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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
Information to be included in statements filed pursuant to
Rule 13d-1(a) and amendments thereto filed
pursuant to Rule 13d-2(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2 )*
CERES GROUP, INC.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
156772 10 5
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(CUSIP Number)
Marc C. Krantz, Kohrman Jackson & Krantz P.L.L., 1375 East 9th Street,
Cleveland, Ohio 44114
216-736-7204
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
November 18, 1999
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
NOTE: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 47 Pages
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SCHEDULE 13D
CUSIP NO. 156772 10 5 PAGE 2 OF 47 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PETER W. NAUERT
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
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(b) [X]
---
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
BK
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
---
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
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NUMBER OF 7 SOLE VOTING POWER
SHARES 2,487,525(1)
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 2,487,525(1)
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PERSON 10 SHARED DISPOSITIVE POWER
WITH
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,487,525(1)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.6%
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14 TYPE OF REPORTING PERSON*
IN
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(1) Includes warrants to purchase 532,781 shares of common stock at $5.50 per
share (the "Equity Warrant") including warrants to purchase 65,963 shares of
common stock at $5.50 per share, as described in this Schedule 13D (the "UP&UP
Equity Warrant"); warrants to purchase 500,000 shares of common stock at $6.00
per share (the "Guarantee Warrant"); and non-qualified options to purchase
250,000 shares of common stock at an average price of $7.30 per share.
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CUSIP No. 156772 10 5
This Amendment No. 2 to Schedule 13D Statement is filed on behalf of
Peter W. Nauert for the purpose of reporting an acquisition by, and an issuance
to, Mr. Nauert of shares of common stock, par value $0.001 per share (the
"Shares"), and the acquisition by Mr. Nauert of warrants to purchase Shares, of
Ceres Group, Inc., a Delaware corporation ("Ceres").
Item 3. Source and Amount of Funds or Other Consideration.
--------------------------------------------------
Item 3 is amended and supplemented as follows:
The 100,000 Shares and the UP&UP Equity Warrant to purchase 65,963
Shares acquired by Mr. Nauert since the filing of the Amendment No. 1 to
Schedule 13D Statement on March 12, 1999 ("Amendment No. 1") were acquired for
the aggregate purchase price of $550,000. Mr. Nauert purchased the 100,000
Shares and the UP&UP Equity Warrant on November 18, 1999 with the proceeds of a
loan (the "Loan Agreement") from Bank One, Illinois, NA ("Bank One"). Mr. Nauert
executed a Promissory Note in favor of Bank One, dated as of December 4, 1997,
as modified (the "Promissory Note"). The Promissory Note is in the amount of
$1.5 million and bears interest at a variable rate based on the outstanding
principal balance, ranging from Prime to Prime less 1.0%. The Promissory Note
matures on March 1, 2000. The Loan Agreement and Promissory Note are attached
hereto as Exhibit 7.9.
In addition, Ceres issued 108,108 Shares to Mr. Nauert on July 1, 1999,
pursuant to the stock award provision of his employment agreement, as amended.
Item 4. Purpose of Transaction.
-----------------------
Item 4 is amended and supplemented as follows:
Mr. Nauert purchased 100,000 Shares and the UP&UP Equity Warrant on
November 18, 1999 in connection with a private sale by United Payors and United
Providers, Inc., a stockholder of Ceres ("UP&UP"), of 137,818 Shares and
warrants to purchase 90,909 Shares at $5.50 per share, to Mr. Nauert and his
designees (the "UP&UP Sale"). Mr Nauert assigned the right to purchase 37,818
Shares and 24,946 UP&UP Equity Warrants to various members of Ceres' senior
management. In connection with the UP&UP Sale, Mr. Nauert and his designees
entered into a Stock Purchase Agreement with UP&UP, dated November 16, 1999,
which is attached hereto as Exhibit 7.10 and incorporated herein by reference.
The Stock Purchase Agreement provides that the Shares purchased by Mr. Nauert
and his designees in the UP&UP Sale will be bound by and subject to the
Stockholders Agreement and the Voting Agreement, as more fully described in Item
5 to Amendment No. 1, and that the Shares purchased by Mr. Nauert and his
designees are "Registrable Shares" as defined in the Registration Rights
Agreement, as more fully described in Item 6 to Amendment No. 1.
Mr. Nauert and Ceres entered into an employment agreement, dated as of
June 30, 1998, that commenced on July 1, 1998 and terminates on July 1, 2001
(the "Employment Agreement"). The Employment Agreement is described in Item 4
and filed as Exhibit 7.7 to Amendment No. 1. The First Amendment to the
Employment Agreement dated March 18, 1999 and the Second Amendment
Page 3 of 47 Pages
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CUSIP No. 156772 10 5
to the Employment Agreement dated June 15, 1999 are attached hereto as Exhibits
7.11 and 7.12, respectively.
The following is a summary of the Employment Agreement, as amended, and
is not intended to be a complete description. Reference is made to the full text
of the Employment Agreement, attached as Exhibit 7.7 to Amendment No. 1, and the
First Amendment and Second Amendment, attached hereto as Exhibits 7.11 and
7.12, respectively, and incorporated herein by reference. The Employment
Agreement, as amended, provides, among other things, for (1) a stock award in
lieu of annual compensation (the "Stock Award"), plus a cash payment equal to
the taxes payable on the Stock Award; (2) options to purchase 500,000 Shares
(the "Stock Options"); and (3) incentive pay for each year of employment equal
to 5% of the amount by which Ceres' pre-tax income for such year exceeds the
base case for each year of employment as set forth in the Employment Agreement.
Mr. Nauert will receive Stock Awards payable in Shares as follows: on July 1,
1999, 108,108 Shares and after that quarterly beginning January 1, 2000 and on
the first day of each calendar quarter after that, the number of Shares equal to
$250,000 divided by the average closing price of the Shares for the calendar
quarter ending three months before the payment until July 1, 2001 when the final
quarterly payment of stock will be paid. The July 1, 2001 payment will include
the Stock Awards for the quarters ending March 31, 2001 and June 30, 2001 and an
additional payment of 58,559 Shares. Mr. Nauert will also receive a cash payment
equal to the amount of taxes payable on the Stock Awards before the time these
taxes become due. Mr. Nauert will forfeit any unpaid Stock Award or cash payment
for taxes if Ceres terminates his employment for any reason other than a
"severanceable event," as that term is defined in the Employment Agreement.
The Stock Options vest as follows: (1) 30%, or 150,000 Shares, vested
on July 1, 1998; (2) 20%, or 100,000 Shares, vested on July 1, 1999; (3) 20%, or
100,000 Shares, vest on July 1, 2000; and (4) 30%, or 150,000 Shares, vest on
July 1, 2001. The exercise price of the Stock Options is as follows: (1) 100,000
at $6.50 per Share; (2) 100,000 at $7.50 per Share; (3) 100,000 at $8.50 per
Share; (4) 100,000 at $9.50 per Share; and (5) 100,000 at $10.50 per Share.
Item 5. Interest in Securities of the Issuer.
-------------------------------------
Item 5 is amended and supplemented as follows:
(a) According to the most recently available filing with the Securities
and Exchange Commission by Ceres and information provided by Ceres to Mr.
Nauert, there are 13,687,727 Shares outstanding. If the UP&UP Equity Warrant,
the Equity Warrant (as described more fully in Item 4 to Amendment No. 1), the
Guarantee Warrant (as described more fully in Item 4 to the Original Schedule
13D Statement filed on April 30, 1998), and the 250,000 vested Stock Options
were fully exercised, there would be 14,970,508 Shares outstanding (the "Diluted
Shares").
Mr. Nauert beneficially owns 2,487,525 Shares, assuming full exercise
of the UP&UP Equity Warrant, the Equity Warrant, the Guarantee Warrant and
250,000 Stock Options, or approximately 16.6% of the Diluted Shares.
Page 4 of 47 Pages
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CUSIP No. 156772 10 5
Because of the Voting Agreement and Stockholders Agreement (as more
fully described in Item 5 of Amendment No. 1), Mr. Nauert and the other parties
to these agreements may be deemed to be a group within the meaning of Section
13(d)(3) of the Exchange Act. Based on information provided to Mr. Nauert by
Ceres, if the parties to these agreements are deemed to be a group within the
meaning of Section 13(d)(3) of the Exchange Act, Mr. Nauert may be deemed to
beneficially own 15,112,076 Shares(2), or approximately 79.5% of the Shares that
would be outstanding if each party had exercised their respective outstanding
rights to purchase Shares (including options not presently exercisable). Mr.
Nauert disclaims beneficial ownership of the Shares held by the other parties.
(b) Except as set forth in the Voting Agreement and the Stockholders
Agreement, Mr. Nauert has sole power to vote, or to direct the voting of, and
the sole power to dispose or to direct the disposition of, the Shares owned by
him.
(c) Since the filing of Amendment No. 1, Mr. Nauert (1) purchased the
UP&UP Equity Warrant and 100,000 Shares from UP&UP on November 18, 1999 for
$5.50 per share in a private transaction; and (2) was issued 108,108 Shares by
Ceres on July 1, 1999 pursuant to the Stock Award provision of his Employment
Agreement, as amended.
(d) Not Applicable.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationship with respect to
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Securities of the Issuer.
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Item 6 of Schedule 13D is hereby amended and supplemented as follows:
Reference is hereby made to (i) the Loan Agreement and Promissory Note
attached hereto as Exhibit 7.9; (ii) the Stock Purchase Agreement, attached
hereto as Exhibit 7.10; and (iii) the First and Second Amendments to the
Employment Agreement, attached hereto as Exhibits 7.11 and 7.12, respectively,
as more fully described in Items 3 and 4 herein.
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(2) Includes: (i) 532,781 Equity Warrants, 500,000 Guarantee Warrants, 1,204,744
Shares and non-qualified options to purchase 500,000 Shares owned by Mr. Nauert;
and (ii) 3,067,219 Equity Warrants, 400,000 Guarantee Warrants, 8,592,332
Shares, and non-qualified option to purchase 315,000 Shares owned by the other
parties.
Page 5 of 47 Pages
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CUSIP No. 156772 10 5
Item 7. Material to be Filed as Exhibits.
---------------------------------
Item 7 of Schedule 13D is hereby amended and supplemented as follows:
Exhibit 7.9 -- The Loan Agreement and Promissory Note
Exhibit 7.10 -- The Stock Purchase Agreement
Exhibit 7.11 -- First Amendment to the Employment Agreement
Exhibit 7.12 -- Second Amendment to the Employment Agreement
Page 6 of 47 Pages
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CUSIP No. 156772 10 5
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: December 8, 1999
By: /s/ Peter W. Nauert
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Peter W. Nauert
Page 7 of 47 Pages
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CUSIP No. 156772 10 5
EXHIBIT INDEX
Exhibit 7.9 Business Loan Agreement, dated December 4, 1997, between
Peter W. Nauert and Bank One, Illinois, NA and Promissory
Note, dated December 4, 1997, delivered by Peter W. Nauert in
favor of Bank One, Illinois, NA
Exhibit 7.10 Stock Purchase Agreement dated November 16, 1999, by and
between United Payors and United Providers, Inc. and Peter
W. Nauert or his designees
Exhibit 7.11 First Amendment to Employment Agreement dated March 17,
1999, by and between Peter W. Nauert and Ceres Group, Inc.
Exhibit 7.12 Second Amendment to Employment Agreement dated June 15, 1999,
by and between Peter W. Nauert and Ceres Group, Inc.
Page 8 of 47 Pages
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EXHIBIT 7.9
BUSINESS LOAN AGREEMENT
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Borrower: PETER W. NAUERT Lender: Bank One, Illinois, NA
27 RIDERWOOD ROAD Mulford Office
NORTH BARRINGTON, IL 60010-4900 East Old State Capitol Plaza
P.O. Box 19266
Springfield, IL 62794-9266
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THIS BUSINESS LOAN AGREEMENT between PETER W. NAUERT ("Borrower") and Bank One,
Illinois, NA ("Lender") is made and executed as of December 4, 1997. This
Agreement governs all loans, credit facilities and/or other financial
accommodations described herein and, unless otherwise agreed to in writing by
Lender and Borrower, all other present and future loans, credit facilities and
other financial accommodations provided by Lender to Borrower. All such loans,
credit facilities and other financial accommodations, together with all
renewals, amendments and modifications thereof, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in this Agreement; and (b) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of December 4, 1997, and shall
continue thereafter until all Loans and other obligations owing by Borrower to
Lender hereunder have been paid in full and Lender has no commitments or
obligations to make further advances under the Loans to Borrower.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Illinois. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
may be amended or modified from time to time, together with all
exhibits and schedules attached hereto from time to time.
Borrower. The word "Borrower" means PETER W. NAUERT.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral for any Loan, whether
real or personal property, whether granted directly or indirectly,
whether granted now or in the future, and whether granted in the form
of a security interest, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device,
Page 9 of 47 Pages
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or any other security or lien interest whatsoever, whether created by
law, contract or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Grantor. The word "Grantor" means and includes each and all of the
guarantors, sureties, and accommodation parties for any of the Loans.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and accrued interest thereon,
together with all other liabilities, costs and expenses for which
Borrower is responsible under this Agreement or under any of the
Related Documents. In addition, the word "indebtedness" includes all
other obligations, debts and liabilities, plus any accrued interest
thereon, owing by Borrower, or any one or more of them, to Lender of
any kind or character, now existing or hereafter arising, as well as
all present and future claims by Lender against Borrower, or any one or
more of them, and all renewals, extensions, modifications,
substitutions and rearrangements of any of the foregoing; whether such
indebtedness arises by note, draft, acceptance, guaranty, endorsement,
letter of credit, assignment, overdraft, indemnity agreement or
otherwise; whether such indebtedness is voluntary or involuntary, due
or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly
with others; whether Borrower may be liable primarily or secondarily or
as debtor, maker, comaker, drawer, endorser, guarantor, surety,
accommodation party or otherwise.
Lender. The word "Lender" means Bank One, Illinois, NA, its successors
and assigns.
Note. The word "Note" means any and all promissory note or notes which
evidence Borrower's Loans in favor of Lender, as well as any amendment,
modification, renewal or replacement thereof.
Related Documents. The words "Related Documents" mean and include
without limitation the Note and all credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Note.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each request for an advance or
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any indebtedness exists hereafter:
Page 10 of 47 Pages
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Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents to which borrower is a party have
been duly authorized by all necessary action; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower. Borrower has
all requisite power and authority to execute and deliver this Agreement
and all other Related Documents to which Borrower is a party.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely discloses Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement and all other Related Documents to which
Borrower is a party constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their
respective terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies may
generally be limited by equitable principles.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower is the sole owner of, and has
good title to, all of Borrower's properties free and clear of all
Security Interests, and has not executed any security documents or
financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not
used, or filed a financing statement under, any other name for at least
the last six (6) years.
Compliance. Except as disclosed in writing to Lender (a) Borrower is
conducting Borrower's businesses in material compliance with all
applicable federal, state and local laws, statutes, ordinances, rules,
regulations orders, determinations and court decisions, including
without limitation, those pertaining to health or environmental
matters, and (b) Borrower otherwise does not have any known material
contingent liability in connection with the release into the
environment, disposal or the improper storage of any toxic or hazardous
substance or solid waste.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may in any one case or in the aggregate materially
adversely affect Borrower's financial condition or properties, other
than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Page 11 of 47 Pages
<PAGE> 12
Taxes. All tax returns and reports of Borrower that are or were
required to be filed, have been filed, and all taxes, assessments and
other governmental charges have been paid in full, except those that
have been disclosed in writing to Lender which are presently being or
to be contested by borrower in good faith in the ordinary course of
business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to and approved by
Lender in writing, Borrower has not entered into any Security
Agreements, granted a Security Interest or permitted the filing or
attachment of any Security Interests on or affecting any of the
Collateral, except in favor of Lender.
Licenses, Trademarks and Patents. Borrower possesses and will continue
to possess all permits, licenses, trademarks, patents and rights
thereto which are needed to conduct Borrower's business and Borrower's
business does not conflict with or violate any valid rights of others
with respect to the foregoing.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes approved by Lender and such
proceeds will not be used for the purchasing or carrying of "margin
stock" as defined in Regulation U issued by the Board of Governors of
the Federal Reserve System.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's chief executive office it Borrower has more
than one place of business, is located at 27 RIDERWOOD ROAD, NORTH
BARRINGTON, IL 60010-4900. Unless Borrower has designated otherwise in
writing this location is also the office or offices where Borrower
keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan advances to
Borrower. Borrower further agrees that the
Page 12 of 47 Pages
<PAGE> 13
foregoing representations and warranties shall be continuing in nature
and shall remain in full force and effect during the term of this
Agreement.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, (b) all existing and
all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower at
the financial condition of any Guarantor, and (c) the creation,
occurrence or assumption by Borrower of any actual or contingent
liabilities not permitted under this Agreement.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine, audit and make and take away
copies or reproductions of Borrower's books and records at all
reasonable times. If Borrower now or at any time hereafter maintains
any records (including without limitation computer generated records
and computer software programs for the generation of such records) in
the possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such records at
all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than sixty (60) days after the and of each fiscal year,
Borrower's balance sheet, income statement, and statement of changes in
financial position for the year ended, prepared by Borrower. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true
and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, business interruption insurance and such other insurance as
Lender may require with respect to Borrower's properties and
operations, in form, amounts, coverages and with insurance companies
reasonably acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10)
days' prior written notice to Lender. In connection with all policies
covering assets in which Lender holds or is offered a Security Interest
for the Loans, Borrower will provide Lender with such lender loss
payable or other endorsements as Lender may require.
Page 13 of 47 Pages
<PAGE> 14
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the Insurer: (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits; provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contacted assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting principles. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act, all
applicable environmental statutes, rules, regulations and ordinances
and with all minimum funding standards and other requirements of ERISA
and other laws applicable to Borrower's employee benefit plans.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all federal, state and local environmental laws,
statutes, regulations and ordinances; not cause or permit to exist, as
a result of an intentional or unintentional action or omission
Page 14 of 47 Pages
<PAGE> 15
on its part or on the part of any third party, on property owned and/or
occupied by Borrower, any environmental activity where damage may
result to the environment, unless such environmental activity is
pursuant to and in compliance with the conditions of a permit issued by
the appropriate federal, state or local governmental authorities; and
furnish to Lender promptly and in any event within thirty (30) days
after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency
or instrumentality concerning any intentional or unintentional action
or omission on Borrower's pan in connection with any environmental
activity whether or not there is damage to the environment and/or other
natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Maintain Basic Business. Engage in any business activities
substantially different than those in which Borrower is presently
engaged.
Continuity of Operations. Cease operations, liquidate, dissolve or
merge or consolidate with or into any other entity.
CONDITIONS PRECEDENT TO ADVANCES. If Lender is obligated to make any Loan
advances or to otherwise disburse any Loan proceeds to Borrower, such obligation
shall be subject to the conditions precedent that as of the date of such advance
or disbursement arid after giving effect thereto (a) all representations and
warranties made to Lender in this Agreement and the Related Documents shall be
true and correct as of and as if made on such date, (b) no material adverse
change in the financial condition or Borrower or any Guarantor since the
effective date of the most recent financial statements furnished to Lender, or
in the value of any Collateral, shall have occurred and be continuing, (c) no
event has occurred and is continuing, or would result from the requested advance
or disbursement, which with notice or lapse of time, or both, would constitute
an Event of Default, (d) no Guarantor has sought, claimed or otherwise attempted
to limit, modify or revoke such Guarantor's guaranty of any Loan, and (a) Lender
has received all Related Documents appropriately executed by Borrower and all
other proper parties. INCOME TAX RETURNS. Borrower shall furnish Lender with a
complete copy of Borrower's federal income tax return within 30 days of filing.
In the event the Borrower obtains an extension of time to file any such return,
Borrower promptly shall provide Lender with a copy of the executed request for
the extension. In addition, Borrower shall provide Lender with the federal
income tax returns of any and all Affiliates as reasonably requested by Lender.
As used herein, the term "Affiliate" means any individual or entity directly or
indirectly controlling, controlled by or under common control with another
entity or individual.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, I grant to Lender a contractual possessory security
interest in, and hereby assign, convey, deliver, pledge, and transfer to Lender
all my right, title and interest in and to, my
Page 15 of 47 Pages
<PAGE> 16
accounts with Lender (whether checking, savings, or any other account),
including without limitation all accounts held jointly with someone else and all
accounts I may open in the future. I authorize Lender, to the extent permitted
by applicable law, to charge or setoff all sums owing on the Indebtedness
against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default an Indebtedness. Failure of Borrower to make any payment when
due on any of the Indebtedness.
Other Defaults. Failure of Borrower, any Guarantor or any Grantor to
comply with or to perform when due any other term, obligation, covenant
or condition contained in this Agreement, the Note or in any of the
other Related Documents, or failure of Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in
any other agreement now existing or hereafter arising between Lender
and Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender under this Agreement or the Related Documents is
false or misleading in any material respect.
Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower,
Grantor or any Guarantor to any third party under any agreement or
undertaking.
Bankruptcy or Insolvency. If the Borrower, Grantor or any Guarantor:
(i) becomes insolvent, or makes a transfer in fraud of creditors, or
makes an assignment for the benefit of creditors, or admits in writing
its inability to pay its debts as they become due; (ii) generally is
not paying its debts as such debts become due; (iii) has a receiver,
trustee or custodian appointed for, or take possession of, all or
substantially all of the assets of such party or any of the Collateral,
either in a proceeding brought by such party or in a proceeding brought
against such party and such appointment is not discharged or such
possession is not terminated within sixty (60) days after the effective
date thereof or such party consents to or acquiesces in such
appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar (all of the foregoing
hereinafter collectively called "Applicable Bankruptcy Law") or an
involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not
dismissed within sixty (60) days after the filing thereof, or an order
for relief naming such party is entered under any Applicable Bankruptcy
Law, or any composition rearrangement, extension, reorganization or
other relief of debtors now or hereafter existing is requested or
consented to by such party; (v) fails to have discharged within a
period of sixty (60) days any attachment, sequestration or similar writ
levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party.
Page 16 of 47 Pages
<PAGE> 17
Liquidation, Death and Related Events. If Borrower, Grantor or any
Guarantor is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if any of such parties is an
individual, the death or legal incapacity of any such individual.
Creditor or Forfeiture Proceedings. Commencement of foreclosure of
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender may,
at its option, without further notice or demand, (a) terminate all Commitments
and obligations of Lender to make Loans to Borrower, if any, (b) declare all
Loans and any other Indebtedness immediately due and payable, (c) refuse to
advance any additional amounts under the Note, or (d) exercise all the rights
and remedies provided in the Note or in any of the Related Documents or
available at law, in equity, or otherwise; provided, however, if any Event of
Default of the type described in the "Bankruptcy or Insolvency" subsection above
shall occur, all Loans and any other Indebtedness shall automatically become due
and payable, without any notice, demand or action by Lender. Except as may be
prohibited by applicable law, all of Lender's rights and remedies shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedies shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Borrower or any Grantor shall not affect Lender's right to declare a default and
to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS.
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Illinois. Subject to the provisions
on arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to any
conflict of laws or provisions thereof.
Arbitration. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them,
whether individual, joint, or class in nature, arising from this
Agreement, any Related Document or otherwise, including without
limitation contract disputes and tort claims, shall be arbitrated
pursuant to the Commercial Rules of the American Arbitration
Association. Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the
Borrower's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. No act to take or dispose
of any Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit
Page 17 of 47 Pages
<PAGE> 18
the right of either party during any dispute, claim or controversy to
seek, use, and employ ancillary, provisional or preliminary rights
and/or remedies, judicial or otherwise, for the purposes of realizing
upon, preserving, protecting. foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real of personal
property, and any such action shall not be deemed an election of
remedies. This includes, without limitation, obtaining injunctive
relief or a temporary restraining order, invoking a power of sale under
any deed of trust or mortgage, obtaining a writ of attachment or
imposition of a receivership, or exercising any rights relating to
personal property, including taking or disposing of such property with
or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right or
remedy, concerning any Collateral, including any claim to rescind,
reform, or otherwise modify any agreement relating to the Collateral.
shall also be arbitrated; provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either
party. Judgment upon any award rendered by any arbitrator may be
entered in any court having jurisdiction. Nothing in this arbitration
provision shall preclude either party from seeking equitable relief
from a court of competent jurisdiction. The statute of limitations,
estoppel, waiver, laches and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of any action for these
purpose. The Federal Arbitration Act (Title 9 of the United States
Code) shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret of define
the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests In the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this
Agreement. Lender may hire one or more attorneys to help collect the
indebtedness if I do not pay, and I will pay Lender's reasonable
attorneys' fees.
Notices. All notices required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered or
when deposited with a notionally recognized overnight courier or
deposited in the United States mail, first class, postage
Page 18 of 47 Pages
<PAGE> 19
prepaid, addressed to the party to whom the notice is to be given at
the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is
more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current addresses.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid of unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute the same document. Signature pages may
be detached from the counterparts to a single copy of this Agreement to
physically form one document.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor or Guarantor,
shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Page 19 of 47 Pages
<PAGE> 20
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS EXECUTED AS OF
THE DATE SET FORTH ABOVE.
BORROWER:
- ---------------
PETER W. NAUERT
LENDER:
Bank One, Illinois, NA
By:
-----------------------------
Authorized Officer
Page 20 of 47 Pages
<PAGE> 21
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Borrower: PETER W. NAUERT Lender: Bank One, Illinois, NA
27 RIDERWOOD ROAD Mulford Office
NORTH BARRINGTON, IL 60010-4900 East Old State Capitol Plaza
P.0. Box 19266
Springfield, IL 62794-9266
- --------------------------------------------------------------------------------
Principal Amount: $1,500,000.00 Date of Note: December 4, 1997
PROMISE TO PAY. For value received, I promise to pay to Bank One, Illinois, NA
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million Five Hundred Thousand & 00/100 Dollars
($1,500,000.00) ("Total Principal Amount") or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance
from the date advanced until paid in full.
PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on January 4, 1998 and continuing on
the same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable an December 4, 1998. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. I will pay Lender at the address designated by Lender from time
to time in writing. If any payment of principal or of interest on this Note
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. Unless otherwise
agreed to, in writing, or otherwise required by applicable law, payments will be
applied first to accrued, unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs, late charges and other charges, provided,
however, upon delinquency or other default, Lender reserves the right to apply
payments among principal, interest, late charges, collection costs and other
charges at its discretion. The books and records of Lender shall be prima facie
evidence of all outstanding principal of and accrued but unpaid interest on this
Note. If this Note is governed by or is executed in connection with a loan
agreement, this Note is subject to the terms and provisions thereof.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to fluctuation
based upon the Prime Rate of interest in effect from time to time (the "Index")
(which rate may not be the lowest, best or most favorable rate of interest which
Lender may charge on loans to its customers). "Prime Rate" shall mean the rate
announced from time to time by Lender as its prime rate. Each change in the rate
to be charged on this Note will become effective without notice on the same day
as the Index changes. Except as otherwise provided herein, the unpaid principal
balance of this Note will accrue interest at a rate per annum which will from
time to
Page 21 of 47 Pages
<PAGE> 22
time be equal to the sum of the Index, plus 0.000%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. I may pay without fee all or a portion of the principal amount owed
hereunder earlier than it is due. All prepayments shall be applied to the
indebtedness owing hereunder in such order and manner as Lender may from time to
time determine in its sole discretion.
LATE CHARGE. If a payment is 11 days or more late, I will be charged 5 .000% of
the regularly scheduled payment.
DEFAULT. I will be in default if any of the following happens: (a) I fall to
make any payment of principal or interest when due under this Note or any other
indebtedness owing now or hereafter by I to Lender, (b) failure of I or any
other party to comply with or perform any term, obligation, covenant or
condition contained in this Note or in any other promissory note, credit
agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust
or any other instrument, agreement or document, whether now or hereafter
existing, executed in connection with this Note (the Note and all such other
instruments, agreements, and documents shall be collectively known herein as the
"Related Documents"); (c) Any representation or statement made or furnished to
Lender herein, in any of the Related Documents or in connection with any of the
foregoing is false or misleading in any material respect; (d) I or any other
party liable for the payment of this Note, whether as maker, endorser,
guarantor, surety or otherwise, become insolvent or bankrupt, has a receiver or
trustee appointed for any part of its property, make an assignment for the
benefit of its creditors, or any proceeding is commenced either by any such
party or against it under any bankruptcy or insolvency laws; (e) the occurrence
of any event of default specified in any of the other Related Documents or in
any other agreement now or hereafter arising between I and Lender; (f) the
occurrence of any event which permits the acceleration of the maturity of any
indebtedness owing now or hereafter by Borrower to any third party; or (g) the
liquidation, termination, dissolution, death or legal incapacity of Borrower or
any other party liable for the payment of this Note, whether as maker, endorser,
guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then I will pay that amount. After this Note becomes due and
payable, whether by maturity, after demand, by acceleration or otherwise,
Lender, at its option, may also, if permitted under applicable law, increase the
variable interest rate on this Note to 3.000 percentage points over the Index.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire an attorney to help collect this Note if I do not pay and
Borrower will pay Lender's reasonable attorneys' fees and all other costs of
collection, unless prohibited by applicable law. This Note has been delivered to
Lender and accepted by Lender in the State of Illinois. Subject to the
provisions on arbitration, this Note shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to any conflict
of laws or provisions thereof.
DISHONORED ITEM FEE. I will pay a fee to Lender of $24.00 if I make a payment on
my loan and the check or preauthorized charge with which I pay is later
dishonored.
Page 22 of 47 Pages
<PAGE> 23
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, I grant to Lender a contractual possessory security
interest in, and hereby assign, convey, deliver, pledge, and transfer to Lender
all my right, title and interest in and to, my accounts with Lender (whether
chocking, savings, or any other account), including without limitation all
accounts held jointly with someone else and all accounts I may open in the
future. I authorize Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
POSSESSORY COLLATERAL. In addition to any other collateral that may secure this
Note, Borrower hereby assigns and grants a security interest in any and all
other property of Borrower of every kind or description now or hereafter in
possession or control of Lender, whether as collateral security or any other
purpose, including, without limitation, all cash, deposits, securities,
dividends, distributions, negotiable Instruments and documents.
LINE Of CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be, subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from my accounts, may be requested
orally or in writing by me or by an authorized person. Lender may, but need not,
require that all oral requests be confirmed in writing. I agree to be liable for
all sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of my accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class in
nature, arising from this Note, any Related Document or otherwise, including
without limitation contract disputes and tort claims, shall be arbitrated
pursuant to the Commercial Rules of the American Arbitration Association. Any
arbitration proceeding held pursuant to this arbitration provision shall be
conducted in the city nearest the Borrower's address having an AAA regional
office, or at any other place selected by mutual agreement of the parties. No
act to take or dispose of any collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, provisional or
preliminary rights and/or remedies, judicial or otherwise, for the purposes or
realizing upon, preserving. protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal property,
and any such action shall not be deemed an election of remedies. This includes,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgage, obtaining a
writ of attachment or imposition of a receivership, or exercising any rights
relating to personal property, including taking or disposing of such property
with or without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right or remedy, concerning any
collateral, including any claim to rescind. reform, or otherwise modify any
agreement relating to the collateral, shall also be arbitrated; provided however
that no arbitrator
Page 23 of 47 Pages
<PAGE> 24
shall have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this arbitration provision shall preclude either
party from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of any action for these purpose. The
Federal Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
ADDITIONAL PROVISIONS. See attached addendum for tiered rate percentages.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. I and any other person who signs,
guarantees or endorses this Note. to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this Note, or
release any party or guarantor or collateral; or impair, fall to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this Note without the consent of or
notice to anyone other then the party with whom the modification is made. I
agree to furnish Lender. within thirty (30) days after written request by
Lender, current financial statements of I (including, without limitation, income
tax returns), in form and detail satisfactory to Lender, and to permit
inspection of I's books and records by Lender. I also covenant and agree not to
coil or otherwise transfer any collateral for this Note except in the ordinary
course of I's business.
PRIOR TO SIGNING THIS NOTE, I READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. I AGREE TO THE TERMS OF
THE NOTE AND ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:.
- --------------------------------
PETER W. NAUERT
Page 24 of 47 Pages
<PAGE> 25
PROMISSORY NOTE MODIFICATION AGREEMENT
This Promissory Note Modification Agreement (the "Agreement") is made
and entered into on March 18, 1999 (the "Agreement Date"), to be effective as of
March 4, 1999 (the "Effective Date"), by and between Peter W. Nauert
("Borrower"), and Bank One, Illinois, NA ("Lender").
Recitals
--------
A. Borrower has executed a promissory note in the amount of $1,500,000.00 and
dated December 4, 1998, in favor of Lender; as the same may have been amended or
modified from time to time (the "Note").
B. The Note has at all times been and is now, continuously and without
interruption, outstanding in favor of Lender.
C. Borrower has requested that the Note be modified to the limited extent as
hereinafter set forth, and Lender has agreed to such modification.
Agreement
---------
NOW, THEREFORE, by mutual agreement of the parties and in mutual consideration
of the agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the Note is modified as hereinafter indicated.
1. ACCURACY OF RECITALS. Borrower acknowledges the accuracy of the Recitals,
stated above.
2. MODIFICATION OF PROMISSORY NOTE. The following provisions are deemed to be
part of the Note, and any contrary provisions in the Note are deemed to be
modified hereby:
2.1 The date on which the outstanding principal balance of the Note,
together with all accrued and unpaid interest and other charges, shall
be due and payable is changed from March 4, 1999 to March 1, 2000.
2.2 Each of the Loan Documents is modified to provide that it shall be
a default or an event of default thereunder if Borrower shall fail to
comply with any of the covenants of Borrower herein or if any
representation or warranty by borrower herein or by any guarantor of
the Loan or third-party pledgor of collateral securing the Loan in any
Acknowledgment and Consent attached to this Agreement is materially
incorrect or misleading on the Agreement Date. As used in this
Agreement "Loan Documents" shall include the Note, this Agreement and
all other documents executed by Borrower or others in connection with
the Loan that is evidenced by the Note.
Page 25 of 47 Pages
<PAGE> 26
2.3 Each reference in any Loan Document to that or any other Loan
Document shall be deemed to be a reference to such Loan Document, as
modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL. The Loan Documents are
ratified and affirmed by Borrower and shall remain in full force and effect. Any
property, and rights to or interests in property, that were granted as security
in the Loan Documents shall remain as security for the Loan and the obligations
of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender that, as of the later of the Agreement Date and the Effective Date:
4.1 No default or event of default under any of the Loan Documents as
modified hereby, nor any event that, with the giving of notice or the
passage of time or both, would be a default or an event of default
under the Loan Documents, has occurred and is continuing.
4.2 There has been no material adverse change in the financial
conditions of Borrower or any other person whose financial statement
has been delivered to Lender in connection with the Note from the most
recent financial statement received by Lender.
4.3 All representations and warranties of borrower in the Loan
Documents are accurate.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents.
4.5 The Note and the other Loan Documents executed by Borrower are the
legal, valid, and binding obligation of Borrower, enforceable against
Borrower in accordance with their terms.
5. BORROWER OBLIGATIONS. Contemporaneously with the execution and delivery of
this Agreement, Borrower:
5.1 Agrees to promptly execute, deliver, and provide to Lender
such additional agreements, documents, and instruments as are
reasonably required by Lender to effectuate the interest of
this Agreement.
5.2 Fully, finally, and forever releases and discharges Lender and
its successors, assigns, directors, officers, employees,
agents, and representatives from any and all of borrower's
actions, causes of action, claims, debts, demands,
liabilities, obligations, and suits, of whatever kind or
nature, in law or equity, whether now known or unknown to
Borrower, (i) in respect of the Loan, the Loan Documents, or
the actions or omissions of Lender with respect to the Loan or
the Loan Documents and (ii) arising from events occurring
prior to the Agreement Date.
5.3 Is paying to Lender:
Page 26 of 47 Pages
<PAGE> 27
5.3.1. All accrued and unpaid interest under the Note and all
amounts, other than principal and interest, due and payable by
Borrower under the Loan Documents as of the Agreement Date.
6. EXECUTION AND DELIVERY OF AGREEMENT BY LENDER. Lender shall not be bound by
this Agreement until (i) Lender has executed and delivered this Agreement, (ii)
Borrower has performed all of the obligations of Borrower under this Agreement
to be performed contemporaneously with the execution and delivery of this
Agreement, (iii) each guarantor of the Loan and each third-party pledgor of
collateral securing the Loan has executed the Acknowledgment and Consent
attached to this Agreement and (iv) if required in writing by Lender, Borrower
and each guarantor of the Loan and each third-party pledgor of collateral
securing the Loan have executed and delivered to Lender an arbitration
resolution, an environmental questionnaire, and an environmental certification
and indemnity agreement in Lender's standard forms.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION OR WAIVER. The
Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Lender with respect to the Loan and supersede all
prior representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents may be changed, discharged,
supplemented, terminated, or waived, except in a writing signed by the parties
thereto
8. BINDING EFFECT. The Loan Documents shall be binding upon and shall inure to
the benefit of Borrower and Lender and their successors and assigns, as well as
the executors, legal administrators, personal representatives, heirs, devisees,
and beneficiaries of Borrower, provided, however, that Borrower may not assign
any rights nor delegate any obligations under the Loan Documents, and any
purported assignment or delegation thereof shall be void.
9. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without giving effect to
conflicts of law principles.
10. COUNTERPART EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Agreement
to form one physical document.
11. NOT A NOVATION. This Agreement is a modification only and not a novation.
Except for the modifications expressly set forth in this Agreement, the Note and
each other Loan Document, and all the terms and conditions thereof, shall be and
remain in full force and effect, with the changes herein deemed to be
incorporated therein. This Agreement is to be considered attached to the Note
and made a part thereof. This Agreement shall not release or affect the
liability of any guarantor, surety or endorser of the Note or the Loan, or
release any owner of collateral securing the Note or the Loan. The validity,
priority and enforceability of the Promissory Note shall not be impaired hereby.
12. ILLINOIS REAFFIRMATION OF COGNOVIT PROVISION. Each Borrower continues to
authorize any attorney at law to appear in an action on the Note, as modified,
at any
Page 27 of 47 Pages
<PAGE> 28
time after the same becomes due, whether by acceleration or otherwise, in any
court of record in or of the State of Illinois, or of elsewhere, and to waive
the issuing and service of process against any or all Borrowers, enter an
appearance and to confess judgment in favor of Lender against any or all
Borrowers for the amount that may be due under the Note, as modified, together
with costs of suit, and to release all errors and waive all rights of appeal and
stay of execution from the judgment rendered. After the judgment is entered
against any one or more Borrowers, the powers herein conferred may be exercised
as to any one or more of the other Borrowers. The death of any Borrower shall
not impair the authority herein granted as to the survivor or survivors of such
Borrower.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
IN WITNESS WHEREOF, Borrower has executed and delivered this Promissory Note
Modification Agreement on the Agreement Date, with effect as of the Effective
Date.
Borrower:
/s/ Peter W. Nauert
-------------------
Peter W. Nauert
LENDER'S ACKNOWLEDGMENT AND AGREEMENT:
The foregoing Promissory Note Modification Agreement is hereby acknowledged and
agreed to this 18th day of March, 1999.
Lender: BANK ONE, ILLINOIS, NA
By:
------------------------
Title: Vice President
--------------------
Page 28 of 47 Pages
<PAGE> 29
ADDENDUM TO PROMISSORY NOTE FOR
INTEREST RATE DETERMINATION
This Addendum is attached to and made a part of the Promissory Note of
Peter W. Nauert to Bank One, Illinois, NA dated December 4, 1997 in the
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000.00)
for the purpose of identifying the Variable Interest Rate on the Outstanding
Balance of the loan as provided in the Promissory Note.
Outstanding Principal Balance Floating Interest Rate
- ----------------------------- ----------------------
$500,000.00 or less Prime floating
$500,000.00 to $750,000.00 Prime less .25 % floating
$750,000.00 to $1,000,000.00 Prime less .50 % floating
$1,000,000.00 to $1,250,000.00 Prime less .75% floating
Over $1,250,000.00 Prime less 1.00% floating
Dated: December 4, 1997
BORROWER:
/s/ Peter W. Nauert
-------------------
Peter W. Nauert
Page 29 of 47 Pages
<PAGE> 30
EXHIBIT 7.10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of November
16, 1999, is made by and among UNITED PAYORS AND UNITED PROVIDERS, INC., a
Delaware corporation ("Seller"), and PETER W. NAUERT, an individual, or his
designees ("Buyer").
RECITALS:
WHEREAS, Seller is the record and beneficial owner of 137,818 shares
(the "Shares") and warrants to purchase 90,909 shares, at $5.50 per share (the
"Warrants"), of common stock, par value $0.001 per share, of Ceres Group, Inc.,
a Delaware corporation ("Ceres"); and
WHEREAS, upon the terms and conditions contained in this Agreement,
Seller wishes to sell to Buyer, and Buyer wishes to purchase from Seller, the
Shares and Warrants of Ceres owned by Seller.
THEREFORE, in consideration of the foregoing recitals and the mutual
covenants, warranties, representations and conditions contained in this
Agreement, Seller and Buyer agree as follows:
1. SALE AND PURCHASE OF SHARES
1.01 Sale and Purchase. Seller sells, transfers, assigns and conveys
the Shares and Warrants to Buyer, and Buyer purchases, acquires and accepts from
Seller the Shares and Warrants, free and clear of any and all liens, claims,
mortgages, charges, security interests, encumbrances or similar agreements of
any kind or nature, including any restriction on the right to vote, sell or
otherwise dispose of the Shares or Warrants ("Liens"), other than as set forth
in the Voting Agreement, dated as of July 1, 1998, as amended, among Ceres and
the security holders listed on the signature page thereof (the "Voting
Agreement"), and the Stockholders' Agreement, dated as of July 1, 1998, as
amended, among Ceres and the security holders listed on the signature page
thereof (the "Stockholders' Agreement").
1.02 Purchase Price. Buyer will pay, and Seller will accept, as the
purchase price for the Shares and Warrants, Seven Hundred Fifty-Seven Thousand
Nine Hundred Ninety-Nine Dollars ($757,999.00) in cash by certified or bank
check or wire transfer of immediately available funds (the "Purchase Price") on
the Closing Date (as defined below).
2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
2.01 Authority. Seller has the power to enter into this Agreement and
to carry out its obligations under this Agreement. The execution, delivery and
performance of this Agreement by Seller and the consummation by Seller of the
transactions contemplated hereby have been duly authorized by Seller and no
other proceedings on the part of Seller are necessary to authorize this
Page 30 of 47 Pages
<PAGE> 31
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Seller and constitutes a legal, valid and
binding agreement of Seller, enforceable against Seller in accordance with its
terms, subject, as to the enforcement of remedies, to general equitable
principals and to bankruptcy, insolvency and similar laws.
2.02 No Inconsistent Obligations. Neither the execution and delivery of
this Agreement or any other agreement, instrument or document to be executed by
Seller pursuant to this Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will: (a) result in a violation or breach of,
constitute a default (with or without due notice or lapse of time or both)
under: (i) any term or provision of any of Seller's organizational documents;
(ii) any applicable judgment, decree, order, regulation or rule of any court or
governmental authority; (iii) any applicable law, rule or regulation; or (iv)
any material term or provision of any indenture, note, mortgage, bond, security
agreement, loan agreement, guaranty, pledge, agreement, instrument, document or
any other material commitment or restriction, to which Seller is a party or by
which any of the Shares or Warrants is subject or bound; or (b) result in the
creation of any Lien on any of the Shares or Warrants.
2.03 Ownership of Shares and Warrants.
(a) Seller is the direct record and beneficial owner of the Shares
and Warrants free and clear of any and all Liens, other than as set forth in the
Voting Agreement and the Stockholders' Agreement.
(b) The Shares and Warrants constitute all the securities of Ceres
owned by the Seller.
(c) Upon Seller's receipt of the Purchase Price, Buyer will have
good and marketable title of the Shares and Warrants, free and clear of any and
all Liens, other than as set forth in the Voting Agreement and the Stockholders'
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.01 Authority. Buyer has the power to enter into this Agreement and to
carry out his obligations under this Agreement. This Agreement has been duly and
validly executed and delivered by Buyer and constitutes a legal, valid and
binding agreement of Buyer, enforceable against Buyer in accordance with its
terms, subject, as to the enforcement of remedies, to general equitable
principals and to bankruptcy, insolvency and similar laws.
3.02 No Inconsistent Obligations. Neither the execution and delivery of
this Agreement or any other agreement, instrument or document to be executed by
Buyer pursuant to this Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will result in a violation or breach of,
constitute a default (with or without due notice or lapse of time or both)
under: (a) any applicable judgment, decree, order, regulation or rule of any
court or governmental authority; (b) any applicable law, rule or regulation; or
(c) any material term or provision of any
Page 31 of 47 Pages
<PAGE> 32
indenture, note, mortgage, bond, security agreement, loan agreement, guaranty,
pledge, agreement, instrument, document or any other material commitment or
restriction, to which Buyer is a party.
3.03 No Reliance. Buyer is not relying on any representations or
warranties of Seller with respect to the business or financial condition of
Ceres.
3.04 Investment Representation.
(a) Buyer understands that the Shares and the Warrants have not
been registered under the Securities Act of 1933, as amended (the "Act"), or
under any state securities laws;
(b) Buyer represents that:
(i) he is acquiring the Shares and Warrants solely for his own
account for investment purposes and not with a view to the distribution
thereof within the meaning of the Act;
(ii) he is a sophisticated investor with knowledge and
experience in business and financial matters;
(iii) he is able to bear the economic risk and lack of
liquidity inherent in holding the Shares and Warrants; and
(iv) he is an "accredited investor" (as defined in rules
issued under the Act).
4. CLOSING
4.01 Time and Place. The consummation of the transaction contemplated
by this Agreement (the "Closing") will take place at the offices of Kohrman
Jackson & Krantz P.L.L., One Cleveland Center, 1375 East Ninth Street, 20th
Floor, Cleveland, Ohio 44114 on November 17, 1999, or such other date and time
as Buyer and Seller agree (the "Closing Date").
4.02 Deliveries. At the Closing on the Closing Date, Seller will
deliver to Buyer the certificates representing the Shares and Warrants and stock
powers appropriately endorsed in Buyer's favor. Buyer will deliver to Seller the
Purchase Price. Each party will deliver to the other certificates and
instruments as the other party may reasonably request.
5. GENERAL PROVISIONS
5.01 Survival Period. The representations, warranties and
indemnification obligations of the parties contained in this Agreement or in any
document delivered pursuant to the provisions of this Agreement will survive any
investigation heretofore or hereafter made by any party, their agents and
representatives and the consummation of the transactions contemplated by this
Agreement and will continue in full force and effect for three years from the
Closing Date.
Page 32 of 47 Pages
<PAGE> 33
5.02 Brokers. Neither Seller nor Buyer has retained or used the
services of any individual, firm or corporation, in such a manner as to entitle
such individual, firm or corporation to any compensation for brokers' or
finders' commissions or fees with respect to the transactions contemplated by
this Agreement.
5.03 Notices.
(a) All notices, demands or other communications required or
permitted to be given or made under this Agreement will be in writing and (i)
delivered personally, (ii) sent by pre-paid, first class, certified or
registered mail, return receipt requested, (iii) by priority overnight national
express courier service, or (iv) by facsimile transmission (followed by a hard
copy by U.S. mail or priority overnight delivery), to the intended recipient at
its address or facsimile number set out below. The addresses and facsimile
numbers of the parties for purposes of this Agreement are:
(i) If to Seller: United Payors and United Providers, Inc.
2275 Research Boulevard
6th Floor
Rockville, Maryland 20850
Attn: S. Joseph Bruno
Facsimile: 301-548-8828
With a copy to: United Payors and United Providers, Inc.
2275 Research Boulevard
6th Floor
Rockville, Maryland 20850
Attn: Joseph Mott
Facsimile: 301-548-2067
(ii) If to Buyer: Peter
W. Nauert 1750
East Golf Road
Schaumburg, Illinois 60173
Facsimile:
847-605-8290
With a copy to: Kohrman Jackson & Krantz P.L.L.
1375 East Ninth Street
20th Floor
Cleveland, Ohio 44114
Attn: Marc C. Krantz
Facsimile: 216-621-6536
(b) Any notice, demand or communication will be deemed to have
been duly given (i) on receipt if delivered personally, (ii) three business days
after mailing, (iii) the business day after delivery to a national overnight
courier service, or (iv) if given by confirmed facsimile, immediately if
received by recipient during its normal business hours on a business day or, if
not, at the beginning of recipient's business on the next business day. In
proving receipt it will be sufficient to show that
Page 33 of 47 Pages
<PAGE> 34
the envelope containing the communication was duly addressed, stamped and posted
(or that the envelope was delivered to the national overnight courier service),
or that receipt of a facsimile was confirmed by the recipient.
(c) Any party may change the address or facsimile number to which
notices, demands or other communications to such parties will be given or made
by giving notice thereof to the other parties hereto in the manner provided
above.
5.04 Governing Law. The validity and effect of this agreement will be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
5.05 Submission to Jurisdiction. Each of the parties agrees and
consents to the jurisdiction of any United States District Court located in the
State of Delaware, or if federal jurisdiction is not available for any reason,
then in the state courts located in Wilmington, Delaware, and waives any
objection based on venue or forum non conveniens with respect to any action
instituted, and agrees that any dispute concerning this Agreement or any of the
transactions described in this Agreement may be heard only in the courts
described above. Each of the parties consents to the service of any process in
any such action by delivery of such process by certified U.S. mail to the
addresses of the parties determined in accordance with Section 5.03, as well as
by any other means of service permitted by applicable law.
5.06 Successors and Assigns. Buyer may assign all or any part of its
rights, duties or obligations under or pursuant to this Agreement; provided that
each assignee makes the representations and warranties to Seller set forth in
Section 3. Except as otherwise provided, this Agreement will be binding upon and
will inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and permitted assigns.
5.07 Partial Invalidity and Severability. All rights and restrictions
contained in this Agreement may be exercised and will be applicable and binding
only to the extent that they do not violate any applicable laws and are intended
to be limited to the extent necessary to render this Agreement legal, valid and
enforceable. If any term or part of this Agreement is held to be illegal,
invalid or unenforceable by a court of competent jurisdiction, it is the
intention of the parties that the remaining terms or partial terms will
constitute their agreement with respect to the subject matter of this Agreement
and all remaining terms or partial terms will remain in full force and effect.
To the extent legally permissible, any illegal, invalid or unenforceable
provision of this Agreement will be replaced by a valid provision that will
implement the commercial purpose of the illegal, invalid or unenforceable
provision.
5.08 Amendment and Waiver. This Agreement may not be altered or amended
except by an instrument in writing signed by or on behalf of the party entitled
to the benefit of the provision against whom enforcement is sought. Any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but only if such waiver is evidenced by a
writing signed by that party.
Page 34 of 47 Pages
<PAGE> 35
5.09 Headings. The headings of particular provisions of this Agreement
are inserted for convenience only and are not be construed as a part of this
Agreement or serve as a limitation or expansion on the scope of any term or
provision of this Agreement.
5.10 Integration. This Agreement supersedes all prior discussions and
agreements, and contains the sole and entire agreement, among the parties with
respect to the transactions described in this Agreement.
5.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together will be considered one and the
same agreement and delivered to the other party hereto. This Agreement will
become effective when each party has received original or facsimile counterparts
thereof signed by the other party.
5.12 Publicity. No notices to third parties or other publicity,
including press releases, concerning any of the transactions provided for in
this Agreement will be made by any party hereto unless planned and coordinated
jointly among the parties, except to the extent otherwise required by law.
Seller is aware that Buyer is the Chairman of the Board of Ceres, which is a
public company, and must comply with the disclosure requirements of the federal
securities laws and the Nasdaq National Market System.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the date first written above.
UNITED PAYORS & UNITED PROVIDERS, INC.
/s/ S. Joseph Bruno
-----------------------------------------------
By: S. Joseph Bruno
Its: Vice President and Chief Financial Officer
/s/ Peter W. Nauert
-----------------------------------------------
PETER W. NAUERT
Page 35 of 47 Pages
<PAGE> 36
EXHIBIT 7.11
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is
entered into as of the 18th day of March, 1999, by and between Peter W. Nauert
("Nauert") and Ceres Group, Inc., a Delaware corporation, as successor to
Central Reserve Life Corporation, an Ohio corporation (the "Company") and amends
the Employment Agreement entered into by such parties dated June 30, 1998 (the
"Agreement").
WHEREAS, Nauert and the Company desire to amend and restate certain
provisions of the Agreement to include certain performance-based compensation
provisions and to provide for other compensation related terms.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree as follows:
1. Restatement of Section 2.
-------------------------
Section 2 of the Agreement shall be deleted in whole and shall
be replaced and superseded by the following new Section 2:
2. Compensation.
-------------
(a) STOCK AWARD. As an inducement for Nauert to
remain employed by the Company through the third anniversary of the
Commencement Date, the Company shall pay Nauert a stock award (the
"Stock Award") payable in shares of common stock of the Company (the
"Common Stock") in each of 1999, 2000 and 2001, together with a cash
payment equal to the federal, state and local taxes (the "Tax Payment")
payable by Nauert with respect to the Stock Award; PROVIDED, HOWEVER,
in no event shall a Tax Payment with respect to the taxes for any year
exceed 50% of the "Fair Market Value" of the Stock Award received by
Nauert in such year as determined under Section 2(h) of this Agreement.
The amount and payment of the Stock Award shall be as follows: (i) on
July 1, 1999, Nauert shall receive 166,667 shares of Common Stock, and
(ii) on the 1st day after the close of each three-month period
thereafter, the first of which such periods shall commence on July 1,
1999 and end on September 30, 1999, Nauert shall receive a number of
shares of Common Stock equal to $250,000 divided by the average closing
price of the Common Stock for such three-month period. The three-month
periods thereafter shall commence on the first day of January, April,
July and October of the following year(s) with the last three-month
period ending on June 30, 2001. The number of shares of Common Stock
granted pursuant to the Stock Award shall be adjusted to account for
stock splits, stock dividends or other reclassifications of the Common
Stock following the Commencement Date. Nauert shall receive the Tax
Payment prior to April 15 of the year following the year of payment of
the Stock Award to which such Tax Payment relates. All Common Stock
paid to Nauert pursuant to this Paragraph 2(a) shall be fully vested
immediately
Page 36 of 47 Pages
<PAGE> 37
upon issuance; PROVIDED, HOWEVER, that Nauert shall forfeit all rights
to any unpaid Stock Award and the Tax Payment related thereto if his
employment with the Company is terminated prior to June 30, 2001, for
any reason other than a Severenceable Event (as hereinafter defined). A
"Severenceable Event" shall mean any of the following: (i) termination
by the Company for any reason other than for Cause, (ii) termination
upon a Change of Control, (iii) termination by Nauert for Good Reason,
or (iv) termination due to the death or total or partial disability of
Nauert. All stock certificates issued to Nauert in 1999, 2000, and 2001
pursuant to this Section 2(a), shall, if deemed necessary by the
Company, contain the following legends and any others deemed reasonably
necessary by the Company:
NOTICE
------
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT
TO TRANSFER RESTRICTIONS, VOTING LIMITATIONS, AND OTHER TERMS
AND CONDITIONS CONTAINED IN A VOTING AGREEMENT DATED JULY 1,
1998, BY AND AMONG THE COMPANY AND CERTAIN OF ITS
STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
THIS SECURITY IS SUBJECT TO CERTAIN RIGHTS AND RESTRICTIONS
SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF JULY 1,
1998, A COPY OF WHICH MAY OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(b) STOCK OPTIONS.
(i) As an inducement to Nauert to enter
into this Agreement, the Company will grant to Nauert on the
closing date of the Amended and Restated Stock Purchase, dated
as of March 30, 1998, by and among Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P., Strategic
Acquisition Partners, LLC and the Company (the "Stock Purchase
Closing Date"), options to purchase an aggregate of 500,000
shares of Common Stock (the "Options"). The exercise price of
the Options shall be as follows:
Page 37 of 47 Pages
<PAGE> 38
Number of Options Exercise Price
------------------------------------------
100,000 $ 6.50
100,000 $ 7.50
100,000 $ 8.50
100,000 $ 9.50
100,000 $ 10.50
(ii) Thirty percent (30%) of the Options
will vest immediately upon issuance. The remainder of the
Options shall vest as follows: (i) twenty percent (20%) shall
vest on the first anniversary of the Commencement Date, (ii)
twenty percent (20%) shall vest on the second anniversary of
the Commencement Date, and (iii) thirty percent (30%) shall
vest on the third anniversary of the Commencement Date. The
vesting of all Options shall occur pro rata among the various
exercise price levels. All unvested Options shall vest
immediately upon the occurrence of a Severenceable Event.
Nauert shall forfeit all unvested Options if his employment
with the Company is terminated for any reason other than a
Severenceable Event. The Options shall have the same
anti-dilution protections as contained in the warrants issued
to Nauert in connection with his equity investment in the
Company.
(iii) This Section 2(b) of the Agreement
constitutes a plan (the "Plan") under which the Options are
granted for purposes of Section 162(m) of the Internal Revenue
Code. At the close of the market on the date immediately
preceding the Stock Purchase Closing Date, the fair market
value of one (1) share of Common Stock was less than $6.50.
The maximum number of shares of Common Stock subject to this
Plan on which options to purchase may be granted is 500,000,
all of which are granted to Nauert in this Section 2(b).
(c) INCENTIVE PAY. Nauert shall receive, with respect
to each year of employment, an amount equal to five percent (5%) of the
amount by which the Company's pre tax income for such year exceeds the
base case for each year of employment as set forth on EXHIBIT A to the
Agreement.
(d) OTHER COMPENSATION. Nauert may also receive such
cash bonuses or such other incentive compensation as the Board of
Directors of the Company may approve from time to time in its sole
discretion.
(e) ASSIGNMENT BY NAUERT. Notwithstanding anything
herein to the contrary, Nauert may assign up to 25% of his right to
receive payments pursuant to this Paragraph 2 to a third party;
PROVIDED, HOWEVER, that such assignment does not violate any
restrictions on transferability and assignability of Common Stock
awarded under Section 2(a) of this Agreement.
Page 38 of 47 Pages
<PAGE> 39
(f) PERFORMANCE GOAL. Nauert's right to and receipt
of any Tax Payment as provided under Section 2(a) of this Agreement is
subject to the satisfaction of the Performance Goal as set forth on
Exhibit B of the Agreement.
(g) CERTIFICATION OF PERFORMANCE. Prior to Nauert's
receipt of any Tax Payment or incentive pay under Section 2(c) of this
Agreement, the Board of Directors of the Company or the Compensation
Committee thereof shall certify whether or not the Performance Goal was
satisfied.
(h) FAIR MARKET VALUE OF STOCK AWARD. For purposes of
Section 162 of the Internal Revenue Code, the "Fair Market Value" of a
Stock Award shall be equal to the product of (i) the number of shares
of Common Stock, including fractional shares, paid to Nauert multiplied
by (ii) the closing price of one (1) share of Common Stock on the date
of payment.
2. DELETION OF SECTION OF 9. Section 9 of the Agreement shall be
deleted in whole.
3. CORRECTION TO SECTION 10(f). References in Section 10(f) to "Section
9" are deleted and substituted with "Section 10."
4. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to its
principles of conflicts of law.
5. SEVERABILITY. If any provision of this Amendment is held for any
reason to be invalid, it will not invalidate any other provisions of this
Amendment which are in themselves valid, nor will it invalidate the provisions
of any other agreement between the parties hereto. Rather, such invalid
provision shall be construed so as to give it the maximum effect allowed by
applicable law.
6. HEADINGS. Paragraph headings hereunder are for convenience only and
shall not affect the meaning or interpretation of the provisions of this
Amendment.
7. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original without production of
the others.
Page 39 of 47 Pages
<PAGE> 40
8. FULL FORCE AND EFFECT. Except as expressly stated in this Amendment,
all terms and provisions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
CERES GROUP, INC.
By: /s/ Charles E. Miller, Jr.
------------------------------
Its: Chief Financial Officer
-----------------------------
/s/ Peter W. Nauert
------------------------------
Peter W. Nauert
Page 40 of 47 Pages
<PAGE> 41
EXHIBIT B
---------
5% year over year increase in the direct premium revenue of Central
Reserve Life Insurance Company, an Ohio corporation, based on 1998 revenues of
$264,868,186, as follows:
1999 $278,112,000
2000 $292,018,000
2001 $306,619,000
Page 41 of 47 Pages
<PAGE> 42
EXHIBIT 7.12
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment")
is entered into as of the 15th day of June, 1999, by and between Peter W. Nauert
("Nauert") and Ceres Group, Inc., a Delaware corporation, as successor to
Central Reserve Life Corporation, an Ohio corporation (the "Company") and amends
the Employment Agreement entered into by such parties dated June 30, 1998 (the
"Agreement") and the First Amendment to Employment Agreement dated March 18,
1999 (referred to as the "First Amendment" and the Agreement and the First
Amendment are collectively referred to as the "Amended Agreement").
WHEREAS, Nauert and the Company desire to further amend and restate
certain provisions of the Amended Agreement to reduce the number of shares
payable to Nauert in 1999 and increase the number of shares payable to Nauert in
2001.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree as follows:
1. Deletion in Whole of First Amendment.
-------------------------------------
The First Amendment is deleted in whole and restated, replaced
and superseded by this Amendment.
2. Restatement of Section 2.
-------------------------
Section 2 of the Agreement shall be deleted in whole and shall
be replaced and superseded by the following new Section 2:
2. Compensation.
-------------
(a) STOCK AWARD. As an inducement for Nauert to
remain employed by the Company through the third anniversary of the
Commencement Date, the Company shall pay Nauert a stock award (the
"Stock Award") payable in shares of common stock of the Company (the
"Common Stock") in each of 1999, 2000 and 2001, together with a cash
payment equal to the federal, state and local taxes (the "Tax Payment")
payable by Nauert with respect to the Stock Award; PROVIDED, HOWEVER,
in no event shall a Tax Payment with respect to the taxes for any year
exceed 50% of the "Fair Market Value" of the Stock Award received by
Nauert in such year as determined under Section 2(h) of this Agreement.
The amount and payment of the Stock Award shall be as follows: (i) on
July 1, 1999, Nauert shall receive 108,108 shares of Common Stock, and
(ii) commencing on January 1, 2000, and on the 1st day after the close
of each three-month period thereafter (that is, the first day of April,
July, October and January), Nauert shall receive a number of shares of
Common Stock equal to $250,000 divided by the average closing price of
the Common Stock for the three-month period preceding the most
Page 42 of 47 Pages
<PAGE> 43
recently completed three-month period on such date. For example, the
January 1, 2000 Stock Award payment shall be based on the stock price
during the three-month period ending on September 30, 1999, and each
Stock Award payment thereafter shall be based on the three-month period
ending three months prior to the day before the date of such payment.
The last Stock Award payment under Section 2(a)(ii) shall be on July 1,
2001, and shall include the Stock Award for the three-month periods
ending March 31, 2001 and June 30, 2001. Also, on July 1, 2001, Nauert
shall receive 58,559 shares of Common Stock. The number of shares of
Common Stock granted pursuant to the Stock Award shall be adjusted to
account for stock splits, stock dividends or other reclassifications of
the Common Stock following the Commencement Date. Nauert shall receive
the Tax Payment prior to April 15 of the year following the year of
payment of the Stock Award to which such Tax Payment relates. All
Common Stock paid to Nauert pursuant to this Paragraph 2(a) shall be
fully vested immediately upon issuance; PROVIDED, HOWEVER, that Nauert
shall forfeit all rights to any unpaid Stock Award and the Tax Payment
related thereto if his employment with the Company is terminated prior
to June 30, 2001, for any reason other than a Severenceable Event (as
hereinafter defined). A "Severenceable Event" shall mean any of the
following: (i) termination by the Company for any reason other than for
Cause, (ii) termination upon a Change of Control, (iii) termination by
Nauert for Good Reason, or (iv) termination due to the death or total
or partial disability of Nauert. All stock certificates issued to
Nauert in 1999, 2000, and 2001 pursuant to this Section 2(a), shall, if
deemed necessary by the Company, contain the following legends and any
others deemed reasonably necessary by the Company:
NOTICE
------
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT
TO TRANSFER RESTRICTIONS, VOTING LIMITATIONS, AND OTHER TERMS
AND CONDITIONS CONTAINED IN A VOTING AGREEMENT DATED JULY 1,
1998, BY AND AMONG THE COMPANY AND CERTAIN OF ITS
STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
THIS SECURITY IS SUBJECT TO CERTAIN RIGHTS AND RESTRICTIONS
SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF JULY 1,
1998, A COPY OF WHICH MAY OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
Page 43 of 47 Pages
<PAGE> 44
(b) STOCK OPTIONS.
(i) As an inducement to Nauert to enter into
this Agreement, the Company will grant to Nauert on the
closing date of the Amended and Restated Stock Purchase, dated
as of March 30, 1998, by and among Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P., Strategic
Acquisition Partners, LLC and the Company (the "Stock Purchase
Closing Date"), options to purchase an aggregate of 500,000
shares of Common Stock (the "Options"). The exercise price of
the Options shall be as follows:
Number of Options Exercise Price
----------------- --------------
100,000 $ 6.50
100,000 $ 7.50
100,000 $ 8.50
100,000 $ 9.50
100,000 $ 10.50
(ii) Thirty percent (30%) of the Options
will vest immediately upon issuance. The remainder of the
Options shall vest as follows: (i) twenty percent (20%) shall
vest on the first anniversary of the Commencement Date, (ii)
twenty percent (20%) shall vest on the second anniversary of
the Commencement Date, and (iii) thirty percent (30%) shall
vest on the third anniversary of the Commencement Date. The
vesting of all Options shall occur pro rata among the various
exercise price levels. All unvested Options shall vest
immediately upon the occurrence of a Severenceable Event.
Nauert shall forfeit all unvested Options if his employment
with the Company is terminated for any reason other than a
Severenceable Event. The Options shall have the same
anti-dilution protections as contained in the warrants issued
to Nauert in connection with his equity investment in the
Company.
(iii) This Section 2(b) of the Agreement
constitutes a plan (the "Plan") under which the Options are
granted for purposes of Section 162(m) of the Internal Revenue
Code. At the close of the market on the date immediately
preceding the Stock Purchase Closing Date, the fair market
value of one (1) share of Common Stock was less than $6.50.
The maximum number of shares of Common Stock subject to this
Plan on which options to purchase may be granted is 500,000,
all of which are granted to Nauert in this Section 2(b).
(c) INCENTIVE PAY. Nauert shall receive, with respect
to each year of employment, an amount equal to five percent (5%) of the
amount by which the Company's pre tax income for such year exceeds the
base case for each year of employment as set forth on EXHIBIT A to the
Agreement.
Page 44 of 47 Pages
<PAGE> 45
(d) OTHER COMPENSATION. Nauert may also receive such
cash bonuses or such other incentive compensation as the Board of
Directors of the Company may approve from time to time in its sole
discretion.
(e) ASSIGNMENT BY NAUERT. Notwithstanding anything
herein to the contrary, Nauert may assign up to 25% of his right to
receive payments pursuant to this Paragraph 2 to a third party;
PROVIDED, HOWEVER, that such assignment does not violate any
restrictions on transferability and assignability of Common Stock
awarded under Section 2(a) of this Agreement.
(f) PERFORMANCE GOAL. Nauert's right to and receipt
of any Tax Payment as provided under Section 2(a) of this Agreement is
subject to the satisfaction of the Performance Goal as set forth on
EXHIBIT B of the Agreement.
(g) CERTIFICATION OF PERFORMANCE. Prior to Nauert's
receipt of any Tax Payment or incentive pay under Section 2(c) of this
Agreement, the Board of Directors of the Company or the Compensation
Committee thereof shall certify whether or not the Performance Goal was
satisfied.
(h) FAIR MARKET VALUE OF STOCK AWARD. For purposes of
Sections 83 and 162 of the Internal Revenue Code, the "Fair Market
Value" of a Stock Award shall be equal to the product of (i) the number
of shares of Common Stock, including fractional shares, paid to Nauert
multiplied by (ii) the closing price of one (1) share of Common Stock
on the date of payment.
3. DELETION OF SECTION OF 9. Section 9 of the Agreement shall be
deleted in whole.
4. CORRECTION TO SECTION 10(f). References in Section 10(f) to "Section
9" are deleted and substituted with "Section 10."
5. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to its
principles of conflicts of law.
6. SEVERABILITY. If any provision of this Amendment is held for any
reason to be invalid, it will not invalidate any other provisions of this
Amendment which are in themselves valid, nor will it invalidate the provisions
of any other agreement between the parties hereto. Rather, such invalid
provision shall be construed so as to give it the maximum effect allowed by
applicable law.
7. HEADINGS. Paragraph headings hereunder are for convenience only and
shall not affect the meaning or interpretation of the provisions of this
Amendment.
8. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original without production of
the others.
Page 45 of 47 Pages
<PAGE> 46
9. FULL FORCE AND EFFECT. Except as expressly stated in this Amendment,
all terms and provisions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
CERES GROUP, INC.
By: /s/ Charles E. Miller, Jr.
-------------------------------------
Its: Executive Vice President and CFO
-------------------------------------
/s/ Peter W. Nauert
-----------------------------------------
Peter W. Nauert
Page 46 of 47 Pages
<PAGE> 47
EXHIBIT B
---------
5% year over year increase in the direct premium revenue of Central
Reserve Life Insurance Company, an Ohio corporation, based on 1998 revenues of
$264,868,186, as follows:
1999 $278,112,000
2000 $292,018,000
2001 $306,618,000
For the Tax Payment related to any Stock Award to be paid in any quarter in 1999
or 2000, the 1999 target must be met; and for the Tax Payment related to any
Stock Award to be paid in any quarter in 2001, the 2000 target must be met.
Page 47 of 47 Pages
