or traded on any such exchange,
then the Current Market Price shall be the average of the last 10
"daily sales prices" of the Common Shares on the over-the-counter
market on the last 10 trading days prior to the Determination Date. The
"daily sales price" shall be the closing price of the Common Shares at
the end of each day; or
(ii) If the Common Shares not so listed or admitted to
unlisted trading privileges or if no such sale is made on at least 5 of
such days, then the Current Market Price shall be reasonably determined
in good faith by the Company's Board of Directors or a duly appointed
committee of the Board of Directors (which determination shall be
reasonably described in the written notice delivered to the
Warrantholder together with the Common Shares certificates).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
(or any successor statute thereto) and the rules and regulations of the
Commission promulgated thereunder.
9
<PAGE> 10
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXERCISE PRICE" has the meaning specified on the cover of this Warrant
as adjusted from time to time in accordance herewith.
"EXPIRATION DATE" means December 16, 2002.
"FAIR MARKET VALUE" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Act, shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"WARRANTHOLDER" has the meaning specified on the cover of this Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant constitutes the
entire agreement between the Company and the Warrantholder with respect to this
Warrant.
11.2 BINDING EFFECT; BENEFIT. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
11.4 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
10
<PAGE> 11
(a) if to Warrantholder:
Turkey Vulture Fund XIII, Ltd.
c/o Richard Osborne
7001 Center Street
Mentor, OH 44060
with a copy to:
Kohrman Jackson & Krantz P.L.L.
1375 E. 9th Street
Cleveland, Ohio 44114
Telecopy: (216) 621-6536
Attention: Marc C. Krantz
(b) if to the Company:
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Attention: Fred Lick
with a copy to:
Latham & Watkins
233 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 993-9767
Attention: Mark D. Gerstein
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 11.4 designate another
address or Person for receipt of notices hereunder.
11.5 SEVERABILITY. Any term or provision of this Warrant which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceability the terms and provisions of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11
<PAGE> 12
11.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF.
11.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
containing in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
------------------------------------
Name: Frank W. Grimone
Title: CFO
Dated: December 16, 1997
<PAGE> 14
EXHIBIT A
EXERCISE OF WARRANT
The undersigned, , pursuant to the provisions of the within Warrant,
hereby elects to purchase Common Shares of CENTRAL RESERVE LIFE CORPORATION,
covered by the within Warrant, and tenders herewith payment of the Exercise
Price in full in the form of certified or bank cashier's check or wire transfer.
Please issue a certificate or certificates for such Common Shares in
the following name or names and denominations:
If said number of shares are not all the Common Shares issuable upon exercise of
the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares less any faction of a share
paid in cash.
Signature
---------------------------------
Address:
-------------------------------------------
-------------------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
Dated:
-------------------------
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
I
PARTIES
1.1 PARTIES. This Employment Agreement (the "Central Agreement") is made
this 15th day of December, 1997, effective January 1, 1998, by and
between Fred Lick, Jr. ("Employee") and Central Reserve Life
Corporation, an Ohio corporation having its principal offices at 17800
Royalton Road, Strongsville, Ohio 44136-5197 ("Central").
II
RECITALS
2.1 PARENT. Central is the parent of Central Reserve Life Insurance Company
("Reserve").
2.2 EMPLOYEE. Employee is Chairman of Central. He holds the same office
with Reserve.
2.3 CENTRAL PRIOR AGREEMENTS. Employee and Central are parties to prior
employment agreements commencing on January 1,
<PAGE> 2
EMPLOYMENT AGREEMENT
PAGE 2
1980. It is the intention of the parties that the January 1, 1980
Employment Agreement and all subsequent employment agreements be
cancelled and supplanted by this Central Agreement.
2.4 RESERVE PRIOR AGREEMENTS. Employee and Reserve are parties to separate
employment agreements commencing on January 1, 1980. By a separate
employment agreement (the "Reserve Agreement") signed contemporaneously
with the signing of this Central Agreement, the January 1, 1980
Employment Agreements and all subsequent employment agreements between
Employee and Reserve have been cancelled and supplanted by the Reserve
Agreement. A copy of the Reserve Agreement is attached hereto and for
reference purposes made a part hereof.
<PAGE> 3
EMPLOYMENT AGREEMENT
PAGE 3
III
TERMS OF THE AGREEMENT
3.1 INITIAL EMPLOYMENT TERM AND COMPENSATION. Central agrees to continue
the employ of Employee for a term of two (2) years commencing January
1, 1998 and ending December 31, 1999, to serve as Chairman of Central
and Reserve, with primary responsibilities devoted to sales and
marketing of Reserve's insurance products. Employee shall be paid a
salary at the annual rate of $500,000 during said two-year period,
payable in accordance with Central's normal payroll practices.
Thereafter, Employee's employment with Central shall be subject to the
terms and conditions of Section 3.2 hereof.
3.2 SUBSEQUENT EMPLOYMENT TERM AND COMPENSATION. For the two-year period
from January 1, 2000 through December 31, 2001, Central will negotiate
in good faith with Employee for his continued employment on the basis
of an incentive-based compensation program. Provided however that, in
the event
<PAGE> 4
EMPLOYMENT AGREEMENT
PAGE 4
that such good faith negotiations do not result in a satisfactory
compensation agreement, this Central Agreement shall terminate as of
December 31, 1999.
It is fully understood that, insofar as and so long as Reserve is able
to do so, Reserve shall bear the responsibility for fully compensating
Employee for all services he performs for both Reserve and Central
pursuant to the applicable provisions of the Reserve Agreement and the
Central Agreement, and Reserve shall bear the responsibility for fully
paying for all of the costs of Employee's benefits and expenses as set
forth in such agreements, and Central shall have no responsibility in
this regard, and no arrangement has been made between Reserve and
Central for allocation of any such compensation or costs; provided
however that, if for any reasons whatsoever Reserve is unable or
unwilling to fulfill its said responsibilities to fully compensate
Employee and fully pay for all of the costs of Employee's benefits and
expenses, in part or in whole, then and in that event, the
responsibility for so
<PAGE> 5
EMPLOYMENT AGREEMENT
PAGE 5
fully compensating Employee and for so paying for all the costs of
Employee's benefits and expenses under both the Reserve Agreement and
the Central Agreement shall be assumed by and borne by Central and any
other affiliate, subsidiary or successor.
Moreover, Employee shall be entitled to retain his current office for
as long as he is employed by Central.
3.3 VACATION. Employee is entitled to six (6) weeks' paid vacation annually
under the Reserve Agreement, which vacation Employee may cumulate from
year to year on and after January 1, 1998. No vacation time prior to
January 1, 1998 shall so cumulate.
3.4 RELOCATION. Employee shall not be required to relocate his place of
employment or his residence outside of Cuyahoga County, Ohio, but may
relocate his residence from time to time within or without Cuyahoga
County at his sole election.
<PAGE> 6
EMPLOYMENT AGREEMENT
PAGE 6
3.5 BOARD OF DIRECTORS. Employee shall remain on the Central and Reserve
Board of Directors for the duration of his Employment Agreements with
Central and Reserve.
IV
GENERAL COVENANTS
4.1 GENERAL COVENANTS.
(a) TERMINATION BY EMPLOYEE. At no time within the Initial or Subsequent
Employment term of this Central Agreement shall Employee terminate this
contract or refuse to perform his duties and responsibilities for
Central, except upon a material breach of the terms hereof by Central
or of the terms of the Reserve Agreement by Reserve. Upon termination
by Employee because of such breach by Reserve or Central, the rights of
Employee and the obligations of Central shall be the same as those
provided as to Employee and Reserve in Article V of the Reserve
Agreement.
<PAGE> 7
EMPLOYMENT AGREEMENT
PAGE 7
(b) TERMINATION BY CENTRAL. At no time within the Initial or Subsequent
Employment term of this Central Agreement shall Central terminate its
employment of Employee. If, however, Central shall attempt for any
reason whatsoever to terminate its employment of Employee, then and in
that event, Employee may deem this a material breach of the terms of
this Agreement by Central or of the terms of the Reserve Agreement by
Reserve, and the rights of the Employee and the obligations of Central
shall be the same as those provided in Article V of the Reserve
Agreement.
Notwithstanding the provisions of this Section 4.1(b), this Central
Agreement and the Reserve Agreement and Employee's employment
thereunder may be terminated by Central at any time without further
compensation for significant just and sufficient cause. For purposes of
this paragraph, "significant just and sufficient cause" shall mean any
action or non-action involving a material breach of the terms and
conditions of the Central or Reserve Agreements by Employee, which
cannot be promptly cured or rectified by
<PAGE> 8
EMPLOYMENT AGREEMENT
PAGE 8
Employee to Central's reasonable satisfaction, or gross or repeated
insubordination or a major conflict or interference with Employer's
best interests or business operations.
(c) ASSIGNABILITY. Neither party shall have the right to assign this
Central Agreement or any rights or obligations hereunder without the
prior written consent of the other party. Provided however that, upon
the sale of all or substantially all of the assets, business and
goodwill of Central to another corporation or entity, or upon the
merger or consolidation of Central with another corporation or entity,
this Central Agreement shall inure to the benefit of, and be binding
upon, both Employee and the corporation or entity purchasing such
assets, business and goodwill, or surviving such merger or
consolidation, as the case may be, in the same manner and to the same
extent as though such other corporation or entity were the original
party to this Central Agreement.
<PAGE> 9
EMPLOYMENT AGREEMENT
PAGE 9
V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT. This Central Agreement and the Reserve Agreement of
even date which is attached constitute the entire agreement between the
parties hereto in relation to the subject matter hereof, and no other
representations, warranties, covenants, understandings or agreements,
oral or otherwise, exist in relation thereto between the parties.
5.2 NO THIRD-PARTY BENEFICIARIES. This Central Agreement is intended solely
for the benefit of Reserve, Central and Employee and confers no right
or benefit upon any other person, including stockholders of Reserve and
Central and other officers and directors of Reserve and Central.
5.3 SEPARABILITY. Each provision of this Central Agreement is separable
from each other provision, and if any provision shall be found invalid
for any reason, the remaining provisions shall continue in full force
and effect.
<PAGE> 10
EMPLOYMENT AGREEMENT
PAGE 10
5.4 SECTION HEADINGS. The article and section headings herein are intended
only as aids to the location of subject matter, and are neither a part
of the substance of the Agreement nor a guide to construction.
5.5 COUNTERPARTS. This Central Agreement may be executed in one or more
counterparts, each of which shall be an original, and all such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year
first above written, effective January 1, 1998.
EMPLOYEE: CENTRAL:
CENTRAL RESERVE LIFE CORPORATION
/s/ Fred Lick, Jr. By: Frank W. Grimone
- -------------------------------- ---------------------------------
Fred Lick, Jr.
Its: CFO
--------------------------------
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
I
PARTIES
1.1 PARTIES. This Employment Agreement (the "Reserve Agreement") is made
this 15th day of December, 1997, effective January 1, 1998, by and
between Fred Lick, Jr. ("Employee") and Central Reserve Life Insurance
Company, an Ohio corporation engaged in the insurance business, having
its principal offices at 17800 Royalton Road, Strongsville, Ohio
44136-5197 ("Reserve").
II
RECITALS
2.1 EMPLOYEE. Employee is Chairman of Reserve.
2.2 CANCELLATION OF EXISTING AGREEMENTS. Reserve and Employee intend that
all prior existing Employment Agreements are cancelled and supplanted
by this new Employment Agreement, effective January 1, 1998 (the
"Reserve Agreement").
<PAGE> 2
EMPLOYMENT AGREEMENT
PAGE 2
III
TERMS OF THE AGREEMENT
3.1 NEW AGREEMENT CONTROLS. In consideration of their mutual covenants
herein of Employee's continuing his employment with Reserve, except as
hereinafter specifically provided to the contrary, Reserve and Employee
agree with each other as provided in this Reserve Agreement.
3.2 POSITION AND INITIAL EMPLOYMENT TERM AND COMPENSATION. From January 1,
1998 through December 31, 1999, Employee shall be and shall act as
Chairman of Reserve, with primary responsibilities for sales and
marketing of Reserve's insurance products, for the same annual salary
as set forth in Section 3.1 of the Employment Agreement effective
January 1, 1998 between Employee and Central Reserve Life Corporation
("Central").
3.3 SUBSEQUENT EMPLOYMENT TERM AND COMPENSATION. For the two-year period
from January 1, 2000 through December 31, 2001,
<PAGE> 3
EMPLOYMENT AGREEMENT
PAGE 3
Reserve will negotiate in good faith with Employee for his continued
employment on the basis of an incentive-based compensation program.
Provided however that, in the event that such good faith negotiations
do not result in a satisfactory compensation agreement, this Reserve
Agreement shall terminate as of December 31, 1999.
It is fully understood that, insofar as and so long as Reserve is able
to do so, Reserve shall bear the responsibility for fully compensating
Employee for all services he performs for both Reserve and Central
pursuant to the applicable provisions of the Reserve Agreement and the
Central Agreement, and Reserve shall bear the responsibility for fully
paying for all of the costs of Employee's benefits and expenses as set
forth in such agreements, and Central shall have no responsibility in
this regard, and no arrangement has been made between Reserve and
Central for allocation of any such compensation or costs; provided
however that, if for any reasons whatsoever Reserve is unable or
unwilling to fulfill its said responsibilities
<PAGE> 4
EMPLOYMENT AGREEMENT
PAGE 4
to fully compensate Employee and fully pay for all of the costs of
Employee's benefits and expenses, in part or in whole, then and in that
event, the responsibility for so fully compensating Employee and for so
paying for all the costs of Employee's benefits and expenses under both
the Reserve Agreement and the Central Agreement shall be assumed by and
borne by Central and any other affiliate, subsidiary or successor.
3.4 FRINGE BENEFITS. In addition to all other benefits which Employee is
receiving or may receive from Reserve from time to time, Reserve shall
continue to provide Employee at no cost to him fringe benefits no less
than those which he is now receiving. Moreover, Employee shall be
entitled to retain his current office for as long as he is employed by
Reserve.
3.5 AUTOMOBILE AND BUSINESS EXPENSES. Every two (2) years, Reserve shall
furnish Employee a Company-owned or leased automobile, with a buy-out
provision for the Employee,
<PAGE> 5
EMPLOYMENT AGREEMENT
PAGE 5
comparable in quality to the automobile furnished Employee by Reserve
during 1997, and shall bear the entire expense of such automobile,
including operational and maintenance expenses. Employee shall be
entitled to reimbursement of all travel and entertainment expenses
incurred in the performance of the responsibilities and duties of
Employee.
3.6 VACATION. Employee shall be entitled to receive a total of six (6)
weeks' paid vacation annually for the performance of his
responsibilities for both Central and Reserve, the unused portions of
which are cumulative and may be carried over from year to year on and
after January 1, 1998. No vacation time prior to January 1, 1998 shall
so cumulate.
3.7 TAX COUNSELING. In order that distractions imposed upon Employee by
unavoidable personal concerns may be kept to a minimum, Reserve agrees
to provide without expense to Employee reasonable legal counseling and
representation concerning such personal concerns as tax liability and
tax planning.
<PAGE> 6
EMPLOYMENT AGREEMENT
PAGE 6
3.8 INSURANCE BENEFITS. At all times during this Reserve Agreement and any
renewal thereof, Reserve shall pay Employee his total compensation as
set forth in Sections 3.2 or 3.3, as the case may be, during any time
that he shall suffer either partial or total disability (whether such
disability be temporary or permanent), reduced only by the amounts
which are paid to Employee under any insurance program purchased by
Reserve, Central or any affiliate. In addition, Reserve shall furnish
Employee at no cost to him, throughout the term of this Reserve
Agreement and any renewals thereof, fringe benefits including, but not
limited to, Group Life Insurance, AD&D, medical and hospital insurance
benefits no less than those covering Employee on January 1, 1998, and
Employee shall be entitled to such additional fringe benefits, if any,
as may be provided from time to time to any executive officer of
Reserve.
3.9 RETIREMENT BENEFITS. At all times during the term of this Reserve
Agreement and any renewal thereof, Reserve's pension
<PAGE> 7
EMPLOYMENT AGREEMENT
PAGE 7
plan and retirement plan fully paid for by Reserve in effect on January
1, 1982 shall not be terminated or its benefits reduced below the level
in effect on December 31, 1997 as it applies to the Employee.
3.10 CONTINUANCE OF FRINGE BENEFITS. If the employment of Employee
shall be terminated in any manner or for any reason other than the
voluntary resignation of Employee or for significant just and
sufficient cause pursuant to the applicable provisions of Section
6.1(b) hereof, the benefits as set forth in Sections 3.8 and 3.9 above
shall continue to be provided to Employee at the same times and in the
same manner as if this Reserve Agreement were still in full force for
the full initial or subsequent term of this Reserve Agreement, as the
case may be, for the duration of the then-current term thereof.
3.11 LOCATION OF EMPLOYMENT. Employee shall not be required to relocate his
place of employment or his residence outside of Cuyahoga County, Ohio,
but may relocate his residence from
<PAGE> 8
EMPLOYMENT AGREEMENT
PAGE 8
time to time within or without Cuyahoga County at his sole election.
IV
EXTENSION
4.1 EXTENSION OF AGREEMENT. This Agreement shall be subject to extension
for an additional two-year period, provided in Section 3.3 hereof.
V
TERMINATION PAYMENTS
5.1 TERMINATION OBLIGATIONS OF RESERVE. Where applicable, the termination
payment obligations of Reserve shall be discharged by Reserve as
follows:
(a) Employee's annual salary shall become fixed for the unexpired remainder
of the Initial and/or Subsequent Employment term of this Reserve
Agreement;
<PAGE> 9
EMPLOYMENT AGREEMENT
PAGE 9
(b) Such annual salary shall then be paid to Employee in one lump sum
within thirty (30) days of the effective date of his termination;
(c) The fringe benefits to which Employee is entitled at no cost to
Employee under the terms of this Reserve Agreement shall be continued
by Reserve for Employee at no cost to Employee for the remainder of
such Initial and/or Subsequent Employment term of this Reserve
Agreement; provided, however, if it is not legally possible for Reserve
itself to so provide a certain fringe benefit to Employee, Reserve
shall pay the cost of a comparable benefit which Employee may obtain
elsewhere.
<PAGE> 10
EMPLOYMENT AGREEMENT
PAGE 10
VI
GENERAL COVENANTS
6.1 GENERAL COVENANTS.
(a) TERMINATION BY EMPLOYEE. At no time within the Initial or Subsequent
Employment term of this Reserve Agreement shall Employee terminate this
Agreement or refuse to perform his duties and responsibilities for
Reserve, except upon a material breach of the terms hereof by Reserve
or of the terms of the Central Agreement by Central. Upon termination
by Employee because of such breach by Reserve or Central, the rights of
Employee and the obligations of Reserve shall be the same as those
provided in Article V.
(b) TERMINATION BY RESERVE. At no time within the Initial or Subsequent
Employment term of this Reserve Agreement shall Reserve terminate its
employment of Employee. If, however, Reserve shall attempt for any
reason whatsoever to terminate its employment of Employee, then and in
that event, Employee
<PAGE> 11
EMPLOYMENT AGREEMENT
PAGE 11
may deem this a material breach of the terms of this Agreement by
Reserve or of the terms of the Central Agreement by Central, and the
rights of the Employee and the obligations of Reserve shall be the same
as those provided in Article V of this Agreement.
Notwithstanding the provisions of this Section 6.1(b), this Reserve
Agreement and the Central Agreement and Employee's employment
thereunder may be terminated by Reserve at any time without further
compensation for significant just and sufficient cause. For purposes of
this paragraph, "significant just and sufficient cause" shall mean any
action or non-action involving a material breach of the terms and
conditions of the Central or Reserve Agreements by Employee, which
cannot be promptly cured or rectified by Employee to Reserve's
reasonable satisfaction, or gross or repeated insubordination or a
major conflict or interference with Employer's best interests or
business operations.
<PAGE> 12
EMPLOYMENT AGREEMENT
PAGE 12
(c) ASSIGNABILITY. Neither party shall have the right to assign this
Reserve Agreement or any rights or obligations hereunder without the
prior written consent of the other party. Provided however that, upon
the sale of all or substantially all of the assets, business and
goodwill of Reserve to another corporation or entity, or upon the
merger or consolidation of Reserve with another corporation or entity,
this Agreement shall inure to the benefit of, and be binding upon, both
Employee and the corporation or entity purchasing such assets, business
and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation or entity were the original party to this Reserve
Agreement.
VII
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Reserve Agreement and the Central Agreement of
even date, to which this Reserve Agreement is attached, constitute the
entire agreement between the
<PAGE> 13
EMPLOYMENT AGREEMENT
PAGE 13
parties hereto in relation to the subject matter hereof, and no other
representations, warranties, covenants, understandings or agreements,
oral or otherwise, exist in relation thereto between the parties.
7.2 NO THIRD-PARTY BENEFICIARIES. This Reserve Agreement is intended solely
for the benefit of Reserve, Central and Employee and confers no right
or benefit upon any other person, including shareholders of Reserve and
Central and other officers and directors of Reserve and Central.
7.3 SEPARABILITY. Each provision of this Reserve Agreement is separable
from each other provision, and if any provision shall be found invalid
for any reason, the remaining provisions shall continue in full force
and effect.
7.4 SECTION HEADINGS. The article and section headings herein are intended
only as aids to the location of subject matter, and are neither a part
of the substance of the Agreement nor a guide to construction.
<PAGE> 14
EMPLOYMENT AGREEMENT
PAGE 14
7.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, and all such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year
first above written, effective January 1, 1998.
/s/ Fred Lick, Jr.
--------------------------------
Fred Lick, Jr.
(Employee)
CENTRAL RESERVE LIFE INSURANCE
COMPANY
By: Frank W. Grimone
----------------------------
Its: CFO
---------------------------
<PAGE> 1
Exhibit 10.8
EMPLOYMENT/CONSULTING AGREEMENT
I
PARTIES
1.1 PARTIES. This Employment/Consulting Agreement (Agreement) is made this
16th day of December, 1997, effective January 1, 1998, by and between
Frank Grimone (Employee) and Central Reserve Life Insurance Company,
and Central Reserve Life Corporation, Ohio corporations having their
principal offices at 17800 Royalton Road, Strongsville, Ohio 44136-5197
(hereinafter, collectively "Company").
II
RECITALS
2.1 COMPANY. Central Reserve Life Insurance Company is the wholly-owned
subsidiary of Central Reserve Life Corporation, a holding company
organized under the laws of the State of Ohio.
<PAGE> 2
EMPLOYMENT AGREEMENT
PAGE 2
2.2 EMPLOYEE. Employee is Senior Executive Vice President, Chief Financial
Officer of Company.
2.3 PRIOR AGREEMENTS. Employee and Company are parties to prior employment
agreements. It is the intention of the parties that all such prior
employment agreements be canceled and supplanted in their entirety by
this Agreement.
III
TERMS OF THE AGREEMENT
3.1 TERM AND COMPENSATION. Company agrees to continue the employment of
Employee for a term of six (6) months, commencing January 1, 1998 and
ending June 30, 1998, with primary responsibilities devoted to the
financial affairs of Company. Commencing July 1, 1998 and continuing to
June 30,
<PAGE> 3
EMPLOYMENT AGREEMENT
PAGE 3
2000, Employee shall assume the duties of consultant regarding the
financial affairs of Company.
Employee shall devote no more than fifty percent (50%) of his time to
his duties as a consultant to Company (e.g., no more than 970 hours per
calendar year). During the term from January 1, 1998 to June 30, 1998,
Employee shall be paid a salary at the annual rate of $250,000, payable
in accordance with Company's normal payroll practices.
Beginning July 1, 1998 and continuing to June 30, 2000, unless
otherwise terminated according to the terms of this agreement, in
consideration for the performance of his duties as a financial
consultant to Company, Employee shall be paid a consulting fee in the
amount of $10,417 per month.
During the term of this agreement, Company shall reimburse Employee for
all reasonable travel expenses in accordance
<PAGE> 4
EMPLOYMENT AGREEMENT
PAGE 4
with Company's usual reimbursement practices for Employee's expenses
incurred in connection with the performance of his duties as an
employee of Company from January 1, 1998 until June 30, 1998 and,
thereafter, in connection with the performance of his duties as a
consultant.
Upon termination of his employment, Company shall reimburse Employee
for the cost of continuing his health insurance for himself and for his
spouse, Joan Grimone, pursuant to COBRA, for a period of eighteen (18)
months; thereafter, Company shall reimburse Employee for the cost of a
health insurance plan available to Eligible Individuals, as defined
under the laws of the State of North Carolina, for himself and for his
spouse, Joan Grimone, until each is eligible for Medicare, at which
time such reimbursement shall terminate.
During the term beginning January 1, 1998 and continuing until June 30,
1998, Employee shall continue to receive the
<PAGE> 5
EMPLOYMENT AGREEMENT
PAGE 5
following fringe benefits on the same basis as he was receiving them as
an of December 1, 1997: (i) country club membership; and (ii) an
allowance for a leased automobile, plus insurance, maintenance, and
operational expenses.
Beginning July 1, 1998, and continuing to the termination of this
agreement, all compensation in any form whatsoever shall terminate,
including, but not limited to, any salary, reimbursement, and fringe
benefits, at which time Employee shall be entitled only to receive the
consulting fee, reimbursement for reasonable travel and health
insurance, as set forth herein.
Moreover, Employee shall be entitled to retain his current office for
as long as he is employed by Company.
3.2 VACATION. During the employment term beginning January 1 , 1998 to June
30, 1998, Employee is entitled to three (3)
<PAGE> 6
EMPLOYMENT AGREEMENT
PAGE 6
weeks' paid vacation. No vacation time prior to January 1, 1998 shall
so cumulate.
3.3 INSURANCE BENEFITS AS EMPLOYEE. During the employment term beginning
January 1, 1998 to June 30, 1998, Company shall pay Employee the
compensation set forth in Section 3.1 herein during any time that he
shall suffer either partial or total disability (whether such
disability be temporary or permanent), reduced only by the amounts
which are paid to Employee under any insurance program purchased by
Company or any affiliate. In addition, during Employee's term of
employment (January 1, 1998 to June 30, 1998), Company shall furnish
Employee at no cost to him, group life insurance, AD&D, medical and
hospital insurance benefits no less than those covering Employee on
January 1, 1998, and Employee shall be entitled to such additional
fringe benefits, if any, that are provided to an executive of his level
in Company.
<PAGE> 7
EMPLOYMENT AGREEMENT
PAGE 7
3.4 RETIREMENT BENEFITS. From January 1, 1998 to June 30, 1998, Employee
may participate in Company's 401(k) under the same terms and conditions
that apply to an executive of his level in Company. Company's pension
plan and retirement plan fully paid by Company in effect on January 1,
1982 shall not be terminated or its benefits reduced below the level in
effect on December 31, 1997 as it applies to Employee; provided that
after the contribution for the year ending December 31, 1997, Company
shall have no further obligation to make contributions to such plan on
behalf of Employee.
3.5 RELOCATION. Employee shall not be required to relocate his place of
employment or his residence outside of Cuyahoga County, Ohio, but may
relocate his residence from time to time within or without Cuyahoga
County at his sole election.
<PAGE> 8
EMPLOYMENT AGREEMENT
PAGE 8
IV
GENERAL COVENANTS
4.1 GENERAL COVENANTS.
(a) TERMINATION BY EMPLOYEE. At no time within the term of this Agreement
shall Employee terminate this contract or refuse to perform his
reasonable and customary duties and responsibilities for Company,
except upon a material breach of the terms hereof by Company. Upon
termination by Employee because of such breach by Company, the rights
of Employee and the obligations of Company shall be the same as those
provided as to Employee and Company in Article V herein.
(b) TERMINATION BY COMPANY. At no time within the term of this Agreement
shall Company terminate this Agreement. If, however, Company shall
attempt for any reason whatsoever to
<PAGE> 9
EMPLOYMENT AGREEMENT
PAGE 9
terminate its employment of Employee and/or its agreement to engage his
services as a consultant, then and in that event, Employee may deem
this a material breach of the terms of this Agreement by Company, and
the rights of the Employee and the obligations of Company shall be as
set forth in Article V herein.
Notwithstanding the provisions of this Section 4.1(b), this Agreement
and Employee's employment or agreement to be a consultant hereunder, as
the case may be, may be terminated by Company at any time without
further compensation for significant just and sufficient cause. For
purposes of this paragraph, "significant just and sufficient cause"
shall mean any action or non-action involving a material breach of the
terms and conditions of the Agreement by Employee, which cannot be
promptly cured or rectified by Employee to Company's reasonable
satisfaction, or gross or repeated insubordination or a major conflict
or interference with Employer's best interests or business operations.
<PAGE> 10
EMPLOYMENT AGREEMENT
PAGE 10
(c) ASSIGNABILITY. Neither party shall have the right to assign this
Agreement nor any rights or obligations hereunder without the prior
written consent of the other party. Provided however that, upon the
sale of all or substantially all of the assets, business and goodwill
of Company to another corporation or entity, or upon the merger or
consolidation of Company with another corporation or entity, this
Agreement shall inure to the benefit of, and be binding upon, both
Employee and the corporation or entity purchasing such assets, business
and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation or entity were the original party to this Agreement.
V
TERMINATION PAYMENTS
5.1 TERMINATION OBLIGATIONS OF COMPANY. Where applicable, the termination
payment obligations of Company shall be discharged as follows:
<PAGE> 11
EMPLOYMENT AGREEMENT
PAGE 11
(a) Employee's annual salary shall become fixed for the unexpired remainder
of the initial employment term of this Agreement, January 1, 1998 to
June 30, 1998 and Employee's consulting fee shall become fixed for the
unexpired remainder of the term of consulting (July 1, 1998 to June 30,
2000;
(b) Such annual salary and or consulting fee owing for the unexpired
employment or consulting term, as the case may be, shall then be paid
to Employee in one lump sum within thirty (30) days of the effective
date of his termination;
(c) Upon termination of employment or consulting services, the
reimbursement for health insurance to which Employee is entitled at no
cost to Employee under the terms and conditions of Section 3.1 herein
shall be continued by Company.
<PAGE> 12
EMPLOYMENT AGREEMENT
PAGE 12
Notwithstanding the provisions of this Section 5.1(b) or any other
provision of this Agreement, Employee's employment or consulting
services, as the case may be, may be terminated by Company at any time
without further compensation for significant just and sufficient cause.
For purposes of this paragraph, "significant just and sufficient cause"
shall mean any action or non-action involving a material breach of the
terms and conditions of Agreement, which cannot be promptly cured or
rectified by Employee to Company's reasonable satisfaction, or gross or
repeated insubordination or a major conflict or interference with
Employer's best interests or business operations.
VI
MISCELLANEOUS
6.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto in relation to the subject matter hereof,
and no other representations,
<PAGE> 13
EMPLOYMENT AGREEMENT
PAGE 13
warranties, covenants, understandings or agreements, oral or otherwise,
exist in relation thereto between the parties.
6.2 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended solely for the
benefit of Company and Employee and confers no right or benefit upon
any other person, including stockholders of Company and other officers
and directors of Company.
6.3 SEPARABILITY. Each provision of this Agreement is separable from each
other provision, and if any provision shall be found invalid for any
reason, the remaining provisions shall continue in full force and
effect.
6.4 SECTION HEADINGS. The article and section headings herein are intended
only as aids to the location of subject matter, and are neither a part
of the substance of the Agreement nor a guide to construction.
<PAGE> 14
EMPLOYMENT AGREEMENT
PAGE 14
6.5 INDEPENDENT CONTRACTOR: Employee's employment shall terminate as of
June 30, 1998, at which time, pursuant to the terms of this Agreement,
he will be engaged as an independent contract to perform financial
consulting services to Company as provided herein.
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, and all such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year
first above written, effective January 1, 1998.
EMPLOYEE: COMPANY:
CENTRAL RESERVE LIFE INSURANCE
COMPANY
/s/ Frank Grimone By: /s/ John F. Novatney
- ------------------------------ -----------------------------
Frank Grimone
Its: General Counsel
----------------------------
<PAGE> 15
EMPLOYMENT AGREEMENT
PAGE 15
CENTRAL RESERVE LIFE CORPORATION
By: /s/ John F. Novatney
-----------------------------
Its: General Counsel
-----------------------------
<PAGE> 1
THE CENTRAL RESERVE LIFE INSURANCE COMPANY
SEVERANCE BENEFIT PLAN FOR DIRECTORS AND OFFICERS,
SUMMARY PLAN DESCRIPTION
AND
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
I. Establishment of Plan
----------------------
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
----------------
(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.
1
<PAGE> 2
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,
2
<PAGE> 3
backpay, frontpay, compensatory damages, punitive damages, or damages for pain
or suffering.
III. Plan Benefits and Limitations
------------------------------
(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."
3
<PAGE> 4
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
4
<PAGE> 5
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
-------
Benefits under the Plan shall not be funded but rather shall be payable from the
general assets of the Company.
V. Entitlement to Benefits
------------------------
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
-----------------------------
(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 inconsistent with the terms and provisions
hereof, as well as such other authority and powers relating to the
administration of the Plan.
(3) The Company's Executive Committee shall have complete
discretionary authority with respect to determining the eligibility of an
employee to receive benefits under the Plan, the amount of such benefits, and
all matters incidental thereto.
(4) The Company's Executive Committee shall keep a record of
all of its proceedings and shall keep all such books of account, records and
other data as may be necessary or advisable in its judgment for the
administration of the Plan,
5
<PAGE> 6
including records to reflect the affairs of the Plan and to determine the amount
of benefits payable under the Plan. The Company's Executive Committee and the
Company may rely on and will not be liable because of any information that an
employee provides, either directly or indirectly. Subject to the requirements of
law, any person dealing with the Company's Executive Committee may rely on, and
will incur no liability in relying on, a certificate or memorandum in writing
signed by the Company's Executive Committee, or an authorized member thereof, as
evidence of any action taken or resolution adopted by the Company's Executive
Committee.
(5) The Company's Executive Committee will cause to be
prepared and filed and/or distributed, in a timely manner, all reports and other
information which are required of the administrator of the Plan by any statute,
administrative regulations, ruling or order.
(6) The Company's Executive Committee shall have authority to
retain agents, counsel, accountants or any other person or persons who are
required by law or whom the Company's Executive Committee deems necessary or
desirable in order to provide for the proper administration of the Plan. The
Company's Executive Committee also shall have authority to incur expenses which
it deems necessary or desirable in order to properly perform its duties
hereunder. Any and all expenses or charges properly incurred in accordance with
the provisions of this paragraph shall be paid for by the Company.
VII. Amendment and Termination
-------------------------
The Plan may only be modified, amended, changed, or terminated upon the approval
of the Company's Board of Directors during a regular, annual or special meeting.
Any modification, amendment, change, or termination of the Plan shall be
evidenced and documented in writing and signed by at least two officers of the
Company at the level of executive vice president and above. Any modification,
amendment, change or termination of the Plan shall be effective upon Board
approval for all individuals who may have rights under the terms of this Plan,
excepting only those whose employment previously had been terminated and who
were determined to have right under this Plan.
Notwithstanding any other provision of this Plan, including, but not limited to
this "Amendment and Termination" provision, in regard to those individuals who
had been previously terminated at any time under the terms of this Plan or any
similar predecessor plan, this Plan shall not, in any manner, be modified,
amended, changed nor terminated so as to reduce, impair, or eliminate any of the
benefits provided by the terms of this Plan for these individuals.
6
<PAGE> 7
VIII. Miscellaneous Provisions
------------------------
(1) All parties to the Plan or who are claiming any interest
hereunder shall perform any and all acts and execute any and all documents and
papers which are necessary or desirable for carrying out the Plan or any of its
provisions. Each Eligible Employee must apply for his or her Plan Benefits on
forms prepared by Company, subject to the approval of the Executive Committee.
(2) The Plan shall be construed according to the laws of the
State of Ohio, and all provisions hereof shall be administered according to the
laws of that State, except to the extent preempted by federal law. In case any
provision of the Plan shall be or become invalid, such fact shall not affect the
validity of any other provision of the Plan. This Plan document sets forth the
entire terms of the Plan. Abbreviated Plan summaries, and other explanations of
the Plan's benefits and operations, including any and all prior agreements, to
the extent inconsistent, are hereby superseded.
(3) Under no circumstances shall the Plan or the participation
of any employee of the Company hereunder constitute a contract between the
Company and the employee or to be consideration for, nor an inducement, nor
condition of, the employment of such person. Each employee of the Company,
including any Eligible Employee under the Plan, is an at will employee of the
Company, and nothing in this Plan will be deemed to give the employee the right
to be retained in the employ of the Company, or to interfere with the right of
the Company to discharge the employee at any time, nor will it be deemed to give
the Company the right to require the employee to remain in its employ, nor will
it interfere with the right of the employee to terminate employment at any time.
(4) Any and all references in the Plan to any provision of any
statute, law, regulation, ruling, or order shall be deemed to refer also to any
successor provision of any statute, law, regulation, ruling or order.
(5) The Company's and CRLC's Boards of Directors, CRLC, the
Company and its officers and employees, and the Company's and CRLC's Executive
Committees, and each member thereof, shall be free from liability, joint or
several, for personal acts, omissions, and conduct, and for the acts, omissions
and conduct of duly constituted agents, in the administration of this Plan;
provided, however, that any individual who is held liable for the effects and
consequences of personal acts, omissions or conduct in the administration of the
Plan shall be indemnified
7
<PAGE> 8
and saved harmless by the Company except to the extent that such effects and
consequences resulted from misconduct.
(6) In the event an Eligible Employee's death occurs after he
or she has begun to receive Plan Benefits under Article III hereof, but prior to
the date that such benefits have been fully paid to the Eligible Employee, any
benefit then being paid under the Plan after the death of the Eligible Employee
shall be paid to the deceased Eligible Employee's surviving legal spouse, if
any, as the Eligible Employee's beneficiary for purposes of this Plan. If the
Eligible Employee is not survived by a legal spouse, any benefits then held for
the Eligible Employee shall be distributed to such deceased Eligible Employee's
estate as the beneficiary for purposes of this Plan.
(7) If any Eligible Employee or beneficiary entitled to
receive benefits hereunder shall be physically or mentally incapable of
receiving said benefits or acknowledging receipt thereof and the Company's
Executive Committee is not aware of any legal representative having been
appointed for him or her, the Company's Executive Committee may cause any
benefit otherwise payable hereunder to be paid to such one or more as may be
chosen by the Company's Executive Committee from among the following: any
institution maintaining the employee or beneficiary; and/or the employee's or
beneficiary's spouse, children and/or other relatives by blood or marriage;
and/or any person whom the Company's Executive Committee reasonably determines
is caring for the employee or beneficiary or otherwise providing the employee
with support and maintenance. Any payment so made shall be a complete discharge
of any and all liability under the Plan with respect to such payment.
(8) No benefit under the Plan shall be subject to alienation,
sale, transfer, assignment, pledge, attachment, garnishment, execution or
encumbrance of any kind, and any attempt to accomplish the same shall be void.
8
<PAGE> 9
YOUR "ERISA" RIGHTS
--------------------
As a participant in the Plan, you are entitled to certain
rights and protection under the Employee Retirement Income Security Act of 1974,
as amended (ERISA). ERISA provides that all Plan participants shall be entitled
to:
(a) Examine, without charge, at the Plan Administrator's
general offices, all Plan documents, and copies of all documents filed by the
Plan with the U.S. Department of Labor, such as detailed annual reports and Plan
descriptions.
(b) Obtain copies of all Plan documents and other Plan
information upon written request to the Plan Administrator. The Plan
Administrator may make a reasonable charge for the copies.
(c) Receive a summary of the Plan's annual financial report.
The Plan Administrator is required by law to furnish each participant with a
copy of this summary annual report.
(d) Obtain a statement telling you whether you have a right to
receive Plan Benefits, and if so, what your benefits would be. If you do not
have a right to Plan Benefits, the statement will tell you how many more years
you have to work to get a right to Plan Benefits. This statement must be
requested in writing and is not required to be given more than once a year. The
Plan must provide the statement free of charge.
In addition to creating rights for Plan participants, ERISA
imposes duties upon the people who are responsible for the operation of the
Plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a
duty to do so prudently and in the interest of you and other Plan participants
and beneficiaries. No one, including your employer, or any other person, may
fire you or otherwise discriminate against you in any way to prevent you from
obtaining Plan Benefits or exercising your rights under ERISA. If your claim for
Plan Benefits is denied in whole or in part you must receive a written
explanation of the reason for the denial. You have the right to have the Plan
review and reconsider your claim. Under ERISA, there are steps you can take to
enforce the above rights. For instance, if within 30 days, you may file suit in
a federal court. In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to $100 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits which is
denied or ignored, in whole or in part, you may file suit in a state or federal
court. If it should happen that Plan fiduciaries misuse the Plan's money, or if
you are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file suit in a federal
9
<PAGE> 10
court. The court will decide who should pay court costs and legal fees. If you
are successful, the court may order the person you have sued to pay the costs
and fees. If you lose, the court may order you to pay these costs and fees, for
example, if it finds your claim to be frivolous. If you have any questions about
your Plan, you should contact the Plan Administrator. If you have any questions
about this statement or about your rights under ERISA, you should contact the
nearest Area Office of the U.S. Labor-Management Services Administration,
Department of Labor.
10
<PAGE> 11
FILING CLAIMS/DENIAL OF CLAIMS
-------------------------------
Any person who believes that he or she has been denied
benefits improperly may file a claim for benefits with the Plan Administrator.
The claim may be filed by you, your duly authorized representative, or by your
beneficiary. The Plan Administrator will review your claim and will notify you
as to whether such claim has been granted or denied within 90 days after its
receipt of the claim unless special circumstances require an extension of time
for processing the claim. If an extension is required, you will be notified in
writing before expiration of the initial 90-day period. If your claim is denied,
you will receive a written notice explaining the denial in detail. You or your
duly authorized representative may file with the Plan Administrator a written
request for review of the claim within 60 days after you are notified of the
denial. When you file a request for review, the Plan Administrator will appoint
a claims reviewer who will make and explain his or her decision on the claim to
you within 60 days of receipt of your request unless special circumstances
require an extension of time for processing, in which case a decision will be
made not later than 120 days after receipt of your request. If an extension is
necessary, you will receive written notice of the extension prior to the
expiration of the 60-day period.
OTHER IMPORTANT INFORMATION
---------------------------
Name, Address, telephone number of Plan Administrator:
Executive Committee of the Board of Directors
Attention: Frank W. Grimone,
Sr. Executive Vice President,
Chief Financial Officer; or
James A. Weisbarth
Executive Vice President,
Treasurer
Central Reserve Life Insurance Company
CRL Plaza
17800 Royalton Road
Strongsville, Ohio 44136-5197
(440) 572-2400
11
<PAGE> 12
Agent for Service Process
for Plan Administrator: John F. Novatney, Jr.
Central Reserve Life Insurance Company
17800 Royalton Road
Strongsville, Ohio 44135-5197
(440) 572-2400
Central Reserve Life Insurance
Insurance Company's (Plan Sponsor's)
Federal
Tax ID Number: 34-1017531
Plan Number:
-----------------------------------
Plan Year: The initial Plan Year shall be
December 16, 1997 through
December 31,1997; thereafter,
the Plan Year shall be the calendar
year.
Source of Funding: All benefits are unfunded and are
payable directly by the Company from
general corporate assets of the Company.
Type of Plan: Welfare Plan providing severance pay
benefits.
<PAGE> 13
EXHIBIT A-1 [Group Waiver]
---------------------------
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
-----------------------------------------
As consideration for the covenants, payments and benefits
contained in the Central Reserve Life Insurance Company Severance Benefit Plan
(Plan), as an Eligible Employee under such Plan, I _________________________
_________________________________________________________________,
for myself, my executors, administrators, assigns, and heirs, do fully and
forever, irrevocably and unconditionally release, remit, acquit, and discharge
Central Reserve Life Corporation (CRLC), Central Reserve Life Insurance Company
(Company), and all persons and entities connected to them, including but not
limited to the 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, allegations, demands, disputes, liabilities, obligations,
demands, damages, debts or sums of money or any causes of action of any nature
or kind whatsoever, known or unknown, which I, my executors, administrators,
assigns or heirs, have or may have or may be able to assert in the future
against such persons or parties, up to and including the date of this General
Release and Waiver of all Claims (Release and Waiver), including but not limited
to, those based upon, relating to, or arising from the creation, existence or
termination of the "employer/employee" relationship, including but not limited
to any actions sounding in or related to tort, contract or claims of
discrimination of any kind, or arising under or related to any federal, state or
local law, rule or regulation, prohibiting age, sex, race, or other forms of
discrimination, whether those claims are past, present, or future, whether they
arise from labor laws or discrimination laws, including but not limited to any
law, rule, statute or regulation such as Title VII of the Civil Rights Act of
1964, as amended, Ohio Revised Code, ss.4112 et seq., Ohio Revised Code, ss.
4101.17, the Americans With Disabilities Act (ADA), Employee Retirement Income
Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), 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 this Release and Waiver, which include that you understand and acknowledge
that by executing this Release and Waiver you are knowingly and voluntarily
waiving any and all rights and claims you may have, as a covered individual,
under the ADEA and OWBPA; you are receiving hereunder consideration in addition
to anything of value to which you are already entitled; and you have been
advised to consult with attorney of your choice prior to executing this Release
and Waiver. This 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, this Release and Waiver applies to claims
for any relief, no matter how called, including but not limited to wages,
backpay, frontpay, compensatory damages, punitive damages, or damages for pain
or suffering.
<PAGE> 14
I represent that I have carefully read and fully understand
all of the provisions of this Release and Waiver. I represent and agree that I
have been advised of and fully understand my right to discuss all aspects of
this Release and Waiver with my private attorney. If I wish to discuss this
Release and Waiver with an attorney, I have done so. I execute this Release and
Waiver knowingly and voluntarily as my own free act and deed and represent that
this Release and Waiver was freely negotiated and entered into without fraud,
duress or coercion and with full knowledge of its significance, effects and
consequences.
I acknowledge that I have been given at least forty-five (45)
days to consider this Release and Waiver. I further acknowledge that Company has
provided me with (i) a copy of the Plan which includes a description of the
group of individuals covered by the Plan and the eligibility requirements to
participate in the Plan, and (ii) a list of the job titles and age of
individuals eligible to receive benefits under the Plan, and the ages of the
individuals in the same organizational units who are not eligible to receive
benefits under the Plan; such list is attached hereto as Exhibit B.
I acknowledge and understand that I may revoke this Release
and Waiver within seven (7) days from the date on which the Release and Waiver
is executed by submitting a signed statement to Company indicating that I have
chosen to revoke this Release and Waiver, in which case this Release and Waiver
shall be ineffective and of no legal force.
This Release and Waiver sets forth the entire agreement
between myself and Company and I acknowledge that in signing this Release and
Waiver I do not rely and have not relied upon any representation or statement,
written or oral, not set forth in this document.
DATED:
----------------- ------------------------------------------------
(Eligible Employee)
DATED:
----------------- ------------------------------------------------
(Witness as to Eligible Employee)
DATED:
----------------- ------------------------------------------------
(Authorized Executive Officer of Company)
2
<PAGE> 15
EXHIBIT A-2 [Individual Waiver]
-------------------------------
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
-----------------------------------------
As consideration for the covenants, payments and benefits
contained in the Central Reserve Life Insurance Company Severance Benefit Plan
(Plan), as an Eligible Employee under such Severance Benefit Plan, I, _________
_____________________________________________________________________________,
for myself, my executors, administrators, assigns, and heirs, do fully and
forever, irrevocably and unconditionally release, remit, acquit, and discharge
Central Reserve Life Corporation (CRLC), Central Reserve Life Insurance Company
(Company), and all persons and entities connected to them, including but not
limited to the 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, allegations, demands, disputes, liabilities, obligations,
demands, damages, debts or sums of money or any causes of action of any nature
or kind whatsoever, known or unknown, which I, my executors, administrators,
assigns or heirs, have or may have or may be able to assert in the future
against such persons or parties, up to and including the date of this General
Release and Waiver of all Claims (Release and Waiver), including but not limited
to, those based upon, relating to, or arising from the creation, existence or
termination of the "employer/employee" relationship, including but not limited
to any actions sounding in or related to tort, contract or claims of
discrimination of any kind, or arising under or related to any federal, state or
local law, rule or regulation, prohibiting age, sex, race, or other forms of
discrimination, whether those claims are past, present, or future, whether they
arise from labor laws or discrimination laws, including but not limited to any
law, rule, statute or regulation such as Title VII of the Civil Rights Act of
1964, as amended, Ohio Revised Code, ss.4112 et seq., Ohio Revised Code,
ss.4101.17, the Americans With Disabilities Act (ADA), Employee Retirement
Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), 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 this Release and Waiver, which include that you understand and acknowledge
that by executing this Release and Waiver you are knowingly and voluntarily
waiving any and all rights and claims you may have, as a covered individual,
under the ADEA and OWBPA; you are receiving hereunder consideration in addition
to anything of value to which you are already entitled; and you have been
advised to consult with attorney of your choice prior to executing this Release
and Waiver. This 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, this Release and Waiver applies to claims
for any relief, no matter how called, including but not limited to wages,
<PAGE> 16
backpay, frontpay, compensatory damages, punitive damages, or damages for pain
or suffering.
I represent that I have carefully read and fully understand
all of the provisions of this Release and Waiver. I represent and agree that I
have been advised of and fully understand my right to discuss all aspects of
this Release and Waiver with my private attorney. If I wish to discuss this
Release and Waiver with any attorney, I have done so. I execute this Release and
Waiver knowingly and voluntarily as my own free act and deed and represent that
this Release and Waiver was freely negotiated and entered into without fraud,
duress or coercion and with full knowledge of its significance, effects and
consequences.
I acknowledge that I have been given at least twenty-one (21)
days to consider this Release and Waiver. I acknowledge and understand that I
may revoke this Release and Waiver within seven (7) days from the date on which
the Release and Waiver is executed by submitting a signed statement to Company
indicating that I have chosen to revoke this Release and Waiver, in which case
this Release and Waiver shall be ineffective and of no legal force.
This Release and Waiver sets forth the entire agreement
between myself and Company and I acknowledge that in signing this Release and
Waiver I do not rely and have not relied upon any representation or statement,
written or oral, not set forth in this document.
DATED:
------------------------- -------------------------------------------
(Eligible Employee)
DATED:
------------------------- -------------------------------------------
(Witness as to Eligible Employee)
DATED:
------------------------- -------------------------------------------
(Authorized Executive Officer of Company)
2
<PAGE> 1
Exhibit 99.1
December 16, 1997
Strategic Acquisition Partners, LLC
20 North Wacker Drive
Suite 3118
Chicago, Illinois 60606
Ladies and Gentlemen:
The undersigned ("Stockholder"), a stockholder of Central Reserve Life
Corporation, an Ohio corporation (the "Company"), hereby agrees that Stockholder
will appear (in person or by proxy) at any annual or special meeting of
stockholders of the Company called to consider and vote on matters relating to
the Stock Purchase Agreement, dated November 26, 1997 (the "Purchase
Agreement"), between Strategic Acquisition Partners, LLC ("Partners") and the
Company or otherwise cause all shares of common stock of the Company
beneficially owned (as determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) by the Stockholder (the "Shares") to be
counted as present at such meeting for purposes of establishing a quorum and
will vote or consent (or cause to be voted or consented) all of the Shares for
which Stockholder has the power, right, option or ability to vote or direct the
voting of in favor of (i) the transactions contemplated by the Purchase
Agreement, (ii) the issuance by the Company of warrants to Peter Nauert and his
designees pursuant to the Credit Agreement dated December 16, 1997 (the "Credit
Agreement") between the Company and Partners and (iii) in favor of all other
matters with respect thereto proposed at the annual or special meeting and
against any proposal, action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Purchase Agreement or the Credit Agreement.
Nothing herein shall prevent Stockholder from acting in accordance with
any of his fiduciary duties as a director or officer of the Company or otherwise
limit the ability of
<PAGE> 2
Strategic Acquisition Partners, LLC
December 16, 1997
Page 2
affiliates of Stockholder to take any action in any of their capacities as a
director or officer of Company.
The agreements made herein are for and in consideration of the
representations, warranties, covenants and agreements set forth in the Purchase
Agreement and the Credit Agreement.
This Agreement (other than as to the matter in clause (ii) of the first
paragraph hereof) will terminate in the event the Board of Directors of the
Company accepts a Superior Proposal (as defined in the Purchase Agreement).
--------------------------------
Printed Name:
<PAGE> 1
Exhibit 99.2
December 17, 1997
At Central Reserve Life:
Fred Lick, Jr.
Chairman, President & CEO
(216) 572-2400
Frank Grimone, CFO
(216) 572-2400
At SM Berger & Company:
Anne S. Babcock
(216) 464-6400
FOR IMMEDIATE RELEASE
CENTRAL RESERVE LIFE CORPORATION
SECURES INTERIM FINANCING
Strongsville, Ohio (December 17, 1997) -- Central Reserve Life Corporation
(Nasdaq: CRLC) today announced that, through Strategic Acquisition Partners,
LLC, it has received the proceeds of a $20 million interim loan due April 1,
1998. Approximately $14 million of the net proceeds from the loan have been
invested in the Company's insurance subsidiary, Central Reserve Life Insurance
Company (CRL). The balance of the net proceeds will be used to satisfy the
Company's $5.2 million loan from the Huntington National Bank. In conjunction
with the funding of the interim loan, CRL also entered into a $10 million
reinsurance agreement with the Reassurance Company of Hannover and issued
warrants to acquire 800,000 shares of common stock at $6.00 per share on the
terms previously announced.
In a statement released on December 2, 1997, Central Reserve Life Corporation
and Strategic Acquisition Partners announced that they had entered into a
definitive stock purchase agreement. Under the terms of the agreement, the
Company will issue to Strategic Acquisition Partners 5,000,000 shares of its
common stock and warrants to acquire up to 2,500,000 shares of its common
stock for $27.5 million. The interim loan will be repaid with proceeds of the
stock and warrant issuance.
Central Reserve Life Corporation, through its Ohio-domiciled life insurance
company, Central Reserve Life Insurance Company (CRL), specializes in meeting
the insurance needs of small to mid-size businesses and individuals. Among the
products CRL offers are life insurance, annuities, accident and health
insurance, short-term major medical and long-term disability.
