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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. 1 )*
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)
July 3, 1998
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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 136 Pages
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SCHEDULE 13D
CUSIP NO. 156772 10 5 PAGE 2 OF 136 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) [ ]
----
(b) [ X ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
PF, 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 2,113,454 (1)
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY ---------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 2,113,454 (1)
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PERSON 10 SHARED DISPOSITIVE POWER
WITH
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,113,454 (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)
14.5%
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14 TYPE OF REPORTING PERSON*
IN
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(1) Includes warrants to purchase 466,818 shares of common stock at $5.50 per
share; warrants to purchase 500,000 shares of common stock at $6.00 per share;
and non-qualified options to purchase 150,000 shares of common stock at an
average price of $6.83 per share.
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CUSIP No. 156772 10 5
This Amendment No. 1 to Schedule 13D Statement is filed on behalf of
Peter W. Nauert for the purpose of reporting certain acquisitions by Mr. Nauert
of shares of common stock, par value $0.001 per share (the "Shares"), and
warrants to purchase 466,818 Shares at $6.00 per Share (the "Equity Warrant"),
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 Shares and Equity Warrant acquired by Mr. Nauert since the filing
of the original Schedule 13D Statement on April 30, 1998 (the "Original Schedule
13D") were acquired for the aggregate purchase price of approximately $5.6
million. Mr. Nauert purchased the Equity Warrant and 933,636 Shares on July 3,
1998 with the proceeds of a loan from American National Bank and Trust Company
of Chicago ("ANB"). The Loan Agreement between Mr. Nauert and ANB, dated as of
July 1, 1998, is attached as Exhibit 7.2 hereto. In connection with the loan,
Mr. Nauert executed a Revolving Note, dated July 1, 1998, in favor of ANB that
matures on June 30, 2001 (the "Note"). The Note is attached as Exhibit 7.3
hereto. The 62,000 Shares purchased on February 17, 1999 were acquired with
personal funds of Mr. Nauert.
Item 4. Purpose of Transaction.
-----------------------
Item 4 is amended and supplemented as follows:
Mr. Nauert purchased 933,636 Shares and acquired the Equity Warrant in
connection with Ceres' equity financing in July 1998 in which Ceres agreed to
issue and sell 7,300,000 Shares at $5.50 per share and 3,650,000 Equity Warrants
(the "Equity Financing"). Strategic Acquisition Partners, LLC ("SAP"), a limited
liability company of which Mr. Nauert is an investor, assigned to Mr. Nauert
its right to purchase the 933,636 Shares and the Equity Warrant reported herein
as being acquired by Mr. Nauert pursuant to an Assignment Agreement dated as of
July 1, 1998 between SAP and Mr. Nauert, which right arose under the Amended
and Restated Stock Purchase Agreement by and between SAP, Insurance Partners,
L.P., Insurance Partners Offshore (Bermuda), L.P. and Ceres, dated as of March
30, 1998. In connection with the Equity Financing, Mr. Nauert and the other
investors entered into the Voting Agreement and the Stockholders Agreement,
each dated as of July 1, 1998, each of which is more fully described in Item 5
below, and the Registration Rights Agreement, dated as of July 1, 1998, which
is more fully described in Item 6 below. The Voting Agreement, the Stockholders
Agreement and the Registration Rights Agreement are attached hereto as Exhibits
7.4, 7.5 and 7.6, respectively, and are incorporated herein by reference.
In connection with the Equity Financing, Mr. Nauert was elected as
President and Chief Executive Officer of Ceres and was elected to the Board of
Directors of Ceres.
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 following is a summary of the Employment
Agreement and is not intended to be a complete description. Reference is made to
the full text of the Employment Agreement, which is attached hereto as Exhibit
7.7 and incorporated herein by reference. The Employment Agreement provides,
Page 3 of 136 Pages
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CUSIP No. 156772 10 5
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, if Mr. Nauert is employed by Ceres on July 1, 2001; (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. If Mr. Nauert is employed by Ceres on July 1, 2001, Mr.
Nauert shall receive the Stock Award of the number of Shares equal to: (i)
$1,000,000 divided by the closing price of the Shares on July 3, 1998, plus (ii)
$1,000,000 divided by the average closing price of the Shares for the period
from July 1, 1999 to July 1, 2000, plus (iii) $1,000,000 divided by the average
closing price of the Shares for the period from July 1, 2000 to July 1, 2001.
The Stock Options were granted to Mr. Nauert on July 1, 1998 with 30% of the
Stock Options, or 150,000 Shares, vesting immediately. The remainder of the
Stock Options vest as follows: (i) 20% vest on July 1, 1999; (ii) 20% vest on
July 1, 2000; and (iii) 30% vest on July 1, 2001. The exercise price of the
Stock Options is as follows: (i) 100,000 at $6.50 per Share; (ii) 100,000 at
$7.50 per Share; (iii) 100,000 at $8.50 per Share; (iv) 100,000 at $9.50 per
Share; and (v) 100,000 at $10.50 per Share.
Mr. Nauert purchased 62,000 Shares on February 17, 1999 in connection
with Ceres' private placement offering of 2,000,000 Shares (the "Private
Placement Offering"). In connection with the Private Placement Offering, Mr.
Nauert entered into a Stock Subscription Agreement with Ceres, dated December
15, 1998, which is attached hereto as Exhibit 7.8 and incorporated herein by
reference. The Stock Subscription Agreement provides that the Shares purchased
by Mr. Nauert in the Private Placement Offering will be bound by and subject to
the Stockholders Agreement and the Voting Agreement, as more fully described in
Item 5 below, and that the 62,000 Shares purchased by Mr. Nauert will be
"Registrable Shares" as defined in the Registration Rights Agreement, as more
fully described in Item 6 below.
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 13,495,172 Shares outstanding. If the Equity Warrant, Mr.
Nauert's warrant to purchase 500,000 Shares issued in connection with the
Guaranty (as described more fully in Item 4 to the Original Schedule 13D) (the
"Guarantee Warrant"), and 150,000 vested Stock Options were fully exercised,
there would be 14,611,990 Shares outstanding (the "Diluted Shares").
Mr. Nauert beneficially owns 2,113,454 Shares, assuming full exercise
of the Equity Warrant, the Guaranty Warrant and 150,000 Stock Options, or
approximately 14.5% of the Diluted Shares.
Pursuant to the Voting Agreement dated as of July 1, 1998 (the "Closing
Date") by and among Ceres; Insurance Partners, L.P. ("IP Delaware"); Insurance
Partners Offshore (Bermuda), L.P. ("IP Bermuda" and together with IP Delaware,
"Insurance Partners"); SAP; Turkey Vulture Fund XIII, Ltd. (the "Fund"); Michael
A. Cavataio; Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock
Option Director Plan FBO Michael Cavataio #08590033; Mercantile Bank of Northern
Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio
Page 4 of 136 Pages
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CUSIP No. 156772 10 5
#08590034; Karon Hill; Val Rajic; Marc C. Krantz; Krantz Family Limited
Partnership; Medical Mutual of Ohio; United Payors and United Providers, Inc.;
Howard R. Conant; Joseph Cusimano IRA; Leg Partners SBIC, L.P.; Lunn-Ceres, LLC;
Stifel, Nicolaus & Co., Custodian for Michael A. Cavataio IRA; Charles E.
Miller, Jr.; Glen A. Laffoon; Bruce Henry; Stifel, Nicolaus & Co., Custodian for
Kenneth A. Mannino IRA; Sally J. Krogh; John Cochrane; Andrew A. Boemi; and Mr.
Nauert (collectively, the "Stockholders"), and attached hereto as Exhibit 7.4
(the "Voting Agreement"), the Stockholders have agreed to cause the Board of
Directors of Ceres to consist of nine directors, some or all, as applicable, of
whom shall consist of the following individuals: (i)(a) four individuals
designated by Insurance Partners, so long as IP Delaware, IP Bermuda, their
respective affiliates, the respective officers, directors, and employees of the
foregoing, and the respective limited partners of IP Delaware and IP Bermuda
(collectively, the "IP Group") own Shares equal to at least 75% of the Shares
owned by the IP Group on the Closing Date, (b) three individuals designated by
Insurance Partners, so long as the IP Group owns Shares equal to at least 50%,
but less than 75% of the Shares owned by the IP Group on the Closing Date, (c)
two individuals designated by Insurance Partners, so long as the IP Group owns
Shares equal to at least 25%, but less than 50%, of the Shares owned by the IP
Group on the Closing Date, and (d) one individual designated by Insurance
Partners, so long as the IP Group owns Shares equal to at least 10%, but less
than 25%, of the Shares owned by the IP Group on the Closing Date; (ii) (a) two
individuals designated by SAP, so long as SAP and its affiliates (the "SAP
Group") own Shares equal to at least 50% of the Shares owned by the SAP Group
on the Closing Date, and (b) one individual designated by SAP, so long as the
SAP Group owns Shares equal to at least 10%, but less than 50% of the Shares
owned by the SAP Group on the Closing Date; (iii) one individual designated by
the Fund, so long as the Fund and its affiliates (the "Osborne Group"), own
Shares equal to at least 25% of the Shares owned by the Osborne Group on the
Closing Date; (iv) John F. Novatney, Jr. until the earlier to occur of (A)
December 31, 1999 or (B) the first date as of which Ceres does not have a
class of equity securities registered under the Securities Exchange Act of 1934
(the "Exchange Act"); and (v) Fred Lick, Jr. until the earlier to occur of (A)
December 31, 1999, (B) the first date as of which Ceres does not have a class
of equity securities registered under the Exchange Act or (C) expiration of the
remaining term of his employment agreement with Ceres, as amended; provided
that so long as Ceres has a class of equity securities registered under the
Exchange Act, at least two directors remaining on the Board of Directors shall
be "independent" as such term is defined under applicable Nasdaq National
Market System, Inc. standards (such directors are referred to herein as
"Independent Directors"); provided that none of Insurance Partners, SAP, or the
Fund shall be required to designate an individual that constitutes an
Independent Director so long as two individuals who constitute Independent
Directors are nominated to serve as directors and Insurance Partners, SAP, and
the Fund vote for their election; and provided further that Ceres shall not
voluntarily be delisted from the Nasdaq National Market System, Inc. except in
connection with a going private transaction or if Ceres becomes listed on
another national securities exchange. Under Nasdaq National Market System, Inc.
standards, the term "independent director" means a person other than an officer
or employee of Ceres or its subsidiaries or any other individual having a
relationship which, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director. Under the Voting Agreement, each of the Stockholders and their
respective transferees, granted each of IP Delaware, SAP and the Fund a proxy
to vote the Shares held by such person, in the event such person fails to vote
its Shares in accordance with the foregoing provisions of this paragraph.
Page 5 of 136 Pages
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CUSIP No. 156772 10 5
The Voting Agreement further provides that no Stockholder may effect,
cause to be effected, or permit any voluntary or involuntary sale, assignment,
or transfer ("Transfer") of any Shares or any interest therein, except for
Transfers pursuant to an effective registration statement or pursuant to Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"), unless
the transferee agrees to be bound by the provisions of the Voting Agreement and
the Stockholders Agreement (as defined below) and such Transfer is, where
applicable, made in compliance with the terms of the Stockholders Agreement. Any
Transfer not complying with the provisions of the Voting Agreement will be void
ab initio, shall not be effective for any purpose, and any purported transferee
of such a Transfer shall not acquire any right or interest in such Shares. This
description of the Voting Agreement is not and does not purport to be complete
and is qualified in its entirety by reference to the Voting Agreement, a copy of
which is attached hereto as Exhibit 7.4.
In addition, Ceres and the Stockholders entered into the Stockholders
Agreement dated as of July 1, 1998 (the "Stockholders Agreement"). Pursuant to
the Stockholders Agreement, each of the Stockholders is provided certain rights
in respect of its outstanding Shares in the event of certain sales of Shares by
other Stockholders. Specifically, if Insurance Partners disposes of Shares
representing more than 20% of the outstanding Shares, the IP Group has the
right to require each non-selling Stockholder (each, a "Co-Seller") to transfer
a portion of its Shares which represents the same percentage of the fully
diluted Shares held by such Co-Seller as the Shares being disposed of by the IP
Group represent of the fully diluted Shares held by the IP Group. All Shares
transferred pursuant to the foregoing provision of the Stockholders Agreement
will be sold at the same price and time and otherwise be treated identically
with the Shares being sold by the IP Group.
The Stockholders Agreement further provides that if any Stockholder
desires to effect a transfer of Shares (other than a transfer in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act) representing more than 20% of the outstanding Shares, then the
selling Stockholder must make an offer to each Co-Seller to include in the
proposed sale a portion of such Co-Seller's Shares which represents the same
percentage of such Co-Seller's fully diluted Shares as the Shares being sold by
the selling Stockholder represent of its fully diluted Shares. This description
of the Stockholders Agreement is not and does not purport to be complete and is
qualified in its entirety by reference to the Stockholders Agreement, a copy of
which is attached hereto as Exhibit 7.5.
Because of the Voting Agreement and Stockholders Agreement, Mr. Nauert
and the other Stockholders may be deemed to be a group within the meaning of
Section 13(d)(3) of the Exchange Act. If the Stockholders 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 15,289,750 Shares(2), or approximately 80.5% of
the Shares that would be outstanding if each Stockholder 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 Stockholders.
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(2) Includes: (i) 466,818 Equity Warrants, 500,000 Guarantee Warrants, 996,636
Shares and non-qualified options to purchase 500,000 Shares owned by Mr. Nauert;
and (ii) 3,183,182 Equity Warrants, 500,000 Guarantee Warrants, 8,793,114
Shares, and non-qualified option to purchase 350,000 Shares owned by the other
Stockholders.
Page 6 of 136 Pages
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CUSIP No. 156772 10 5
(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 the Original Schedule 13D, Mr. Nauert (1)
acquired the Equity Warrant to purchase 466,818 Shares from Ceres on July 3,
1998; (2) purchased 933,636 Shares from Ceres on July 3, 1998 for $5.50 per
share; (3) was granted 500,000 Stock Options (150,000 of which are presently
exercisable); and (4) purchased 62,000 Shares from Ceres on February 17, 1999
for $7.50 per share.
(d) Not Applicable.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationship with
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respect to Securities of the Issuer.
-------------------------
Item 6 of Schedule 13D is hereby amended and supplemented as follows:
Reference is hereby made to (i) the Loan Agreement attached hereto as
Exhibit 7.2; (ii) the Note attached hereto as Exhibit 7.3; (iii) the Voting
Agreement attached hereto as Exhibit 7.4; (iv) the Stockholders Agreement,
attached hereto as Exhibit 7.5; (v) the Registration Rights Agreement, dated as
of July 1, 1998, as amended February 17, 1999, by and among Ceres and the
Stockholders, and attached hereto as Exhibit 7.6, which provides Mr. Nauert and
the other Stockholders with certain rights to have their Shares registered
pursuant to the Securities Act, including the right of Mr. Nauert to one demand
registration at the expense of Ceres; (vi) the Employment Agreement, attached
hereto as Exhibit 7.7; and (vii) the Stock Subscription Agreement, attached
hereto as Exhibit 7.8.
Item 7. Material to be Filed as Exhibits.
---------------------------------
Item 7 of Schedule 13D is hereby amended and supplemented as follows:
Exhibit 7.2 -- The Loan Agreement
Exhibit 7.3 -- The Note
Exhibit 7.4 -- The Voting Agreement
Exhibit 7.5 -- The Stockholders Agreement
Exhibit 7.6 -- The Registration Rights Agreement
Exhibit 7.7 -- The Employment Agreement
Exhibit 7.8 -- The Stock Subscription Agreement
Page 7 of 136 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: March 10, 1999
By: /s/ Peter W. Nauert
-----------------------
Peter W. Nauert
Page 8 of 136 Pages
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CUSIP No. 156772 10 5
EXHIBIT INDEX
Exhibit 7.2 Loan Agreement, dated as of July 1, 1998, by and between
American National Bank and Trust Company of Chicago and Peter W.
Nauert
Exhibit 7.3 Revolving Note, dated July 1, 1998, delivered by
Peter W. Nauert in favor of American National Bank and Trust
Company of Chicago
Exhibit 7.4 Voting Agreement, as of July 1, 1998, by and among
Ceres Group, Inc. (as successor-in-interest to Central Reserve
Life Corporation) and the security holders listed on the
signature pages thereof
Exhibit 7.5 Stockholders Agreement, as of July 1, 1998, by and among
Ceres Group, Inc. (as successor-in-interest to Central
Reserve Life Corporation) and the security holders listed on
the signature pages thereof
Exhibit 7.6 Registration Rights Agreement, dated as of July 1, 1998,
by and among Ceres Group, Inc. (as successor-in-interest to
Central Reserve Life Corporation) and the persons and entities
set forth on the signature pages attached thereto and as
amended through Amendment No. 1 to the Registration Rights
Agreement, dated as of February 17, 1999
Exhibit 7.7 Employment Agreement dated June 30, 1998, by and between Peter W.
Nauert and Ceres Group, Inc. (as successor-in-interest to Central
Reserve Life Corporation)
Exhibit 7.8 Stock Subscription Agreement dated December 15, 1998
by and between Peter W. Nauert and Ceres Group, Inc. (as
successor-in-interest to Central Reserve Life Corporation)
Page 9 of 136 Pages
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EXHIBIT 7.2
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), dated as of the 1st day of
July, 1998 by and between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
("BANK") a national banking association with its principal place of business at
120 South LaSalle Street, Chicago, Illinois 60603, and PETER W. NAUERT,
("Borrower"), who resides at 27 Riderwood Road, North Barrington, IL 60010, has
reference to the following facts and circumstances:
Pursuant to Borrower's request, Bank heretofore, now and from time to
time hereafter, has and/or may loan or advance monies, extend credit and/or
extend other financial accommodations or for the benefit of Borrower.
NOW THEREFORE, in consideration of the terms and conditions set forth
herein and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of Borrower by Bank, the parties hereto agree as
follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below shall
have the following meanings:
A. "BORROWER'S LIABILITIES": all obligations and liabilities of
Borrower to Bank (including without limitation all debts,
claims, indebtedness and attorneys' fees and expenses as
provided for in Paragraph 6.10) whether primary, secondary,
direct contingent, fixed or otherwise, including Rate Hedging
Obligations (as defined in subparagraph E herein), heretofore,
now and/or from time to time hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and
however arising, whether under this Agreement or the "Other
Agreements" (hereinafter defined) or by operation of law or
otherwise.
B. "INDEBTEDNESS": (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii)
obligations as lessee under leases which shall have been or
should be, in. accordance with generally accepted accounting
principles, recorded as capital leases; and (iii) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above.
C. "OTHER AGREEMENTS": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of
trust, notes, pledges, powers of attorney, consents,
assignments, contracts, notices security agreements, leases,
subordination agreements, financing statements and all other
written matter heretofore, now and/or
Page 10 of 136 Pages
<PAGE> 2
from time to time hereafter executed by and/or on behalf of
Borrower and delivered to Bank.
D. "PERSONS": any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability
company, institution, entity, party or government (whether
national, federal, state, county, city, municipal or
otherwise, including without limitation, any
instrumentality, division, agency, body or department
thereof).
E. "RATE HEDGING OBLIGATIONS": shall mean any and all
obligations of the Borrower, whether absolute or contingent
and howsoever and whensoever created, arising, evidenced or
acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i)
any and all agreements designed to protect the Borrower from
the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities
or exchange transactions, including, but not limited to:
interest rate swap agreements, dollar-denominated or
cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap, floor or
collar agreements, forward rate currency agreements or
agreements relating to interest rate options, puts and
warrants, and (ii) any and all agreements relating to
cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
1.2 Except as otherwise defined in this Agreement or the Other Agreements,
all words, terms and/or phrases used herein and therein shall be defined by the
applicable definition therefor (if any) in the Illinois Uniform Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as other wise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) (as the same may be amended or renewed).
All costs, fees and expenses payable hereunder or under the Other Agreements,
shall be payable by Borrower to Bank on demand, in either case at Bank's
principal place of business or such other place as Bank shall specify in writing
to Borrower.
2.2 Each loan made by Bank to Borrower pursuant to this Agreement or the
Other Agreements shall constitute an automatic warranty and representation by
Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
Page 11 of 136 Pages
<PAGE> 3
2.3 This Agreement shall be in effect until all of Borrower's Liabilities
have been paid in full and any and all commitments of Bank to make loans have
terminated.
2.4 Bank's commitment to loan shall expire on the earlier of (i) the date
on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 5 hereof.
3. NEGATIVE PLEDGE
3.1 Borrower shall not incur, permit, or suffer to exist any lien upon any
of its property or assets, now owned or hereafter acquired, except for the
following permitted liens: (a) liens for taxes, assessments and governmental
charges of levies imposed upon the Borrower's income or profits or property, if
the same are not yet due and payable or if the same are being contested in good
faith and as to which adequate cash reserves have been provided; (b) liens
arising out of good faith deposits in connection with tenders, leases, real
estate bids or contracts (other than contracts involving the borrowing of
money), pledges, or deposits to secure (or in lieu) of surety, stay, appeal or
customs bonds and deposits to secure the payment of taxes, assessments, customs
duties or similar charges; and (c) encumbrances consisting of zoning
restrictions, easements, or other restrictions on the use of real property,
provided that such items do not impair the use of such property for the purposes
intended, and none of which is violated by existing or proposed structures or
land use.
4. WARRANTIES, REPRESENTATIONS AND COVENANTS; GENERAL
4.1 Borrower warrants and represents to and covenants with Bank that: (a)
Borrower has the right, power and capacity and is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and the Other
Agreements; (b) the execution, delivery and/or performance by Borrower of this
Agreement and the Other Agreements shall not, by the lapse of time, the giving
of notice or otherwise, constitute a violation of any applicable law or a breach
of any provision contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all times
hereafter own property which, at a fair valuation, is greater than the sum of
its debts; (d) Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statute, regulation or
ordinance that, in any respect materially and adversely affects its business,
property, assets, operations or condition, financial or otherwise; and (e)
Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound.
4.2 Borrower warrants and represents to and covenants with Bank that,
unless permitted by the Rider attached hereto, Borrower shall not, without
Bank's prior written consent thereto: (a) enter into any transaction not in the
ordinary course of business which materially and adversely affects
Page 12 of 136 Pages
<PAGE> 4
Borrower's ability to repay Borrower's Liabilities, any other obligations and
liabilities of Borrower; (b) other than as specifically permitted in or
contemplated by this Agreement or the Other Agreements, encumber, pledge,
mortgage, sell, lease or otherwise dispose of or transfer, whether by sale,
loan, distribution, merger, consolidation or otherwise, any of Borrower's
assets; and (c) incur Indebtedness except renewals or extensions of existing
Indebtedness and interest thereon, and except Indebtedness that is unsecured and
is to Persons who execute and deliver to Bank in form and substance acceptable
to Bank and its counsel subordination agreements subordinating their claims
against Borrower therefore to the payment of Borrower's Liabilities.
4.3 Borrower warrants and represents to and covenants with that Borrower
shall furnish to Bank: (a) as soon as available but not later than ninety (90)
days after the close of each fiscal year of Borrower, updated personal financial
statements of Borrower, (b) income tax returns of Borrower as soon as they are
available, and (c) such other data and information (financial and otherwise) as
Bank, from time to time, may reasonably request.
5. DEFAULT
5.1 The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement which remains uncured for a period
of thirty (30) days after written notice thereof; (c) occurrence of a default
or Event of Default under any of the Other Agreements heretofore, now or at any
time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of
a default or an Event of Default under any agreement, instrument or document
heretofore, now or at any time hereafter delivered to Bank by any guarantor of
Borrower's Liabilities or by any Person which has granted to Bank a security
interest or lien in and to some or all of such Person's real or personal
property to secure the payment of Borrower's Liabilities; (e) if any of
Borrower's assets are attached, seized, subjected to a writ, or are levied upon
or become subject to any lien or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors; (f) if a notice of
lien, levy or assessment is filed of record or given to Borrower with respect
to all or any of Borrower's assets by any federal, state, local department or
agency; (g) if Borrower or any guarantor of Borrower's Liabilities becomes
insolvent or generally fails to pay or admits in writing its inability to pay
debts as they become due, if a petition under Title 12 of the United States
Code or any similar law or regulation is filed by or against Borrower or any
such guarantor, if Borrower or any such guarantor shall make an assignment for
the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, or if
Borrower or any such guarantor is enjoined, restrained or in any way prevented
by court order from conducting all or any material part of its business
affairs; (h) the death or incompetency of Borrower or any guarantor of
Borrower's Liabilities, or the appointment of a conservator for all or any
portion of Borrower's assets; (i) the revocation, termination, or cancellation
of any guaranty of Borrower's Liabilities without written consent of Bank; (j)
if Borrower or any guarantor of Borrower's Liabilities is in default in the
payment of any obligations, indebtedness or other
Page 13 of 136 Pages
<PAGE> 5
liabilities to any third party and such default is declared and is not cured
within the time, if any, specified therefor in any agreement governing the same;
or (k) if any material statement, report or certificate made or delivered by
Borrower, any of Borrower's partners, officers, employees or agents or any
guarantor of Borrower's Liabilities is not true and correct.
5.2 All of Bank's rights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.
5.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 5.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to Borrower, Borrower's Liabilities shall be due and payable,
forthwith.
5.4 Any notice required to be given by Bank to Borrower deposited in the
United States mail, postage prepaid shall be delivered by registered or
certified mail to the address specified at the beginning of this Agreement not
less than ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice to Borrower thereof.
5.5 Under an Event of Default Borrower waives and releases any cause of
action and claim against Bank's possession or collection of the monies,
reserves, deposits, deposit accounts and interest or dividends thereof, cash or
cash equivalents, collectively the "Monies", in conjunction with this Loan
Agreement.
6. GENERAL
6.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
6.2 This Agreement and the Other Agreements shall be binding upon and inure
to the benefit of the heirs, representatives, successors and assigns of Borrower
and Bank.
6.3 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of
Page 14 of 136 Pages
<PAGE> 6
Default by Borrower under this Agreement or the Other Agreements, whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
6.4 If any provision of this Agreement or the Other Agreements or the
application thereof to any person, entity or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons, or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
6.5 Borrower hereby appoints Bank as Borrower's agent and attorney-in-fact
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any agreement, instrument or document which Bank may
reasonably deem necessary or advisable to accomplish the purposes hereof which
appointment is irrevocable and coupled with an interest. All monies paid for the
purposes herein, and all costs, fees and expenses paid or incurred in connection
therewith, shall be part of Borrower's Liabilities, payable to Borrower to Bank
on demand.
6.6 Except as otherwise specifically provided in this Agreement, Borrower
waives any and all notice or demand which Borrower might be entitled to receive
by virtue of any applicable statute or law, and waives presentment, demand and
protest and notice of presentment protest default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any and all
agreements, instruments or documents at any time held by Bank on which Borrower
may in any way be liable.
6.7 Except as otherwise provided in the Other Agreements, if any provision
contained in this Agreement is in conflict with, or inconsistent with any
provision in the Other Agreements, the provision of this Agreement shall
control. If any provision of the Rider attached hereto is in conflict with, or
inconsistent with any provision in this Agreement, the terms of the Rider shall
control.
6.8 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered, or amended except by an agreement in writing signed by Borrower and
Bank. This Agreement shall continue in full force and effect so long as any
portion or component of Borrower's Liabilities shall be outstanding. All of
Borrower's warranties, representations, undertakings, and covenants contained in
this Agreement or the Other Agreements shall survive the termination or
cancellation of the same. Should a claim ("Recovery Claim") be made upon the
Bank at any time for
Page 15 of 136 Pages
<PAGE> 7
recovery of any amount received by the Bank in payment of Borrower's Liabilities
(whether received from Borrower or otherwise) and should the Bank repay all or
part of said amount by reason of (1) any judgment, decree or order of any court
or administrative body having jurisdiction over Bank or any of its property; (2)
any settlement or compromise of any such Recovery Claim effected by the Bank
with the claimant (including Borrower), this Agreement and the security
interests granted Bank hereunder shall continue in effect with respect to the
amount so repaid to the same extent as if such amount had never originally been
received by the Bank, notwithstanding any prior termination of this Agreement,
the return of this Agreement to Borrower, or the cancellation of any note or
other instrument evidencing Borrower's Liabilities.
6.9 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois and not the law of
conflicts.
6.10 If at any time or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank: (a) employs counsel for advice
or other representation, (i) with respect to this Agreement, the Other
Agreements or the administration of Borrower's Liabilities, (ii) to represent
Bank in any litigation, arbitration contest, dispute, suit or proceeding or to
commence, defend or intervene or to take any other action in or with respect to
any litigation, contest, dispute, suit or proceeding (whether instituted by
Bank, Borrower or any other Person) in any way or respect relating to this
Agreement, the Other Agreements, or Borrower's affairs, or (iii) to enforce any
rights of Bank against Borrower or any other Person which may be obligated to
Bank by virtue of this Agreement or Other Agreements; (b) takes any action with
respect to administration of Borrower's Liabilities; and/or (c) attempts to or
enforces any of Bank's rights or remedies under this Agreement or the Other
Agreements, the reasonable costs, fees and expenses incurred by Bank with
respect to the foregoing, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand; PROVIDED, HOWEVER, that the foregoing obligations of
Borrower shall terminate from and after the repayment in full of all of the
Borrower's Indebtedness to Bank.
6.11 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT
OF OR FROM OR RELATED TO THIS AGREEMENT OR THE OTHER AGREEMENTS SHALL BE
LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF
ILLINOIS, AND BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH
6.12 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
Page 16 of 136 Pages
<PAGE> 8
DELIVERED OR WHICH MAY TN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION
WITH OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR ANY SUCH AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT,
COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
6.13 THIS LOAN AGREEMENT IS SUBJECT TO THE TERMS OF A RIDER OF EVEN DATE
HEREWITH BETWEEN BORROWER AND BANK WHICH IS ATTACHED HERETO AND MADE A PART
HEREOF.
Page 17 of 136 Pages
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
BORROWER:
By:
- ----------------------------------
Print or Type Name:
- ----------------------------------
Its:
- ----------------------------------
Accepted this __ day of ___________, 19__, a Bank's principal place of
business in the City of Chicago, State of Illinois.
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By:
- ----------------------------------
Print or Type Name:
- ----------------------------------
Its:
- ----------------------------------
Page 18 of 136 Pages
<PAGE> 10
RIDER
-----
This Rider ("Rider") to Loan Agreement ("Loan Agreement") is made and
entered into this ______ day of ______________, 1998 by and between Peter W.
Nauert ("Borrower") and American National Bank and Trust Company of Chicago
("Bank").
1. COVENANTS OF THE BORROWER. Borrower agrees that, so long as any of the
Borrower's Liabilities remain outstanding, except to the extent compliance
in any case or cases is waived in writing by Bank:
(a) Borrower shall, as of the end of each calendar year, maintain a ratio
of Indebtedness (including Borrower's Liabilities) to net worth (determined in
accordance with generally accepted accounting principals consistently applied)
of not more than .5 to 1.
(b) Borrower shall, at all times, maintain a ratio of liquid assets
(excluding Conseco, Inc. common stock and stock and other equity holdings of
Central Reserve Life Corporation) to one-half (1/2) of the then outstanding
"Revolving Commitment" of not less than 2 to 1. For the purposes hereof, the
term "Revolving Commitment" means the maximum credit availability under the
Revolving Note of even date herewith in the original principal amount of
$15,000,000 from Borrower to Bank ("Revolving Note").
(c) Borrower will furnish or cause to be furnished to Bank in form
reasonably acceptable to Bank:
(i) On June 30 of each year and upon request of Bank from time to
time, a certificate from Borrower that no material adverse change has occurred
with respect to Borrower's assets or financial condition as reported to Bank at
each fiscal year end; and
(ii) Within fifteen (15) days after the end of each month, brokerage
statements verifying Borrower's asset holdings;
(d) Notwithstanding anything contained in Section 4.2 of the Loan Agreement
to the contrary, Borrower may, without the Bank's consent, (i) sell assets in an
amount not to exceed $10,000,000 in any calendar year and (ii) guaranty
additional Indebtedness in an aggregate amount not to exceed $5,000,000.
2. USE OF PROCEEDS. Borrower shall use the proceeds of the Revolving Note
solely to purchase shares of Central Reserve Life Corporation, an Ohio
Corporation ("CRLC") Notwithstanding the foregoing, Borrower may use the
proceeds of the Revolving Note to make loans ("Recipient Loans") to Val
Rajic, Mike Cavataio and/or Billy Hill (the "Recipients"), provided (i)
each Recipient uses the proceeds of the Recipient Loans to purchase shares
of CRLC, (ii) the terms of the Recipient Loans are acceptable to the Bank
in its sole discretion, (iii) Borrower pledges and grants to Bank a
security interest in and to the Recipient Loans in form and substance
satisfactory to Bank (which security interest shall terminate with respect
to a Recipient Loan upon full repayment, either in cash, marketable
Page 19 of 136 Pages
<PAGE> 11
securities or a combination thereof, of such Recipient Loan to Borrower), and
(iv) the aggregate amount of the Recipient Loans does not exceed the lesser of
(a) $3,000,000 or (b) one-third (1/3) of the outstanding principal balance of
the Revolving Note.
3. CONDITIONS PRECEDENT. The obligation of Bank to make the initial or any
subsequent advances under the Revolving Note are subject to the following
conditions precedent:
(a) Each of the representations and warranties in the Loan Agreement are
true and correct in all material respects.
(b) Borrower shall be in full compliance in all material respects with all
of the terms and conditions of the Loan Agreement (including this Rider) and no
Default or Event of Default shall have occurred and be continuing.
(c) Bank shall have received all other documents required under the Loan
Agreement (including this Rider), duly executed by the appropriate parties
thereto.
(d) The loan by the Bank to Strategic Acquisition Partners, L.L.C. dated
December 16, 1997 in the principal amount of $20,000,000 shall have been repaid
to the Bank in full.
(e) No material adverse changes, as determined by Bank, shall have occurred
in the financial condition or assets of the Borrower.
(f) There shall not have been instituted or threatened, any material (as
determined by Bank) litigation or proceeding in any court or administrative
forum to which the Borrower is or is threatened to be a party.
(g) Such other documents, assignments, financial statements or other items
as shall be reasonably required by the Bank.
4. CONFLICTS. In the event of a conflict between the terms of this Rider and
the terms of the Loan Agreement, the terms of this Rider shall govern
as control.
5. DEFINED TERMS. Terms not defined herein shall have the meanings ascribed to
them in the Loan Agreement.
Page 20 of 136 Pages
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Rider or the date
first above written.
Borrower:
----------------------------------------
Peter W. Nauert
Accepted:
American National Bank and Trust
Company of Chicago
By:
----------------------------------------
Its:
----------------------------------------
Page 21 of 136 Pages
<PAGE> 1
EXHIBIT 7.3
REVOLVING NOTE
$6,951,736.00 Chicago, Illinois
July 1, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower"), promises to pay to
the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at
its principal place of business in Chicago, Illinois or such other place as Bank
may from time to time designate in writing, the principal sum of Six Million,
Nine Hundred Fifty-one Thousand, Seven Hundred Thirty-Six Dollars
($6,951,736.00), or such lesser principal sum as may then be owed by Borrower
hereunder on or before 2001 (the "Loan Maturity"). Except as hereinafter
provided, Borrower's obligations and liabilities to Bank under this Note
("Borrower's Liabilities") outstanding from time to time shall bear interest
from the date hereof until paid at a daily rate equal to the daily rate
equivalent (a) of two and one-half percent (2-1/2%) per annum in excess of
"Libor" (hereinafter defined) in the event such Borrower's Liabilities
constitute "Eurodollar Loans" (hereinafter defined) or (b) equal to the "Base
Rate" (hereinafter defined) in effect from time to time on Borrower's
Liabilities which constitute "Base Rate Loans" (as hereinafter defined), in each
case computed on the basis of a 365 day year and charged for actual days
elapsed. Interest and principal shall be payable as set forth below.
As used in this Note, the following terms shall have the following
definitions:
Loan or Loans" shall mean portions of indebtedness created by disbursements
or Loans by Bank hereunder pursuant to or as authorized under the terms of the
"Loan Agreement" (as hereinafter defined).
"Business Day" shall mean a day of the year on which dealings are carried
on in the London interbank market and banks are not required or authorized to
close in Chicago.
"Interest Period or Periods" shall mean, with respect to Eurodollar Loans,
ninety (90) days. All Interest Periods for Eurodollar Loans shall be subject to
the following additional conditions: (i) each selection of an Interest Period
shall be irrevocable for the period so selected; (ii) each Interest Period shall
be selected in such a way that no Interest Period shall extend beyond the due
date of the next scheduled principal payment hereunder or the Loan Maturity; and
(iii) if any Interest Period ends on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding day which is a Business
Day.
"Loan Agreement" shall mean that certain Loan Agreement dated July, 1 1998
by and between Borrower and Bank and all extensions and amendments thereto.
"Libor" for any Interest Period shall mean the rate of interest per annum
at which deposits in United States dollars in an amount approximately equal to
the amount of the Eurodollar
Page 22 of 136 Pages
<PAGE> 2
Loan are offered by the principal London office of the Bank to major money
center banks in the London Interbank market at 11:00 a.m. (London time) one (1)
Business Day before the first day of such Interest Period for a period equal to
such Interest Period.
"Base Rate" shall mean the rate per annum announced by the Bank as its
prime commercial rate or equivalent rate of interest. The Base Rate shall
increase or decrease, as the case may be, an amount equal to and effective as of
the date of each change in such prime commercial rate or equivalent rate of
interest. The use of the term Base Rate is not intended nor does it imply that
said rate of interest is a preferred rate of interest or one that its offered by
the Bank to its most creditworthy customers.
"Interest Payment Date" means (i) the last day of each March, June,
September and December commencing on the first of such days to occur after each
Base Rate Loan is made (which dates shall also apply for the payment of any fees
due Bank hereunder) and (ii) on the last day of any Interest Period for any
Eurodollar loan made.
Borrower shall select as the applicable Rate for the payment of
interest on the amount of such Loan a rate based upon Libor or the Base Rate.
Bank must receive notification of such selection by Borrower not later than
11:00 a.m. (Chicago time) at least one (1) Business Day prior to the end of each
Interest Period and if a rate based upon Libor is selected by Borrower, Borrower
must also advise Bank at the time of such selection, of the duration of the
Initial Interest Period applicable to such Loan. Any Loan for which Borrower has
selected a rate based upon the Base Rate as the applicable rate shall be
referred to as a "Base Rate Loan." Any Loan for which Borrower has selected a
rate based upon Libor and an applicable Interest Period shall be referred to as
a "Eurodollar Loan." If Borrower has not so advised Bank of its selection of an
applicable rate and Interest Period as aforesaid (or if Bank shall make a Loan
other than pursuant to a request of Borrower made in accordance with the terms
of the Loan Agreement), Borrower shall be deemed to have selected a rate based
upon the Base Rate as above provided as the applicable rate for such Loan.
Without prior written consent of Bank, the interest rates and Interest
Periods must be selected so that at no time there shall be more than ten (10)
different "Interest Selections" (as such term is hereinafter defined) in effect
at the same time with respect to the principal balance outstanding hereunder.
For the purposes of this Paragraph, an "Interest Selection" shall mean each
single applicable interest rate and the corresponding Interest Period (unless
the rate is the Base Rate in which case no Interest Period is selected) in
effect from time to time pursuant to the provisions of this Note.
If, on or before a date one (1) Business Day before the end of the then
current Interest Period for any Eurodollar Loan, Lender does not receive a
notice of election of a rate based upon Libor and the Interest Period as to such
Eurodollar Loan, Borrower shall be deemed to
Page 23 of 136 Pages
<PAGE> 3
have elected to convert such Loan to a Base Rate Loan at the expiration of the
then current Interest Period.
If, after the date of this Note, the introduction of, or any change in,
any applicable law, rule or regulation or in the interpretation or
administration thereof by any central bank or other governmental authority
charged with the interpretation or administration thereof, or compliance by Bank
with any request or directive (whether or not having the force of law) of any
such authority shall make it unlawful, impossible, or impracticable for Bank, to
make, maintain or fund loans using Libor, Bank shall forthwith give notice
thereof to Borrower. As of the date of receipt of such notice, Borrower shall no
longer have the option to select a rate based upon Libor, as the applicable
interest rate for any Loan, and the applicable rate for all existing Eurodollar
Loans (to the extent it is unlawful or impossible to maintain such existing
Eurodollar Loans at Libor), shall be the rate based upon the Base Rate as above
provided (even though the current Interest Period has not expired).
Notwithstanding anything contained in this Note to the contrary,
Borrower may prepay and reborrow amounts under this Note in such amounts as the
Borrower may request, but not exceeding the following aggregate amounts on or
after each date set forth below:
Maximum Outstanding Principal Balance
-------------------------------------
Quarter 1 $6,951,736
Quarter 2 $6,951,736
Quarter 3 $6,951,736
Quarter 4 $6,951,736
Quarter 5 $6,951,736
Quarter 6 $6,951,736
Quarter 7 $6,951,736
Quarter 8 $6,951,736
Quarter 9 $6,951,736
Quarter 10 $6,951,736
Quarter 11 $5,000,000
Quarter 12 $ 0
Borrower shall make a mandatory prepayment of all outstanding principal
in excess of the maximum outstanding principal balance provide for above. All
unpaid principal is due and payable on the Loan Maturity.
Interest on the principal amount of Loans outstanding from time to time
hereunder shall be payable on each Interest Payment Date and at Loan Maturity.
As to the portion of the Loan which constitutes a Base Rate Loan, interest shall
accrue at the rate herein provided based upon the fluctuating Base Rate in
effect from time to time.
Page 24 of 136 Pages
<PAGE> 4
The principal portion of Base Rate Loans may be prepaid in whole or in
part at any time prior to the Loan Maturity without notice, premium or penalty.
The principal portion of Eurodollar Loans may not be prepaid, unless the
Borrower agrees in a prior writing to pay or reimburse Bank for all fees, costs,
penalties or expense incurred in connection with such prepayment.
Borrower warrants and represents to the Bank that Borrower shall use
the proceeds represented by this Note solely for proper business purposes and
consistent with all the terms of the Loan Agreement.
Any deposits or other sums at any time credited by or payable or due
from Bank to Borrower, and/or any monies, cash, cash equivalents, securities,
instruments, certificates of deposit documents or other assets of Borrower in
the possession or control of Bank or its bailee for any purpose may at any time
be reduced to cash and applied by Bank to or setoff by Bank against Borrower's
Liabilities then due and payable hereunder.
This Note evidences indebtedness incurred under, and payment hereof may
be accelerated as provided in the Loan Agreement (as the same may from time to
the time be amended, modified or supplemented), to which Loan Agreement
reference is hereby made for a statement of terms and provisions applicable to
this Note. The occurrence of an Event of Default as described in the Loan
Agreement, including, without limitation, the failure to make any payment
provided for herein and the failure to cure such default prior to any and all
applicable grace or cure periods provided for herein or in the Loan Agreement,
shall constitute a default by Borrower ("Event of Default") under this Note.
Upon an Event of Default, without notice by Bank to or demand by Bank
of Borrower, all of Borrower's Liabilities shall be due and payable forthwith.
The acceptance by Bank of any partial payment made hereunder after the time when
any of Borrower's Liabilities becomes due and payable will not establish a
custom, or waive any rights of Bank to endorse prompt payment hereof. Borrower
and every endorser hereof waive presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, extension or renewal of this Note.
Borrower agrees to pay, upon Bank's demand therefor, any and all
reasonable out-of-pocket costs, fees and expenses (including reasonable
attorneys fees, costs and expenses) incurred in enforcing any of Bank's rights
hereunder and, to the extent not paid, the same shall become part of Borrower's
Liabilities hereunder.
If any provision of this Note or the application thereof to any party
or circumstance is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or circumstances will not be
affected thereby and provisions of this Note shall be severable in any such
instance.
Page 25 of 136 Pages
<PAGE> 5
This Note is submitted by Borrower to Bank at Bank's principal place of
business and shall be deemed to have been made thereat. This Note shall be
governed and controlled by the internal laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect and in all other
respects without reference to principles of choice of law.
To induce Bank to accept this Note, Borrower, irrevocably, agrees that,
subject to Bank's sole and absolute election, all actions and proceedings in any
way, manner or respect, arising out of or from or related to this Note, shall be
litigated in courts having a situs within the City of Chicago, State of
Illinois. Borrower hereby consents and submits to the jurisdiction of any local,
state or federal court located within said city and state.
--------------------------
Peter W. Nauert
Page 26 of 136 Pages
<PAGE> 1
Exhibit 7.4
VOTING AGREEMENT
This VOTING AGREEMENT (the "AGREEMENT") is entered into as of July 1,
1998, 1998, by and among Central Reserve Life Corporation, an Ohio corporation
(including its successors, the "COMPANY") and the security holders listed on the
signature pages of this Agreement (or who may hereafter become a party hereto
pursuant to the terms hereof).
WHEREAS, pursuant to the Amended and Restated Stock Purchase Agreement
dated as of March 30, 1998, by and among the Company and certain purchasers
identified therein (the "STOCK PURCHASE AGREEMENT"), the Company shall issue
7,300,000 shares of common stock, without par value, of the Company and warrants
to purchase up to 3,650,000 shares of common stock of the Company (the "WARRANT
SHARES");
WHEREAS, upon closing of the transactions contemplated by the Stock
Purchase Agreement (the "CLOSING DATE"), the shares purchased thereunder shall
constitute a majority of the common stock of the Company; and
WHEREAS, the parties desire to regulate certain aspects of their
relationship as holders of common stock of the Company.
NOW THEREFORE, in consideration of the agreements and covenants herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
-----------
I.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"AFFILIATE" shall mean, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by, or is under
common control with that Person. For purposes of this definition,
"control," and "controlled by" and when used with respect to any Person
shall mean the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise.
"COMMON STOCK" shall mean shares of the Common Stock, without
par value per share, of the Company, and any capital stock into which
such Common Stock thereafter may be changed.
"COMMON STOCK EQUIVALENTS" shall mean, without duplication
with any other Common Stock or Common Stock Equivalents, any rights,
warrants, options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock
and securities convertible or exchangeable into Common Stock, whether
at the time of issuance or upon the passage of time or the occurrence
of some future event.
"DESIGNEE" shall mean an individual designated for election to
the Board of Directors by IP Delaware, SAP, or Osborne pursuant to
Section 2.1 of this Agreement.
Page 27 of 136 Pages
<PAGE> 2
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated by the SEC
thereunder.
"HOLDER" shall mean (i) a security holder listed on the
signature page hereof and (ii) any direct or indirect transferee of any
such security holder who shall become a party to this Agreement by
executing a joinder agreement in the form of EXHIBIT A hereto.
"INDEPENDENT DIRECTOR" shall mean a director meeting the
standards of an "independent director" as defined in Rule 4200(a) of
the rules of the NASD as of the Closing Date.
"IP" shall mean, collectively, IP Bermuda and IP Delaware.
"IP BERMUDA" shall mean Insurance Partners Offshore (Bermuda),
L.P., a Bermuda limited partnership.
"IP DELAWARE" shall mean Insurance Partners, L.P., a Delaware
limited partnership.
"IP GROUP" shall mean IP Delaware, IP Bermuda, their
respective Affiliates, the respective officers, directors, and
employees (and members of their respective families and trusts for the
primary benefit of such family members) of the foregoing, and the
respective limited partners of IP Delaware and IP Bermuda.
"IP GROUP CLOSING DATE SHARES" shall mean the number of shares
of Common Stock owned by the IP Group as of the date of this Agreement
as set forth on EXHIBIT B hereto.
"LICK EMPLOYMENT AGREEMENT" shall mean that certain Employment
Agreement, dated as of December 15, 1997, between the Company and Fred
Lick, Jr.
"OSBORNE" shall mean Turkey Vulture Fund, III, Ltd. an Ohio
limited liability company.
"OSBORNE GROUP" shall mean Osborne, its Affiliates, and their
respective officers, directors, and employees (and members of their
respective families and trusts for the primary benefit of such family
members).
"OSBORNE GROUP CLOSING DATE SHARES" shall mean the number of
shares of Common Stock owned by the Osborne Group as of the date of
this Agreement as set forth on EXHIBIT B hereto.
"PERSON" or " "PERSON" shall mean any individual, corporation,
partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, or government
or other agency or political subdivision thereof.
"REQUIRED HOLDERS" shall mean Holders who then own
beneficially more than 66-2/3% of the aggregate number of shares of
Common Stock subject to this Agreement.
"SAP" shall mean Strategic Acquisition Partners, LLC, a Nevada
limited liability company.
"SAP GROUP" shall mean SAP, its Affiliates, and their
respective officers, directors, and employees, Peter W. Nauert, Michael
A. Cavataio, Karon Hill and Val Rajic (and members of their respective
families and trusts for the primary benefit of such family members).
Page 28 of 136 Pages
<PAGE> 3
"SAP GROUP CLOSING DATE SHARES" shall mean the number of
shares of Common Stock owned by the SAP Group as of the date of this
Agreement as set forth on EXHIBIT B hereto.
"STOCKHOLDERS AGREEMENT" shall mean that certain Stockholders
Agreement, dated as of July 1, 1998, among the Company and the various
stockholders party thereto from time to time.
ARTICLE II
ELECTION OF DIRECTORS
SECTION 2.1 Board of Directors.
-----------------------
(a) The Holders shall cause the Board of Directors of the Company to
consist of nine directors, some or all, as applicable, of whom shall consist of
the following individuals:
(i) IP DESIGNEES. Four individuals designated by IP, so long
as the IP Group shall own a number of shares of Common Stock equal to
at least 75% of the IP Group Closing Date Shares; three individuals
designated by IP, so long as the IP Group shall own a number of shares
of Common Stock equal to at least 50%, but less than 75%, of the IP
Group Closing Date Shares; two individuals designated by IP, so long as
the IP Group shall own a number of shares of Common Stock equal to at
least 25%, but less than 50%, of the IP Group Closing Date Shares; and
one individual designated by IP, so long as the IP Group shall own a
number of shares of Common Stock equal to at least 10%, but less than
25%, of the IP Group Closing Date Shares;
(ii) SAP DESIGNEES. Two individuals designated by SAP, so long
as the SAP Group shall own a number of shares of Common Stock equal to
at least 50% of the SAP Closing Date Shares; and one individual
designated by SAP, so long as the SAP Group shall own a number of
shares of Common Stock equal to at least 10%, but less than 50%, of the
SAP Group Closing Date Shares;
(iii) OSBORNE DESIGNEE. One individual designated by Osborne,
so long as the Osborne Group shall own a number of shares of Common
Stock equal to at least 25% of the Osborne Group Closing Date Shares;
(iv) NOVATNEY. John Novatney, until the earlier to occur of
(A) December 31, 1999, or (B) the first date as of which the Company
does not have a class of equity securities registered under either
Section 12(b) or 12(g) of the Exchange Act; and
(v) LICK. Fred Lick, Jr. until the earlier to occur of (A)
December 31, 1999, (B) termination of his employment under the Lick
Employment Agreement, or (C) the first date as of which the Company
does not have a class of equity securities registered under either
Section 12(b) or 12(g) of the Exchange Act;
PROVIDED, HOWEVER, that until the first date as of which the Company
does not have a class of equity securities either registered under
Section 12(b) or 12(g) of the Exchange Act, at least two of the
individuals elected to the Board of Directors shall constitute
Independent Directors; and PROVIDED FURTHER, that (i) none of IP, SAP
or Osborne shall be required to designate an individual that
constitutes an Independent Director so long as two individuals who
constitute Independent Directors are nominated to serve as directors
and SAP, IP and Osborne vote for their election; PROVIDED, that if the
Company has cumulative voting with respect to the election of its
directors, the SAP Group, IP
Page 29 of 136 Pages
<PAGE> 4
\
Group and Osborne Group shall be permitted to vote in favor of the SAP
Designees, IP Designees and Osborne Designee as provided in this
Section 2.1(a) to the extent necessary to ensure the election of such
Designees prior to casting any votes in favor of such Independent
Directors; (ii) in the event one or two of the individuals to be
designated pursuant to the foregoing provisions must constitute an
Independent Director in order to meet the requirements of the
immediately preceding proviso, then, first, IP shall designate as one
of its designees an individual that constitutes an Independent
Director, and, second, SAP shall designate as one of its designees an
individual that constitutes an Independent Director.
(b) For purposes of the foregoing provisions and SECTION 2.2, in
determining whether any person or group owns a specified number of shares of
Common Stock for purposes of comparison to the number of shares owned by a
person or group on the Closing Date, appropriate adjustment shall be made in
each case to give effect to any stock splits, dividends or combinations.
(c) If, prior to his election to the Board of Directors of the Company
pursuant to SECTION 2.1, any designee shall be unable or unwilling to serve as a
director of the Company, the Holder or Holders who designated such Designee
shall be entitled to nominate a replacement who shall then be a Designee for
purposes of this SECTION 2.1. If, following an election to the Board of
Directors of the Company pursuant to SECTION 2.1, any Designee shall resign or
be removed or be unable to serve for any reason prior to the expiration of his
term as a director of the Company, the Holder or Holders who designated such
Designee shall, within thirty (30) days of such event, notify the Board of
Directors of the Company in writing of a replacement Designee, and either (i)
the Holders shall vote their shares of Common Stock, at any regular or special
meeting called for the purpose of filling positions on the Board of Directors of
the Company or in any written consent executed in lieu of such a meeting of
stockholders, and shall take all such other actions necessary to ensure the
election to the Board of Directors of the Company of such replacement Designee
to fill the unexpired term of the Designee who such new Designee is replacing or
(ii) the Board of Directors shall elect such replacement Designee to fill the
unexpired term of the Designee who such new Designee is replacing. If any Holder
requests that any Designee designated by such Holder be removed as a Director
(with or without cause) by written notice thereof to the Company, then the
Company shall take all actions necessary to effect, and each of the Holders
shall vote all of its capital stock in favor of, such removal upon such request.
(d) Each Holder shall vote its shares of Common Stock at any regular or
special meeting of stockholders of the Company or in any written consent
executed in lieu of such a meeting of stockholders and shall take all other
actions necessary to give effect to the agreements contained in this Agreement
(including, without limitation, the election of Designees as directors as
described herein) and to ensure that the certificate of incorporation and bylaws
as in effect immediately following the date hereof do not, at any time
thereafter, conflict in any respect with the provisions of this Agreement. In
order to effectuate the provisions of this SECTION 2.1, each Holder hereby
agrees that when any action or vote is required to be taken by such Holder
pursuant to this Agreement, such Holder shall use its best efforts to call, or
cause the appropriate officers and directors of the Company to call, a special
or annual meeting of stockholders of the Company, as the case may be, or execute
or cause to be executed a consent in writing in lieu of any such meetings
pursuant to applicable law.
SECTION 2.2 CONTINUED LISTING. Until the three year
anniversary of the Closing Date, each Holder shall vote its shares of Common
Stock in such manner that the Company shall not be voluntarily delisted from the
Nasdaq National Market, except (y) in connection with (1) a transaction that
would constitute a "Rule 13e-3 transaction" (as that term is defined under Rule
13e-3 under the Exchange Act as in effect on the date hereof) with respect to
the Common Stock or (2) any other transaction that, if it were effected by the
Company or an affiliate thereof, would constitute a "Rule 13e-3 transaction" (as
so defined) with respect to the Common Stock, or (z) if the Company becomes
listed on a national securities exchange.
Page 30 of 136 Pages
<PAGE> 5
SECTION 2.3 PROXY. Each Holder hereby grants to each of IP
Delaware, SAP and Osborne, with full powers of substitution, an irrevocable
proxy coupled with an interest as may be necessary to permit each of IP
Delaware, SAP and Osborne, to vote the shares of the Holder granting such proxy
in accordance with the requirements of SECTION 2.1 (by written consent or
otherwise) in event the Holder fails to vote its shares of Common Stock as
required under SECTION 2.1 within ten (10) days after notice from the party
holding such proxy requesting such a vote.
SECTION 2.4 CUMULATIVE VOTING. As promptly as practicable
following the Closing Date, the Company shall amend its Articles of
Incorporation, Code of Regulations or Bylaws, as the case may be, to eliminate
cumulative voting in the election of directors.
SECTION 2.5 PROXY STATEMENT. In connection with any annual
meeting of the stockholders or special meeting of the stockholders of the
Company called for the election of directors, the Company shall prepare and
file, if required, with the Securities and Exchange Commission (the
"COMMISSION") a proxy statement relating to such meeting (together with any
amendments thereof or supplements thereto, the "PROXY STATEMENT") which shall
include the recommendation of the Board in favor of electing the directors
specified in SECTION 2.1. Except in the event of termination of this Agreement,
no modification or withdrawal of such recommendation shall release the Company
of its obligation to submit the election of directors specified in SECTION 2.1
to its stockholders for their vote in accordance with applicable law. The
Company shall use reasonable efforts to assure the election of the directors
specified in SECTION 2.1.
ARTICLE III
RESTRICTIONS ON TRANSFER
SECTION 3.1 RESTRICTIONS UPON TRANSFER. No Holder may
effect, cause to be effected or permit any voluntary or involuntary sale,
assignment or transfer of any shares of Common Stock or Common Stock Equivalents
or any interest therein (a "TRANSFER"), except for Transfers pursuant to an
effective registration statement or pursuant to Rule 144 under the Securities
Act, unless the transferee agrees to be bound by the provisions of this
Agreement and the Stockholders Agreement and such Transfer is, where applicable,
made in compliance with the terms of the Stockholders Agreement; PROVIDED, that
the Warrants and the Warrant Shares shall not be subject to this Agreement upon
the Transfer to a beneficial owner other than IP, SAP, or Osborne and their
respective affiliates; PROVIDED FURTHER, that nothing contained herein shall
restrict the sale, assignment or transfer of any warrants issued by the Company
pursuant to the Credit Agreement dated December 16, 1997 by and between the
Company and SAP. Any Transfer not complying with the provisions of this
Agreement shall be void AB INITIO, shall not be effective for any purpose and
any purported transferee of such a Transfer shall not acquire any right or
interest in such Common Stock or the Company.
SECTION 3.2 RESTRICTIVE LEGENDS.
(a) For the term of this Agreement, each certificate
representing the shares of Common Stock or Common Stock Equivalents subject
hereto, and each instrument or certificate issued upon exchange or transfer
thereof, shall be stamped or otherwise imprinted with the following legend:
"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."
Page 31 of 136 Pages
<PAGE> 6
(b) In addition, each certificate representing shares of
Common Stock or Common Stock Equivalents subject hereto and each instrument or
certificate issued upon exchange or Transfer thereof shall be stamped or
otherwise imprinted with any and all legends required by applicable state and
federal securities laws.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 TERM. The term of this Agreement shall begin on
the Closing Date and shall remain in effect until the five (5) year anniversary
of the Closing Date.
SECTION 4.2 AMENDMENT. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Company and the Required Holders; provided, that, no such
amendment or waiver: (i) that is adverse to any Holder that owns more than 5% of
the outstanding Common Stock shall be effective as to that Holder prior to the
three (3) year anniversary of the Closing Date without the consent of such
Holder or (ii) shall amend SECTION 2.1(a)(iv), SECTION 2.1(a)(v), the first
proviso of SECTION 2.1(a) or SECTION 2.2 unless approved by a majority of the
Independent Directors.
SECTION 4.3 SUCCESSORS AND ASSIGNS. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto including any and all subsequent Holders from time
to time.
SECTION 4.4 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Ohio, as applicable
to contracts executed and to be performed entirely in such state.
SECTION 4.5 ENTIRE AGREEMENT. Except as provided below, this
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except in writing.
SECTION 4.6 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 4.7 ENFORCEMENT.
(a) The Holders each acknowledge and agree that irreparable
damage will occur if any of the provisions of this Agreement are not complied
with in accordance with their specific terms. Accordingly, the Company will be
entitled to an injunction to prevent breached of this Agreement and to enforce
specifically its provisions in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which the
Company may be entitled at law or in equity.
(b) No failure or delay on the part of any party in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
SECTION 4.8 SEVERABILITY. In case any provision of this
Agreement shall be held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality, and enforceability of any such
Page 32 of 136 Pages
<PAGE> 7
provision in every other respect and the remaining provisions shall not in any
way be affected or impaired thereby.
SECTION 4.9 NOTICES. Any notices or other communications
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier, or registered or
certified mail, postage prepaid return receipt requested, addressed as follows
(or at such other address as may be substituted by notice given as herein
provided):
If to the Company:
------------------
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Facsimile No.: (440) 572-4501
Attention: Fred Lick, Jr.
If to any Holder, at its address listed on the signature pages hereof
or in any joinder agreement.
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five (5)
calendar days after mailing if sent by registered or certified mail (except that
a notice of change of address shall not be deemed to have been given until
actually received by the addressee). Failure to mail a notice or communication
to a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
* * *
Page 33 of 136 Pages
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
--------------------
Name: Frank W. Grimone
Title: CFO
Page 34 of 136 Pages
<PAGE> 9
SIGNATURE PAGE TO VOTING AGREEMENT
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its general partner
By: Insurance GenPar MGP, L.P.,
its general partner
By: Insurance GenPar MGP, Inc.,
its general partner
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley E. Cooper
Copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 35 of 136 Pages
<PAGE> 10
SIGNATURE PAGE TO VOTING AGREEMENT
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P.,
its general partner
By: Insurance GenPar MGP (Bermuda), L.P.,
its general partner
By: Insurance GenPar MGP (Bermuda), Inc.,
its general partner
By:
--------------------------
Name:
-------------------------
Title:
------------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley & Cooper
Copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 36 of 136 Pages
<PAGE> 11
SIGNATURE PAGE TO VOTING AGREEMENT
STRATEGIC ACQUISITION PARTNERS, LLC
By:
Name:
Title:
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
Page 37 of 136 Pages
<PAGE> 12
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Peter W. Nauert
-------------------
Peter W. Nauert
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
Page 38 of 136 Pages
<PAGE> 13
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Michael A. Cavataio
-------------------------------------------
Michael A. Cavataio
Address:
3125 Ramsgate Road
Rockford, Illinois 61114
Page 39 of 136 Pages
<PAGE> 14
SIGNATURE PAGE TO VOTING AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS, TRUSTEE OF
THE CONSECO STOCK OPTION DIRECTOR PLAN FBO
MICHAEL CAVATAIO #08590033
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 40 of 136 Pages
<PAGE> 15
SIGNATURE PAGE TO VOTING AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS, TRUSTEE OF
THE CONSECO STOCK OPTION DIRECTOR PLAN FBO
MICHAEL CAVATAIO #08590034
By:
Name:
Title:
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 41 of 136 Pages
<PAGE> 16
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Karon Hill
---------------------------
Karon Hill
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 42 of 136 Pages
<PAGE> 17
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Val Rajic
-------------------
Val Rajic
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 43 of 136 Pages
<PAGE> 18
SIGNATURE PAGE TO VOTING AGREEMENT
TURKEY VULTURE FUND XIII, LTD.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Address:
7001 Center Street
Mentor, Ohio 44060
Attention: Richard M. Osborne
Copy to:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Marc C. Krantz
Page 44 of 136 Pages
<PAGE> 19
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Marc C. Krantz
---------------------------------
Marc C. Krantz
Address:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 45 of 136 Pages
<PAGE> 20
SIGNATURE PAGE TO VOTING AGREEMENT
KRANTZ FAMILY LIMITED PARTNERSHIP
By: /s/ Byron S. Krantz
-------------------------------
Byron S. Krantz, its General Partner
Address:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 46 of 136 Pages
<PAGE> 21
SIGNATURE PAGE TO VOTING AGREEMENT
MEDICAL MUTUAL OF OHIO
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
2060 East Ninth Street
Cleveland, Ohio 44115
Attention: General Counsel
Page 47 of 136 Pages
<PAGE> 22
SIGNATURE PAGE TO VOTING AGREEMENT
UNITED PAYORS AND UNITED PROVIDERS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
2275 Research Blvd.
6th Floor
Rockville, Maryland 20850
Attention: Joe Mott
Page 48 of 136 Pages
<PAGE> 23
SIGNATURE PAGE TO VOTING AGREEMENT
/s/ Howard R. Conant
-----------------------------------
Howard R. Conant
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Attention: John Cochrane
Page 49 of 136 Pages
<PAGE> 24
SIGNATURE PAGE TO VOTING AGREEMENT
JOSEPH CUSIMANO IRA
By:
-----------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Page 50 of 136 Pages
<PAGE> 25
SIGNATURE PAGE TO VOTING AGREEMENT
LEG PARTNERS SBIC, L.P.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address:
230 Park Avenue
19th Floor
New York, New York 10169
Attention: Lawrence Golub
Page 51 of 136 Pages
<PAGE> 26
EXHIBIT A
---------
JOINDER AGREEMENT
Reference is made to (i) that certain Voting Agreement, dated as of
_________, 1998, among Central Reserve Life Corporation, an Ohio corporation
(the "COMPANY"), and the persons signatory thereto (as amended and in effect
from time to time, the "VOTING AGREEMENT"), a copy of which is attached hereto,
and (ii) that certain Stockholders Agreement, dated as of ___________, 1998,
among the Company and the persons signatory thereto (as amended and in effect
from time to time, the "STOCKHOLDERS AGREEMENT"), copy of which is attached
hereto.
The undersigned, _________________________ [print name], in order to
become the owner or holder of __________ shares of common stock of the Company,
hereby agrees that by the undersigned's execution hereof, the undersigned is a
party to the Voting Agreement and the Stockholders Agreement subject to all of
the restrictions, conditions and obligations applicable to stockholders set
forth in such agreements. This Joinder Agreement shall take effect and shall
become a part of each such agreement immediately upon execution.
Executed as of the date set forth below.
Signature:
--------------------------
Address:
----------------------------
----------------------------
----------------------------
Date:
-------------------------------
ACCEPTED:
CENTRAL RESERVE LIFE CORPORATION
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
Date:
-----------------------------
Page 52 of 136 Pages
<PAGE> 27
EXHIBIT B
================================================================================
INVESTOR CLOSING DATE SHARES
- -------------------------------------- ------------------------------
Insurance Partners, L.P. 2,769,164
- ------------------------- ------------------------------
Insurance Partners Offshore (Bermuda), L.P. 1,576,292
- ------------------------------------------- ------------------------------
Peter W. Nauert 933,636
- ------------------------------------------ ------------------------------
Michael A. Cavataio 130,316
- ------------------------------------------ ------------------------------
Mercantile Bank of Northern Illinois,
Trustee of the Conseco Stock Option
Plan FBO Michael Cavataio
#08590033 37,764
#08590034 13,738
- ------------------------------------------ ------------------------------
Karon Hill 100,000
- ------------------------------------------ -----------------------------
Val Rajic 100,000
- ------------------------------------------ ------------------------------
Strategic Acquisition Partners, LLC -0-
- ------------------------------------------ -----------------------------
Turkey Vulture Fund XIII, Ltd. 720,910
- ------------------------------------------ ------------------------------
Medical Mutual of Ohio 363,636
- ------------------------------------------ ------------------------------
United Payors and United Providers, Inc. 181,818
- ------------------------------------------ ------------------------------
Howard R. Conant 90,909
- ------------------------------------------ ------------------------------
Joseph Cusimano IRA 90,909
- ------------------------------------------ ------------------------------
LEG Partners SBIC, L.P. 181,818
- ------------------------------------------ -----------------------------
Marc C. Krantz 4,546
- ------------------------------------------ ------------------------------
Krantz Family Limited Partnership 4,544
- ------------------------------------------ ------------------------------
Page 53 of 136 Pages
<PAGE> 1
EXHIBIT 7.5
STOCKHOLDERS AGREEMENT
by and among
CENTRAL RESERVE LIFE CORPORATION
and
THE SECURITY HOLDERS LISTED ON
THE SIGNATURE PAGES HEREOF
Dated as of July 1, 1998
================================================================================
Page 54 of 136 Pages
<PAGE> 2
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions............................................... 1
-----------
1.2 Rules of Construction..................................... 3
---------------------
1.3 Other Definitions......................................... 3
-----------------
ARTICLE II
CERTAIN OTHER ACTIVITIES; FIDUCIARY DUTIES
------------------------------------------
2.1 Other Activities of the Holders; Fiduciary Duties......... 4
-------------------------------------------------
ARTICLE III
TRANSFERS OF SECURITIES
-----------------------
3.1 Drag Along Rights......................................... 4
-----------------
3.2 Tag Along Rights.......................................... 5
----------------
3.3 Certain Events Not Deemed Transfers....................... 6
-----------------------------------
3.4 Replacement of Securities................................. 6
-------------------------
3.5 Restrictive Legend........................................ 6
------------------
ARTICLE IV
TERMINATION
-----------
4.1 Termination............................................... 7
-----------
ARTICLE V
MISCELLANEOUS
-------------
5.1 Notices................................................... 7
-------
5.2 Legal Holidays............................................ 8
--------------
5.3 Governing Law............................................. 8
-------------
5.4 Successors and Assigns.................................... 8
----------------------
5.5 Duplicate Originals....................................... 8
-------------------
5.6 Severability.............................................. 8
------------
5.7 No Waivers; Amendments.................................... 8
----------------------
Page 55 of 136 Pages
<PAGE> 3
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (this "AGREEMENT") dated as of July 1,
1998, is entered into by and among Central Reserve Life Corporation, an Ohio
corporation (including its successors, the "COMPANY"), and the security holders
listed on the signature pages of this Agreement.
NOW, THEREFORE, for and in consideration of the premises, mutual
covenants, and agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"ACCREDITED INVESTOR" shall mean an "Accredited Investor," as
defined in Regulation D, or any successor rule then in effect.
"AFFILIATE" shall mean, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by, or is under
common control with that Person. For purposes of this definition,
"CONTROL," and "CONTROLLED BY" when used with respect to any Person
shall mean the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract, or otherwise.
"AGREEMENT" shall mean this Agreement, as such from time to
time may be amended.
"COMMON STOCK" shall mean shares of the Common Stock, without
par value per share, of the Company, and any capital stock into which
such Common Stock thereafter may be changed.
"COMMON STOCK EQUIVALENTS" shall mean, without duplication
with any other Common Stock or Common Stock Equivalents, any rights,
warrants, options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock
and securities convertible or exchangeable into Common Stock, whether
at the time of issuance or upon the passage of time or the occurrence
of some future event.
"COMPANY" shall have the meaning set forth in the introductory
paragraph hereof.
"CO-SELLER" shall have the meaning set forth in Section 3.1.
"FULLY-DILUTED COMMON STOCK" shall mean, at any time, the then
outstanding Common Stock plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time
or the occurrence of future events, upon the exercise, conversion, or
exchange of all then outstanding Common Stock Equivalents.
"HOLDER" shall mean (i) a security holder listed on the
signature page hereof and (ii) any direct or indirect transferee of any
such security holder who shall become a party to this Agreement.
"IP BERMUDA" shall mean Insurance Partners Offshore (Bermuda),
L.P., a Bermuda limited partnership.
"IP DELAWARE" shall mean Insurance Partners, L.P., a Delaware
limited partnership.
Page 56 of 136 Pages
<PAGE> 4
"IP GROUP" shall mean IP Delaware, IP Bermuda, their respective
Affiliates, the respective officers, directors, and employees (and members
of their respective families and trusts for the primary benefit of such
family members) of any of the foregoing, and any Person that is a limited
partner of IP Delaware or IP Bermuda.
"LEGAL HOLIDAY" shall have the meaning set forth in Section 5.2.
"PARTICIPATION OFFER" shall have the meaning set forth in Section 3.2.
"PERSON" or "PERSON" shall mean any individual, corporation,
partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, or government or
other agency or political subdivision thereof.
"REGULATION D" shall mean Regulation D promulgated under the
Securities Act by the SEC.
"REQUIRED HOLDERS" shall mean Holders who then own beneficially more
than 66 2/3% of the aggregate number of shares of Common Stock subject to
this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"SIGNIFICANT DRAG SALE" shall have the meaning set forth in Section
3.1.
"SIGNIFICANT TAG SALE" shall have the meaning set forth in Section
3.2.
"SUBSIDIARY" of any Person shall mean (i) a corporation a majority of
whose outstanding shares of capital stock or other equity interests with
voting power, under ordinary circumstances, to elect directors, is at the
time, directly or indirectly, owned by such Person, by one or more
subsidiaries of such Person, or by such Person and one or more subsidiaries
of such Person, and (ii) any other Person (other than a corporation) in
which such Person, a subsidiary of such Person, or such Person and one or
more subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (x) at least a majority ownership interest or
(y) the power to elect or direct the election of the directors or other
governing body of such Person.
"TRANSFER" shall mean any disposition of any Common Stock or any
interest therein that would constitute a "sale" thereof within the meaning
of the Securities Act.
1.2 RULES OF CONSTRUCTION. Unless the context otherwise requires: (a) a
term shall have the meaning assigned to it; (b) "OR" is not exclusive; (c) words
in the singular shall include the plural, and words in the plural shall include
the singular; (d) provisions apply to successive events and transactions; (e)
the words "HEREOF," "HEREIN," "HEREUNDER," and words of similar import shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement; (f) words in the neuter or masculine gender shall include the
feminine, masculine, and neuter genders; (g) all references to Articles and
Sections refer to Articles and Sections of this Agreement; and (h) "INCLUDE" and
derivatives thereof shall mean "including, without limitation."
1.3 OTHER DEFINITIONS. Certain capitalized terms used in this
Agreement, but not defined in this Article I, shall have the meanings set forth
elsewhere in this Agreement.
ARTICLE II
CERTAIN OTHER ACTIVITIES; FIDUCIARY DUTIES
------------------------------------------
Page 57 of 136 Pages
<PAGE> 5
2.1 OTHER ACTIVITIES OF THE HOLDERS; FIDUCIARY DUTIES. It is understood
and accepted that the Holders and their Affiliates have interests in other
business ventures which may be in conflict with the activities of the Company
and its Subsidiaries and that, subject to applicable law, nothing in this
Agreement shall limit the current or future business activities of the Holders
whether or not such activities are competitive with those of the Company and its
Subsidiaries. Nothing in this Agreement, express or implied, shall relieve any
officer or director of the Company or any of its Subsidiaries, or any Holder, of
any fiduciary or other duties or obligations they may have to the Company's
stockholders.
ARTICLE III
TRANSFERS OF SECURITIES
-----------------------
3.1 DRAG ALONG RIGHTS
3.1.1 APPLICABILITY. In connection with any Transfer by
members of the IP Group of shares of Common Stock and/or Common Stock
Equivalents representing more than twenty percent (20%) of the
outstanding shares of Common Stock (provided, that for the purposes of
such calculation, the following shares of Common Stock shall be deemed
to be issued and outstanding: (i) any shares of Common Stock to be
Transferred that are to be issued pursuant to the exercise or
conversion of any Common Stock Equivalents and (ii) any shares of
Common Stock underlying any Common Stock Equivalents that are to be
Transferred) in any one transaction or series of related transactions
(a "SIGNIFICANT DRAG SALE"), the IP Group shall have the right to
require each non-selling Holder (each, a "CO-SELLER") to Transfer a
portion of its Common Stock and/or Common Stock Equivalents which
represents the same percentage of the Fully-Diluted Common Stock held
by such Co-Seller as the shares of Common Stock and/or Common Stock
Equivalents being disposed of by the IP Group represent of the
Fully-Diluted Common Stock held by the IP Group. (For example, if the
IP Group is selling sixty-five percent (65%) of its Fully-Diluted
Common Stock position, each Co-Seller shall be required to sell
sixty-five percent (65%) of its Fully-Diluted Common Stock position.)
All Common Stock Transferred by Holders pursuant to this Section 3.1
shall be sold at the same price and time and otherwise treated
identically with the Common Stock being sold by the IP Group in all
respects.
3.1.2 NOTICE OF SIGNIFICANT DRAG SALE. IP Delaware, on behalf
of the IP Group, shall give each Co-Seller at least thirty (30) days'
prior written notice of any Significant Drag Sale as to which the IP
Group intends to exercise its rights under this Section 3.1. If the IP
Group elects to exercise its rights under this Section 3.1, the
Co-Sellers shall take such actions as may be reasonably required and
otherwise cooperate in good faith with the IP Group in connection with
consummating the Significant Drag Sale (including the voting of any
Common Stock or other voting capital stock of the Company to approve
such Significant Drag Sale). At the closing of such Significant Drag
Sale, each Co-Seller shall deliver certificates for all shares of
Common Stock to be sold by such Co-Seller, duly endorsed for transfer,
with the signature guaranteed, to the purchaser against payment of the
appropriate purchase price.
3.2 TAG ALONG RIGHTS
3.2.1 APPLICABILITY. In the event any Holder desires to effect
a Transfer (other than a Transfer in an underwritten public offering
pursuant to an effective registration statement under the Securities
Act) of shares of Common Stock and/or Common Stock Equivalents
representing more than twenty percent (20%) of the outstanding shares
of Common Stock (provided, that for the purposes of such calculation,
the following shares of Common Stock shall be deemed to be issued and
outstanding: (i) any shares of Common Stock to be Transferred that are
to be issued pursuant to the exercise or conversion of any Common Stock
Equivalents and (ii) any shares of Common Stock
Page 58 of 136 Pages
<PAGE> 6
underlying any Common Stock Equivalents that are to be Transferred) in
any one transaction or series of related transactions (a "SIGNIFICANT
TAG Sale"), and the IP Group does not elect to exercise its rights (if
any) under Section 3.1, then at least thirty (30) days prior to the
closing of such Significant Tag Sale, such Holder shall make an offer
(the "PARTICIPATION OFFER") to each Co-Seller to include in the
proposed Significant Tag Sale a portion of its Common Stock and/or
Common Stock Equivalents which represents the same percentage of such
Co-Seller's Fully-Diluted Common Stock as the shares of Common Stock
and/or Common Stock Equivalents being sold by such Holder represent of
its Fully-Diluted Common Stock; PROVIDED, HOWEEVER, that, if the
consideration to be received by such Holder includes any securities,
only Co-Sellers who have certified to the reasonable satisfaction of
such Holder that they are Accredited Investors shall be entitled to
participate in such transfer, unless the transferee consents
otherwise.
3.2.2 TERMS OF PARTICIPATION OFFER. The Participation Offer
shall describe the terms and conditions of the proposed Significant Tag
Sale and shall be conditioned upon (i) the consummation of the
transactions contemplated in the Participation Offer with the
transferee named therein, and (ii) each Co-Seller's execution and
delivery of all agreements and other documents as the Holder is
required to execute and deliver in connection with such Significant Tag
Sale (provided that the Co-Seller shall not be required to make any
representations or warranties in connection with such sale or transfer
other than representations and warranties as to (A) such Co-Seller's
ownership of his or its Common Stock to be sold or transferred free and
clear of all liens, claims, and encumbrances, (B) such Co-Seller's
power and authority to effect such transfer, and (C) such matters
pertaining to compliance with securities laws as the transferee may
reasonably require). If any Co-Seller shall accept the Participation
Offer, the Holder shall reduce, to the extent necessary, the number of
shares of Common Stock it otherwise would have sold in the proposed
transfer so as to permit those Co-Sellers who have accepted the
Participation Offer to sell the number of shares of Common Stock that
they are entitled to sell under this Section 3.2, and the Holder and
such Co-Sellers shall transfer the number of shares of Common Stock
specified in the Participation Offer to the proposed transferee in
accordance with the terms of such transfer as set forth in the
Participation Offer.
3.3 CERTAIN EVENTS NOT DEEMED TRANSFER. In no event shall any exchange,
reclassification, or other conversion of shares into any cash, securities, or
other property pursuant to a merger or consolidation of the Company or any
Subsidiary with, or any sale or transfer by the Company or any Subsidiary of all
or substantially all its assets to, any Person constitute a Significant Drag
Sale or a Significant Tag Sale for purposes of Section 3.1 or 3.2; PROVIDED,
HOWEVER, that all of Holders of Common Stock receive the same consideration per
share in such exchange, reclassification, or conversion. In addition, Sections
3.1 and 3.2 shall not apply to any transfer, sale, or disposition of shares of
Common Stock solely among Holders.
3.4 REPLACEMENT OF SECURITIES. If a mutilated certificate representing
Common Stock is surrendered to the Company or if the Holder of a certificate
representing Common Stock claims and submits an affidavit or other evidence,
satisfactory to the Company, to the effect that any such certificate has been
lost, destroyed, or wrongfully taken, the Company shall issue a replacement
certificate if the Company's requirements are met. If required by the Company,
such security holder must provide an indemnity bond, or other form of indemnity,
sufficient in the judgment of the Company to protect the Company against any
loss which may be suffered; provided, however, that no indemnity bond or other
form of indemnity shall be required from a Holder who is an Accredited Investor.
3.5 RESTRICTIVE LEGEND. Each certificate representing Common Stock
issued to each Holder or a subsequent transferee shall include a legend in
substantially the following form:
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 BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
Page 59 of 136 Pages
<PAGE> 7
ARTICLE IV
TERMINATION
-----------
4.1 TERMINATION. The provisions of this Agreement shall terminate on
July 1, 2003.
ARTICLE V
MISCELLANEOUS
-------------
5.1 NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier, or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows (or at such other
address as may be substituted by notice given as herein provided):
If to the Company:
------------------
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Facsimile No.: (440) 572-4501
Attention: Fred Lick, Jr.
If to any Holder, at its address listed on the signature pages hereof.
Any notice or communication hereunder shall be deemed to have been given or
made as of the date so delivered if personally delivered; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days
after mailing if sent by registered or certified mail (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee). Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
5.2 LEGAL HOLIDAYS. A "LEGAL HOLIDAY" used with respect to a particular
place of payment is a Saturday, a Sunday, or a day on which banking institutions
at such place are not required to be open. If a payment date is a Legal Holiday
at such place, payment may be made at such place on the next succeeding day that
is not a Legal Holiday, and no interest on the amount of such payment shall
accrue for the intervening period.
5.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.
5.4 SUCCESSORS AND ASSIGNS. Whether or not an express assignment has been
made pursuant to the provisions of this Agreement, provisions of this Agreement
that are for the Holders' benefit as the holders of any Common Stock are also
for the benefit of, and enforceable by, all subsequent holders of Common Stock,
except as otherwise expressly provided herein. This Agreement shall be binding
upon the Company, each Holder, and their respective successors and assigns.
5.5 DUPLICATE ORIGINALS. All parties may sign any number of copies of this
Agreement. Each signed copy shall be an original, but all of them together shall
represent the same agreement.
5.6 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality, and enforceability of any such provision in every other respect and
the remaining provisions shall not in any way be affected or impaired thereby.
Page 60 of 136 Pages
<PAGE> 8
5.7 NO WAIVERS; AMENDMENTS
5.7.1 No failure or delay on the part of the Company or any
Holder in exercising any right, power, or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power, or remedy preclude any other or further
exercise thereof or the exercise of any other right, power, or remedy.
The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company or any Holder at
law, in equity, or otherwise.
5.7.2 Any provision of this Agreement may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed
by the Company and the Required Holders; provided that no amendment or
waiver that is adverse to any Holder that owns more than 5% of the
outstanding Common Stock shall be effective as to that Holder prior to
the three year anniversary of the date hereof without such Holder's
consent.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
Page 61 of 136 Pages
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
------------------------
Name: Frank W. Grimone
Title: CFO
Page 62 of 136 Pages
<PAGE> 10
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its general partner
By: Insurance GenPar MGP, L.P.,
its general partner
By: Insurance GenPar MGP, Inc.,
its general partner
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley E. Cooper
Copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 63 of 136 Pages
<PAGE> 11
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P.,
its general partner
By: Insurance GenPar MGP (Bermuda), L.P.,
its general partner
By: Insurance GenPar MGP (Bermuda), Inc., its
general partner
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley & Cooper
Copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 64 of 136 Pages
<PAGE> 12
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
STRATEGIC ACQUISITION PARTNERS, LLC
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
1750 East Golf Road
Suite 210
Chicago, Illinois 60173
Copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
Page 65 of 136 Pages
<PAGE> 13
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Peter W. Nauert
-----------------------------
Peter W. Nauert
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
Page 66 of 136 Pages
<PAGE> 14
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Michael A. Cavataio
-----------------------------------
Michael A. Cavataio
Address:
3125 Ramsgate Road
Rockford, Illinois 61114
Page 67 of 136 Pages
<PAGE> 15
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS,
TRUSTEE OF THE CONSECO STOCK OPTION
DIRECTOR PLAN FBO
MICHAEL CAVATAIO #08590033
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 68 of 136 Pages
<PAGE> 16
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS,
TRUSTEE OF THE CONSECO STOCK OPTION
DIRECTOR PLAN FBO
MICHAEL CAVATAIO #08590034
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 69 of 136 Pages
<PAGE> 17
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Karon Hill
-----------------------------
Karon Hill
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 70 of 136 Pages
<PAGE> 18
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Val Rajic
-----------------------------
Val Rajic
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 71 of 136 Pages
<PAGE> 19
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
TURKEY VULTURE FUND XIII, LTD.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address:
7001 Center Street
Mentor, Ohio 44060
Attention: Richard M. Osborne
Copy to:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Marc C. Krantz
Page 72 of 136 Pages
<PAGE> 20
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Marc C. Krantz
-----------------------------
Marc C. Krantz
Address:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 73 of 136 Pages
<PAGE> 21
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
KRANTZ FAMILY LIMITED PARTNERSHIP
By: /s/ Byron S. Krantz
----------------------------------------
Byron S. Krantz, its General Partner
Address:
Kohrman Jackson & Krantz, P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 74 of 136 Pages
<PAGE> 22
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
MEDICAL MUTUAL OF OHIO
By:
---------------------------
Name:
------------------------
Title:
-----------------------
Address:
2060 East Ninth Street
Cleveland, Ohio 44115
Attention: General Counsel
Page 75 of 136 Pages
<PAGE> 23
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
UNITED PAYORS AND UNITED PROVIDERS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
2275 Research Blvd.
6th Floor
Rockville, Maryland 20850
Attention: Joe Mott
Page 76 of 136 Pages
<PAGE> 24
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
/s/ Howard R. Conant
--------------------------------
Howard R. Conant
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Attention: John Cochrane
Page 77 of 136 Pages
<PAGE> 25
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
JOSEPH CUSIMANO IRA
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Page 78 of 136 Pages
<PAGE> 26
SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT
LEG PARTNERS SBIC, L.P.
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
Address:
230 Park Avenue
19th Floor
New York, New York 10169
Attention: Lawrence Golub
Page 79 of 136 Pages
<PAGE> 1
EXHIBIT 7.6
CENTRAL RESERVE LIFE CORPORATION
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement"), dated as of July 1,
1998, is between CENTRAL RESERVE LIFE CORPORATION, an Ohio corporation (the
"Corporation"), and the persons and entities set forth on the signature pages
attached hereto (the "Investors").
R E C I T A L S
---------------
The Investors have agreed to purchase common shares, without par value, of
the Corporation (the "Common Shares") pursuant to that certain Amended and
Restated Stock Purchase Agreement of even date herewith provided that the
parties hereto enter into this Agreement.
The Corporation deems it desirable to enter into this Agreement in order to
induce the Investors to purchase the Common Shares pursuant to the Stock
Purchase Agreement.
AGREEMENTS
----------
In consideration of the premises and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Common Shares, without par value, of the
Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means a natural person, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or other entity, or a governmental
entity or any department, agency or political subdivision thereof.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act or any comparable statement under any comparable federal
statute then in effect.
"Registrable Shares" means at any time (i) any Common Shares then
outstanding which were issued pursuant to the Stock Purchase Agreement; (ii) any
Common Shares then outstanding and held by any Investor (including the Common
Shares issuable upon exercise the Warrants (as defined in the Stock Purchase
Agreement)); (iii) any Common Shares then outstanding which were issued as, or
were issued directly or indirectly upon the conversion or exercise of other
securities issued as a dividend or other distribution with respect or in
replacement of any shares referred to in (i) or (ii); and (iv) any Common Shares
then issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of any shares referred to in (i) or (ii);PROVIDED, HOWEVER,
that Registrable Shares shall not include any shares which have been registered
pursuant to the Securities Act or which have been sold to the public pursuant to
Rule 144 of the Commission under the Securities Act. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Shares whenever
such
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Person has the then-existing right to acquire such Registrable Shares, whether
or not such acquisition actually has been effected.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Purchase Agreement" means the Amended and Restated Stock
Purchase Agreement dated as of March 30, 1998, by and among the Company,
Strategic Acquisition Partners, LLC, Insurance Partners, L.P.
and Insurance Partners Offshore (Bermuda).
2. DEMAND REGISTRATION.
2.1 REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the holders of at least $5,000,000 of the then market value of the
outstanding Registrable Shares may, at any time, request registration under the
Securities Act of all or part of their Registrable Shares on Form S-1 or any
similar long-form registration ("Long-Form Registrations") or, if available,
then at the option of the Company, on Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registrations"). Within ten (10) days after receipt of
any request pursuant to this Section 2.1, the Corporation will give written
notice of such request to all other holders of Registrable Shares, subject to
Section 2.4, and will include in such registration all Registrable Shares with
respect to which the Corporation has received written requests for inclusion
within thirty (30) days after delivery of the Corporation's notice. All
registrations requested pursuant to this Section 2 are referred to herein as
"Demand Registrations."
2.2 PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The
Corporation will pay all Registration Expenses (as defined in Section 6 below)
for two Demand Registrations initiated by Insurance Partners, L.P., one Demand
Registration initiated by Turkey Vulture Fund XIII, Ltd. and one Demand
Registration initiated by Strategic Acquisition Partners, LLC (or its principals
or affiliates) (including those under Section 2.3) (whether a Long-Form
Registration or a Short-Form Registration). A registration will not count as one
of the Corporation-paid Demand Registrations until it has become effective and
the holders of Registrable Shares are able to register and sell at least 90% of
the Registrable Shares requested to be included in such registration (or in the
case of a shelf registration, it remains effective for not less than 180 days);
provided, however, that in any event the Corporation will pay all Registration
Expenses in connection with any registration initiated as a Demand Registration
even though such registration shall not count as a Corporation-paid Demand
Registration. In a Demand Registration other than the four Demand Registrations
referred to in the first sentence of this Section (including those under Section
2.3), the Registration Expenses of such registration shall be borne by the
holders of Registrable Shares to be registered thereunder pro rata based on the
number of Registrable Shares and other securities requested or permitted to be
included in such registration pursuant to the terms of this Agreement.
2.3 SHORT-FORM REGISTRATIONS. Demand Registrations will be
Short-Form Registrations whenever the Corporation is permitted to use any
applicable short form. The Corporation will use its best efforts to make
Short-Form Registrations available for the sale of Registrable Shares. If a
Short-Form Registration is to be an underwritten public offering, and if the
underwriters for marketing or other reasons request the inclusion in the
registration statement of information which is not required under the Securities
Act to be included in a registration statement on the applicable form for the
Short-Form Registration, the Corporation will provide such information as may be
reasonably requested for inclusion by the underwriters in the Short-Form
Registration.
2.4 PRIORITY. If a Demand Registration is an underwritten
public offering and the managing underwriters advise the Corporation in writing
that in their opinion the inclusion of the number of Registrable Shares and
other securities requested to be included (by the Corporation or others) creates
a substantial risk that the price per Common Share will be reduced, the
Corporation will include in such registration, prior to the inclusion of any
securities which are not Registrable Shares, the number of Registrable Shares
requested to be included which in the opinion of such underwriters can be sold
without creating such
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a risk, pro rata among the respective holders of Registrable Shares on the basis
of the number of Registrable Shares owned by such holders, with further
successive pro rata allocations among the holders of Registrable Shares if any
such holder of Registrable Shares has requested the registration of less than
all such Registrable Shares it is entitled to register.
2.5 RESTRICTIONS. The Corporation will not be obligated to
effect any Demand Registration within 180 days after the effective date of a
previous Demand Registration. The Corporation may postpone for up to ninety (90)
days the filing or the effectiveness (but not the preparation) of a registration
statement for a Demand Registration if the Board of Directors of the Corporation
reasonably and in good faith determines that such filing would require a
disclosure of a material fact that would have a material adverse effect on the
Corporation or any plan by the Corporation to engage in any acquisition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other significant transaction. In order to
postpone the filing of a registration statement pursuant to this Section 2.5,
the Corporation shall promptly (but in any event within ten (10) days), upon
determining to seek such postponement, deliver to each holder who has requested
the registration of all or any part of its Registrable Shares, a certificate
signed by an executive officer of the Corporation stating that the Corporation
is postponing such filing pursuant to this Section 2.5 and a general statement
of the reason for such postponement and an approximation of the anticipated
delay. Within twenty (20) days after receiving such certificate, the holders of
a majority of the Registrable Shares held who have requested the registration of
all or any part of their respective Registrable Shares and for which
registration was previously requested may withdraw such demand request by giving
written notice to the Corporation; if withdrawn, the demand request shall be
deemed not to have been made for all purposes of this Agreement. The Corporation
may postpone the filing of a particular registration statement pursuant to this
Section 2.5 only once.
2.6 SELECTION OF UNDERWRITERS. The holders of at least a
majority of the Registrable Shares included in any Demand Registration shall
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the Corporation's approval which will not be
unreasonably withheld or delayed, and any existing contract rights of Advest,
Inc.
3. PIGGYBACK REGISTRATION.
3.1 RIGHT TO PIGGYBACK. Whenever the Corporation proposes to
register any of its equity securities under the Securities Act (other than
pursuant to a Demand Registration hereunder or on Form S-8 or S-4 or any
successor form thereto) and the registration form to be used may be used for the
registration of any Registrable Shares (a "Piggyback Registration"), the
Corporation will give prompt written notice (which shall be given not less than
thirty (30) days prior to the effective date of the registration statement) to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares (in
accordance with the priorities set forth in Sections 3.2 and 3.3 below) with
respect to which the Corporation has received written requests for inclusion
within fifteen (15) days after the delivery of the Corporation's notice.
3.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation and the managing underwriters advise the Corporation in writing that
in their opinion the number of securities requested to be included in the
registration creates a substantial risk that the price per Common Share will be
reduced, the Corporation will include in such registration first, the securities
that the Corporation proposes to sell, second, the Registrable Shares requested
to be included in such registration, pro rata among the holders of such
Registrable Shares on the basis of the number of shares which are owned by such
holders, and third, other securities requested to be included in such
registration.
3.3 PRIORITY SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities and the managing underwriters advise the
Corporation in writing that in their opinion the number of securities requested
to be included in the
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registration creates a substantial risk that the price per Common Share will be
reduced, the Corporation will include in such registration first, the securities
requested to be included therein by the holders requesting such registration and
the Registrable Shares requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of Common Shares
or Registrable Shares which are owned by such holders, and second, other
securities requested to be included in such registration.
3.4 OTHER REGISTRATIONS. If the Corporation has previously
filed a registration statement with respect to Registrable Shares pursuant to
Section 2 or pursuant to this Section 3, and if such previous registration has
not been withdrawn or abandoned, the Corporation will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 180 days has elapsed from the effective date of such
previous registration.
3.5 SELECTION OF UNDERWRITERS. In connection with any
Piggyback Registration, the holders of at least a majority of the Registrable
Shares requested to be registered shall have the right to select the managing
underwriters (subject to the approval of the Corporation which shall not be
unreasonably withheld or delayed) to administer any offering of the
Corporation's securities in which the Corporation does not participate, and the
Corporation will have such right in any offering in which it participates.
4. HOLDBACK AGREEMENTS.
4.1 HOLDER'S AGREEMENTS. Each holder of Registrable Shares
agrees not to effect any public sale or distribution of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities or make any demand for registration under Sections 2 or 3
hereof, during the seven (7) days prior to, and during the ninety (90) days
following, the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration in which Registrable Shares are included
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree. Nothing herein shall
prevent a holder of Registrable Shares that is a partnership from making a
distribution of Registrable Shares to its partners, a holder of Registrable
Shares that is a trust from making a distribution of Registrable Shares to its
beneficiaries or a holder of Registrable Shares that is a corporation from
making a distribution of Registrable Shares to its stockholders, provided that
the transferees of such Registrable Shares agree to be bound by the provisions
of this Agreement to the extent the transferor would be so bound.
4.2 CORPORATION'S AGREEMENTS. The Corporation agrees (i) not
to effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven (7) days prior to, and during the ninety (90) days following,
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, (ii) to
use all reasonable efforts to cause each holder of at least five percent (5%)
(on a fully diluted basis) of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities to agree not
to effect any public sale or distribution of any such securities during such
period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered public offering
otherwise agree, subject to the registration obligations of the Company under
the Common Share Purchase Warrants and (iii) if requested by the underwriters
managing the registered public offering, to use all reasonable efforts to cause
each other holder of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, purchased from the
Corporation at any time (other than in a registered public offering) to agree
not to effect any public sale or distribution of any such securities during such
period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered public offering
otherwise agree, subject to the registration obligations of the Company under
the Common Share Purchase Warrants.
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5. REGISTRATION PROCEDURES. Whenever the holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its best efforts to effect the registration
and sale of such Registrable Shares in accordance with the intended method of
disposition thereof and, pursuant thereto, the Corporation will as expeditiously
as possible:
prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus, or any amendments or supplements thereto,
the Corporation will furnish copies of all such documents proposed to be filed
to the counsel or counsels for the sellers of the Registrable Shares covered by
such registration statement);
prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus(es) used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than nine months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
furnish to each seller of Registrable Shares and the underwriters such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus(es) included in such registration statement (including
each preliminary prospectus) and such other documents as such seller or
underwriter may reasonably request in order to facilitate the disposition of the
Registrable Shares;
use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as any seller
or underwriter reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller or
underwriter to consummate the disposition in such jurisdictions of the
Registrable Shares (provided that the Corporation will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (ii) consent to
general service of process in any such jurisdiction);
promptly notify each seller of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Corporation will
prepare a supplement or amendment to such prospectus or registration statement
so that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus or registration statement will not contain any untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading;
cause all such Registrable Shares to be (i) listed on each securities
exchange on which similar securities issued by the Corporation are then listed,
(ii) authorized to be quoted and/or listed (to the extent applicable) on the
NASD Automated Quotation System or The Nasdaq National Market if the Registrable
Shares so qualify, or (iii) if no similar securities issued by the Corporation
are then listed on a securities exchange, a securities exchange selected by the
holders of at least a majority of the Registrable Shares included in such
registration;
provide a transfer agent and registrar for all such Registrable Shares
not later than the effective date of such registration statement;
enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
at least a majority of the Registrable Shares being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares (including, but not limited to, effecting a stock split
or a combination of shares).
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make available for inspection by any seller of Registrable Shares, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
advise each seller of such Registrable Shares, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission or any state securities or other regulatory authority suspending
the effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use all best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
at least forty eight (48) hours prior to the filing of any
registration statement or prospectus, or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration statement,
prospectus, amendment or supplement to which counsel selected by the holders of
at least a majority of the Registrable Shares being registered shall have
reasonably objected on the grounds that such document does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, unless, in the case of an amendment or supplement, in
the opinion of counsel for the Corporation the filing of such amendment or
supplement is reasonably necessary to protect the Corporation from any
liabilities under any applicable federal or state law and such filing will not
violate applicable laws;
at the request of any seller of such Registrable Shares in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement: (i) an opinion of counsel, addressed to the underwriters
and the sellers of Registrable Shares, covering such matters as such
underwriters and sellers may reasonably request, including such matters as are
customarily furnished in connection with an underwritten offering and (ii) a
letter or letters from the independent certified public accountants of the
Corporation addressed to the underwriters and the sellers of Registrable Shares,
covering such matters as such underwriters and sellers may reasonably request,
in which letter(s) such accountants shall state, without limiting the generality
of the foregoing, that they are independent certified public accountants within
the meaning of the Securities Act and that in their opinion the financial
statements and other financial data of the Corporation included in the
registration statement, the prospectus(es), or any amendment or supplement
thereto, comply in all material respects with the applicable accounting
requirements of the Securities Act;
make generally available to the Corporation's securityholders an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act no later than thirty (30) days after the end of the twelve (12) month period
beginning with the first day of the Corporation's first fiscal quarter
commencing after the effective date of a registration statement, which earnings
statement shall cover such twelve (12) month period, and which requirement will
be deemed to be satisfied if the Corporation timely files complete and accurate
information on Forms 10-Q, 10-K, and 8-K under the Exchange Act and otherwise
complies with Rule 158 under the Securities Act;
If requested by the managing underwriter or any seller promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or any seller reasonably requests to be
included therein, including, without limitation, with respect to the Registrable
Shares being sold by such seller, the purchase price being paid therefor by the
underwriters and with respect to any other terms of the underwritten offering of
the Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
cooperate with each seller and each underwriter participating in the
disposition of such Registrable Shares and their respective counsel in
connection with any filings required to be made with the NASD;
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during the period when the prospectus is required to be delivered
under the Securities Act, promptly file all documents required to be filed with
the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange
Act; and
notify each seller of Registrable Shares promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information.
6. REGISTRATION EXPENSES.
6.1 CORPORATION'S EXPENSES. Except as provided in Section 2.2
hereof, all expenses incident to the Corporation's performance of or compliance
with this Agreement, including, but not limited to, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Corporation and all independent certified public accountants,
underwriters (excluding discounts and commissions) and other Persons retained by
the Corporation (all such expenses being herein called "Registration Expenses"),
will be borne by the Corporation. In addition, the Corporation will pay its
internal expenses (including, but not limited to, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability insurance
obtained by the Corporation; the expenses and fees for listing the securities to
be registered on each securities exchange, expenses incurred in obtaining any
comfort letters, and all fees and expenses associated with filings required to
be made with the NASD.
6.2 HOLDER'S EXPENSES. Except as provided in Section 2.2
hereof, in connection with any registration statement in which Registrable
Shares are included, the Corporation will reimburse the holders of Registrable
Shares covered by such registration for the reasonable cost and expenses
incurred by such holders in connection with such registration, including, but
not limited to, reasonable fees and disbursements of one counsel chosen by the
holders of at least a majority of such Registrable Shares.
7. INDEMNIFICATION.
7.1 BY THE CORPORATION. The Corporation agrees to indemnify
and reimburse, to the fullest extent permitted by law, each holder of
Registrable Shares, its officers and directors and each Person who controls such
holder (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses (including, but not limited to, attorney's
fees) caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus,
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact, required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are directly
caused by statements or omissions made in reliance on and in strict conformity
with the information furnished in writing to the Corporation by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
prospectus or any amendments or supplements thereto after the Corporation has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Corporation will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the extent customary.
The payments required by this Section 7.1 will be made periodically during the
course of the investigation or defense, as and when bills are received or
expenses incurred, subject to an obligation of repayment in the event such
indemnity is determined not to be owed.
7.2 BY EACH HOLDER. In connection with any registration
statement in which a holder of Registrable Shares is participating, each such
holder will furnish to the Corporation in writing such information as the
Corporation reasonably requests for use in connection with any such registration
statement, preliminary prospectus or prospectus, or any amendment or supplement
thereto and, to the extent permitted by law, will indemnify the Corporation, its
directors and officers and each Person who controls the Corporation
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(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, prospectus or
preliminary prospectus, or any amendment thereof or supplement thereto, or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such holder specifically for inclusion in the
registration statement or prospectus; provided, that the obligation to indemnify
will be several, and not joint and several, among such sellers of Registrable
Shares, and the liability of each such seller of Registrable Shares will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such seller from the sale of Registrable Shares pursuant
to such registration statement; further provided, however, that such seller of
Registrable Shares shall not be liable in any such case to the extent that prior
to the filing of any such registration statement or prospectus or amendment
thereof or supplement thereto, such seller has furnished in writing to the
Corporation information expressly for use in such registration statement or
prospectus or any amendment thereof or supplement thereto that corrected or made
not misleading information previously furnished to the Corporation
7.3 PROCEDURE. Any Person entitled to indemnification
hereunder will (i) give prompt written notice to the indemnifying Person of any
claim with respect to which it seeks indemnification (provided that the failure
to give such notice shall not limit the rights of such Person except to the
extent such failure to provide notice materially prejudices the indemnifying
Person) and (ii) unless in such indemnified Person's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying Person to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
Person; provided, however, that any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such Person unless (x) the indemnifying party has agreed to pay such
fees or expenses, or (y) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such Person.
If such defense is not assumed by the indemnifying party as permitted hereunder,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably delayed or withheld). If such defense is assumed by the
indemnifying party pursuant to the provisions hereof, such indemnifying party
shall not settle or otherwise compromise the applicable claim unless (i) such
settlement or compromise contains a full and unconditional release of the
indemnified party or (ii) the indemnified party otherwise consents in writing.
An indemnifying Person who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying Person with
respect to such claim, unless in the reasonable judgment of any indemnified
Person a conflict of interest may exist between such indemnified Person and any
other of such indemnified parties with respect to such claim.
7.4 Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 7.1 or 7.2 are unavailable to
or insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages, or expenses (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
liabilities, claims, damages, or expenses (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the actions
which resulted in the losses, liabilities, claims, damages, or expenses as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 7.4
were determined by pro rata allocation (even if the holders or any underwriters
or all of them were treated as one Person for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 7.4, The
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amount paid or payable by an indemnified party as a result of the losses,
liabilities, claims, damages, or expenses (or actions in respect thereafter
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or, except as provided in Section 7.3, defending any such action or claim.
Notwithstanding the provisions of this Section 7.4, no holder shall be required
to contribute an amount greater than the dollar amount by which the net proceeds
received by such holder with respect to the sale of any Registrable Shares
exceeds the amount of damages which such holder has otherwise been required to
pay by reason of any and all untrue or alleged untrue statements of material
fact or omissions or alleged omissions of material fact made in any registration
statement, prospectus, or preliminary prospectus or any amendment thereof or
supplement thereto, related to such sale of Registrable Shares. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The holders' obligations in this
Section 7.4 to contribute shall be several in proportion to the amount of
Registrable Shares registered by them and not joint. If indemnification is
available under this Section 7, the indemnifying parties shall indemnify each
indemnified party to the full extent provided in Sections 7.1 and 7.2 without
regard to the relative fault of such indemnifying party or indemnified party or
any other equitable consideration provided for in this Section 7.4 subject, in
the case of the holders, to the limited dollar amounts get forth in Section 7.2.
7.5 SURVIVAL. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified Person or any officer, director or
controlling Person of such indemnified Person and will survive the transfer of
securities. The Corporation also agrees to make such provisions as are
reasonably requested by any indemnified Person for contribution to such Person
in the event the Corporation's indemnification is unavailable for any reason.
8. COMPLIANCE WITH 144 AND RULE 144A. At the request of any holder
of Registrable Shares who proposes to sell securities in compliance with Rule
144 of the Commission, the Corporation will (i) forthwith furnish to such holder
a written statement of compliance with the filing requirements of the Commission
as set forth in Rule 144, as such rule may be amended from time to time and (ii)
make available to the public and such holders such information as will enable
the holders of Registrable Shares to make sales pursuant to Rule 144. Unless the
Corporation is subject to Section 13 or 15(d) of the Exchange Act, the
Corporation will provide to the holder of Registrable Shares and to any
prospective purchaser of Registrable Shares under Rule 144A of the Commission,
the information described in Rule 144A(d)(4) of the Commission.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its securities on the basis provided in any
underwriting arrangements approved by such Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, custody agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Shares shall be required
to make any representations or warranties in connection with any registration
other than as to (i) such holder's ownership of his or its Registrable Shares to
be sold or transferred free and clear of all liens, claims, and encumbrances,
(ii) such holder's power and authority to effect such transfer, and (iii) such
matters pertaining to the compliance with securities laws as may be reasonably
requested; provided, further, that the obligation of such holder to indemnify
pursuant to any such underwriting arrangements shall be several, not joint and
several, among such holders selling Registrable Shares, and the liability of
each such holder will be in proportion to, and provided further that such
liability will be limited to, the net amount received by such holder from the
sale of his or its Registrable Shares pursuant to such registration.
10. MISCELLANEOUS.
10.1 NO INCONSISTENT AGREEMENTS. The Corporation will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Shares in
this Agreement.
Page 88 of 136 Pages
<PAGE> 10
10.2 ADJUSTMENTS AFFECTING REGISTRABLE SHARES.The Corporation
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include such Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration, including,
but not limited to, effecting a stock split or combination of shares.
10.3 OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Corporation will not hereafter grant to any Person or Persons the
right to request the Corporation to register any equity securities of the
Corporation, or any securities convertible or exchangeable into or exercisable
for such securities, without the prior written consent of the holders of at
least a majority of the Registrable Shares.
10.4 REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law, in equity, or otherwise.
10.5 AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Corporation and the holders of at
least a majority of the Registrable Shares; provided, however, that the
provisions of this Agreement may not be amended or waived without the consent of
the holders of all the Registrable Shares adversely affected by such amendment
or waiver if such amendment or waiver adversely affects a portion of the
Registrable Shares but does not so adversely affect all of the Registrable
Shares. Any waiver, permit, consent or approval of any kind or character on the
part of any such holders of any provision or condition of this Agreement must be
made in writing and shall be effective only to the extent specifically set forth
in writing. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of Registrable Securities and the Corporation.
10.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Investors or
holders of Registrable Shares are also for the benefit of, and enforceable by,
any subsequent holders of such Registrable Shares.
10.7 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
10.8 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
10.9 NOTICES. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any Person designates by written notice to
the Corporation, and shall be deemed to have been given upon delivery, if
delivered personally, three days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Page 89 of 136 Pages
<PAGE> 11
with a copy to:
Latham & Watkins
5800 Sears Tower
233 S. Wacker Drive
Chicago, Illinois
Attention: Mark D. Gerstein
If to the Investors, to the addresses set forth on the Signature pages
hereto.
If to holders of the Registrable Shares other than the Investors, to
the addresses set forth on the stock record books of the Corporation.
10.10 GOVERNING LAW. All questions concerning the
construction, validity and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement, shall be governed by the laws of
the State of Ohio applicable to contracts made and wholly to be performed in
that state.
10.11 FINAL AGREEMENT. This Agreement, together with the Stock
Purchase Agreement and all other agreements entered into by the parties hereto
pursuant to the Stock Purchase Agreement, constitutes the complete and final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
10.12 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and such counterparts together shall
constitute one instrument.
10.13 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be used
against any Person.
[Remainder of page intentionally left blank.
Signature pages follow.]
Page 90 of 136 Pages
<PAGE> 12
The parties hereto have executed this Agreement on the date first above
written.
THE CORPORATION:
----------------
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Frank W. Grimone
-------------------------------
Name: Frank W. Grimone
Title: CFO
Page 91 of 136 Pages
<PAGE> 13
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its General Partner
By: Insurance GenPar MGP, L.P.
its General Partner
By: Insurance GenPar MGP, Inc.,
its General Partner
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley & Cooper
Copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 92 of 136 Pages
<PAGE> 14
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance Genpar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar MGP (Bermuda), L.P.,
its General Partner
By: Insurance GenPar MGP (Bermuda), Inc.,
its General Partner
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Address:
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Attention: Bradley & Cooper
Copy to:
Weil, Goshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Page 93 of 136 Pages
<PAGE> 15
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Peter W. Nauert
-------------------
Peter W. Nauert
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
Page 94 of 136 Pages
<PAGE> 16
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Michael A. Cavataio
-----------------------
Michael A. Cavataio
Address:
3125 Ramsgate Road
Rockford, Illinois 61114
Page 95 of 136 Pages
<PAGE> 17
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS,
TRUSTEE OF THE CONSECO STOCK OPTION DIRECTOR
PLAN FBO
MICHAEL CAVATAIO #08590033
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 96 of 136 Pages
<PAGE> 18
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
MERCANTILE BANK OF NORTHERN ILLINOIS,
TRUSTEE OF THE CONSECO STOCK OPTION DIRECTOR
PLAN FBO
MICHAEL CAVATAIO #08590034
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
P.O. Box 30
Freeport, Illinois 61032
Copy to:
Michael A. Cavataio
3125 Ramsgate Road
Rockford, Illinois 61114
Page 97 of 136 Pages
<PAGE> 19
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Karon Hill
---------------------------------
Karon Hill
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 98 of 136 Pages
<PAGE> 20
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Val Rajic
------------------------------------
Val Rajic
Address:
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
Page 99 of 136 Pages
<PAGE> 21
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
TURKEY VULTURE FUND XIII, LTD.
By:
------------------------------
Name:
---------------------------
Title:
---------------------------
Address:
7001 Center Street
Mentor, Ohio 44060
Attention: Richard M. Osborne
Copy to:
Kohrman, Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attention: Marc C. Krantz
Page 100 of 136 Pages
<PAGE> 22
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Marc C. Krantz
------------------------------------------------
Marc C. Krantz
Address:
Kohrman, Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 101 of 136 Pages
<PAGE> 23
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
KRANTZ FAMILY LIMITED PARTNERSHIP
By: /s/ Byron S. Krantz
Byron S. Krantz, its General Partner
Address:
Kohrman, Jackson & Krantz P.L.L.
1375 East Ninth Street
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Page 102 of 136 Pages
<PAGE> 24
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
MEDICAL MUTUAL OF OHIO
By:
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Address:
2060 East Ninth Street
Cleveland, Ohio 44115
Attention: General Counsel
Page 103 of 136 Pages
<PAGE> 25
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
UNITED PAYORS AND UNITED PROVIDERS, INC.
By:
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address:
2275 Research Blvd.
6th Floor
Rockville, Maryland 20850
Attention: Joe Mott
Page 104 of 136 Pages
<PAGE> 26
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
/s/ Howard R. Conant
--------------------------------------
Howard R. Conant
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Attention: John Cochrane
Page 105 of 136 Pages
<PAGE> 27
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
JOSEPH CUSIMANO IRA
By:
----------------------------------
Name:
--------------------------------
Title:
------------------------------
Address:
c/o Lunn Partners
209 South LaSalle Street
Chicago, Illinois 60604
Attention: John Cochrane
Page 106 of 136 Pages
<PAGE> 28
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
LEG PARTNERS SBIC, L.P.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
230 Park Avenue
19th Floor
New York, New York 10169
Attention: Lawrence Golub
Page 107 of 136 Pages
<PAGE> 29
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT is made and
entered into this 17th day of February, 1999, by and between Ceres Group, Inc.,
a Delaware corporation and successor-in-interest to Central Reserve Life
Corporation, an Ohio corporation (the "Company"), and the persons and entities
set forth on the signature page attached hereto.
WHEREAS, the Company and Insurance Partners, L.P., Insurance Partners
Offshore (Bermuda), L.P., Peter W. Nauert, Michael A. Cavataio, Mercantile Bank
of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO
Michael Cavataio #08590033, Mercantile Bank of Northern Illinois, Trustee of the
Conseco Stock Option Director Plan FBO Michael Cavataio #08590034, Karon Hill,
Val Rajic, Turkey Vulture Fund XIII, Ltd., Marc C. Krantz, Krantz Family Limited
Partnership, Medical Mutual of Ohio, United Payors and United Providers, Inc.,
Howard R. Conant, Joseph Cusimano IRA, and LEG Partners SBIC, L.P. (collectively
the "Investors"), executed a Registration Rights Agreement, dated July 1, 1998
(the "Registration Rights Agreement") pursuant to which the Investors would have
certain registration rights relating to shares of the Company's common stock,
par value $0.001 per share (the "Common Shares"), owned by the Investors;
WHEREAS, the Company has offered 2,000,000 Common Shares (the "Offering
Shares") in a private placement offering of even date herewith (the "Offering");
WHEREAS, the Company desires to include the Offering Shares in the
Registration Rights Agreement and make the purchasers of the Offering Shares
subject to and bound by the Registration Rights Agreement;
WHEREAS, the purchasers of the Offering Shares have agreed to be bound
by and subject to, and have the Offering Shares be included in the definition of
"Registrable Shares" in, the Registration Rights Agreement and
WHEREAS, the Company and the Investors listed on the signature page
attached hereto (together the "Parties") have agreed to modify the Registration
Rights Agreement upon the terms and conditions set forth herein:
NOW, THEREFORE, the Parties agree as follows:
1. The Investors listed on the signature page attached hereto, which
are holders of at least a majority of the Registrable Shares (as that term is
defined in the Registration Rights Agreement), hereby consent to this amendment
to the Registration Rights Agreement pursuant to Section 10.3 thereof.
2. The term "Investor" as defined in the Registration Rights Agreement
is modified to include the purchasers of Offering Shares that were not
"Investors" under the Registration Rights Agreement as of July 1, 1998.
Page 108 of 136 Pages
<PAGE> 30
3. The terms "Offering" and "Offering Shares" shall be added to Section
1 of the Registration Rights Agreement and shall be as follows:
"Offering" means the offering by the Company of 2,000,000 Common Shares
in a private placement offering in connection with the acquisition of
Continental General Corporation, a Nebraska corporation.
"Offering Shares" means the 2,000,000 Common Shares offered by the
Company in the Offering.
4. The definition of "Registrable Shares" in Section 1 of the
Registration Rights Agreement is modified, in its entirety, as follows:
"Registrable Shares" means at any time (i) any Common Shares then
outstanding which were issued pursuant to the Stock Purchase Agreement; (ii) any
Common Shares then outstanding which were issued pursuant to the Offering; (iii)
any Common Shares then outstanding and held by any Investor (including the
Common Shares issuable upon exercise of the Warrants (as defined in the Stock
Purchase Agreement)); (iv) any Common Shares then outstanding which were issued
as, or were issued directly or indirectly upon the conversion or exercise of
other securities issued as, a dividend or other distribution with respect or in
replacement of any shares referred to in (i), (ii) or (iii); and (v) any Common
Shares then issuable directly or indirectly upon the conversion or exercise of
other securities which were issued as a dividend or other distribution with
respect to or in replacement of any shares referred to in (i), (ii) or (iii);
provided, however, that Registrable Shares shall not include any shares which
have been registered pursuant to the Securities Act or which have been sold to
the public pursuant to Rule 144 of the Commission under the Securities Act. For
purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the then-existing right to
acquire such Registrable Shares, whether or not such acquisition actually has
been effected.
5. All questions concerning the construction, validity and
interpretation of this Amendment No. 1 to the Registration Rights Agreement, and
the performance of the obligations imposed by this Amendment No. 1, shall be
governed by the laws of the State of Ohio applicable to contracts made and
wholly performed in that state.
6. Except as specifically provided herein, all other terms of the
Registration Rights Agreement shall apply and shall remain unmodified and in
full force and effect.
Page 109 of 136 Pages
<PAGE> 31
IN WITNESS WHEREOF, the Parties hereby execute this Amendment No. 1 to
the Registration Rights Agreement as of the date set forth above.
CERES GROUP, INC.
/s/ Val Rajic
----------------------------------
By: Val Rajic
Its: Executive Vice President
Page 110 of 136 Pages
<PAGE> 32
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
CONSENT OF HOLDERS OF A MAJORITY OF REGISTRABLE SHARES
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its General Partner
By: Insurance GenPar MGP, L.P.,
its General Partner
By: Insurance GenPar MGP, Inc.,
its General Partner
/s/ Robert A. Spass
------------------------------------
By: Robert A. Spass
Its: President
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd.,
its General Partner
/s/ Robert A. Spass
----------------------------------
By: Robert A. Spass
Its: President
/s/ Peter W. Nauert
----------------------------------
PETER W. NAUERT
Page 111 of 136 Pages
<PAGE> 33
SIGNATURE PAGE TO AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
LUNN-CERES, LLC
/s/ Robert J. Lunn
---------------------------------------
By: Robert J. Lunn
Its: Managing Member
/s/ Sally J. Krogh
---------------------------------------
SALLY J. KROGH
/s/ Charles E. Miller, Jr.
---------------------------------------
CHARLES E. MILLER, JR.
/s/ Glen A. Laffoon
---------------------------------------
GLEN A. LAFFOON
/s/ Bruce Henry
---------------------------------------
BRUCE HENRY
/s/ John A. Cochrane
---------------------------------------
JOHN COCHRANE
/s/ Andrew A. Boemi
---------------------------------------
ANDREW A. BOEMI
MICHAEL A. CAVATAIO IRA
By: Stifel, Nicolaus & Co., Inc., Custodian
/s/ Cathy Fassel
---------------------------------------
By: Cathy Fassel
Its: Vice President
Page 112 of 136 Pages
<PAGE> 34
SIGNATURE PAGE TO AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
KENNETH A. MANNINO IRA
By: Stifel, Nicolaus & Co., Inc., Custodian
/s/ Cathy Fassel
----------------------------------------
By: Cathy Fassel
Its: Vice President
Page 113 of 136 Pages
<PAGE> 1
EXHIBIT 7.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of June, 1998, by and
between Peter W. Nauert ("Nauert") and Central Reserve Life Corporation, an Ohio
corporation (the "Company").
WHEREAS, Nauert possesses valuable skills, expertise and abilities in
the life, accident and health insurance business; and
WHEREAS, the Company wishes to secure the services of Nauert as the
Chief Executive Officer of the Company for a three year term, and Nauert is
willing to serve in such capacity, all upon the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby retains and engages Nauert as its
Chief Executive Officer commencing on July 1, 1998 (the "Commencement Date")
and, unless sooner terminated as hereinafter provided, ending on the third
anniversary of the Commencement Date (the "Term"). Nauert hereby agrees to
render such services to die Company upon the terms and conditions set forth in
this Agreement. Nauert shall devote such business time to the business and
affairs of the Company as is reasonably necessary to the discharge of his duties
as Chief Executive Officer. Nauert will otherwise be free to pursue active
management of his personal investment portfolio. In the event there shall become
available to Nauert during the Term, directly or indirectly, through an
affiliate or otherwise, any business opportunity (whether in the form of a
transaction or otherwise) reasonably related to the business of the Company or
any of its subsidiaries, Nauert shall cause such opportunity to be presented to
the Company for its consideration and pursuit; provided, that Nauert shall be
free to pursue such opportunity, directly or indirectly, through an affiliate or
otherwise, if the Company declines to pursue such opportunity and Nauert obtains
the prior written consent of the Company, as authorized by its board of
directors (provided such consent is not unreasonably withheld or delayed).
2. COMPENSATION.
(a) STOCK AWARD. In lieu of any annual compensation and 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"), together with a cash payment equal to the taxes payable on the
Stock Award, as set forth in this Paragraph 2(a). If Nauert is employed by the
Company. on the third anniversary of the Commencement Date, Nauert shall receive
at such time a number of shares of Common Stock equal to: (i) $1,000,000,
divided by the closing price of the Common Stock on the closing date of the
Amended and Restated Stock Purchase Agreement, 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, plus (ii) $1,000,000
divided by the
Page 114 of 136 Pages
<PAGE> 2
average closing price of the Common Stock for the period from the first
anniversary of the Commencement Date through the second anniversary of the
Commencement Date, plus (iii) $1,000,000, divided by the average closing price
of the Common Stock for the period from the second anniversary of the
Commencement Date through the third anniversary of the Commencement Date. 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 also receive a
cash payment equal to the amount of taxes payable on the. Stock Award prior to
the time such taxes become due. The Stock Award shall be structured to avoid
current taxation, however, in the event taxes are payable on the Stock Award
prior to receipt by Nauert, the Company shall pay Nauert the amount of taxes
payable on the Stock Award prior to the time such taxes become due. All Common
Stock paid to Nauert pursuant to this Paragraph 2(a) shall be fully vested
immediately upon issuance. Nauert shall forfeit all Tights to the Stock Award if
his employment with the Company is terminated 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.
(b) STOCK OPTIONS. As an inducement to Nauert to enter into
this Agreement, the Company will grant to Nauert on the Commencement 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
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 antidilution protections as
contained in the warrants issued to Nauert in connection with his equity
investment in the Company.
Page 115 of 136 Pages
<PAGE> 3
(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 pretax income for such year exceeds the base case for each year of
employment as set forth on Exhibit A hereto.
(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.
3. BENEFITS. Company agrees to provide Nauert with such assistance
and work accommodations as are suitable to the character of his position and
necessary for the performance of his duties. The Company will maintain an
appropriate executive office and staff in reasonable proximity to Nauert's
principal residence. Nauert shall be entitled to participate in any employee
benefit plans and insurance programs currently offered by the Company, or which
it may adopt from time to time, for its executive management or supervisory
personnel generally, in accordance with the eligibility requirements for
participation therein.
4. EXPENSES. The Company will pay or reimburse Nauert for all
reasonable business expenses incurred by Nauert in the performance of his
duties, including all costs relating to travel between Nauert's office and the
Company's offices in Cleveland, Ohio.
5. DEATH. Nauert's employment by the Company will terminate immediately
upon his death; provided that in the event of Nauert's death during the Term,
Nauert's estate shall be entitled to receive the payment described in the last
sentence of Section 7(b).
6. DISABILITY. If Nauert becomes totally or partially disabled during
the Term, the Company shall continue to pay to Nauert, as long as such
disability continues during the Term, the level of compensation payable to
Nauert at the date his disability is determined, reduced dollar-for-dollar to
the extent of any disability insurance payments paid to Nauert through insurance
programs, the premiums for which were paid by the Company or its subsidiaries.
For purposes of this Agreement the term. "total disability" shall mean Nauert's
inability due to illness, accident or other physical or mental incapacity to
engage in the full time performance of his duties under this Agreement as
reasonably determined by the Board of Directors of the Company based on such
evidence as such Board shall deem appropriate. For purposes of this Agreement,
"partial disability" shall mean Nauert's disability due to illness, accident or
other physical or mental incapacity to engage in only the partial performance of
his duties under this Agreement, as reasonably determined by the Board of
Directors of the Company based on such evidence as such Board shall deem
appropriate.
Page 116 of 136 Pages
<PAGE> 4
7. TERMINATION.
(a) FOR CAUSE. The Company shall have the right to terminate
Nauert's employment hereunder at any time during the Term for Cause. For
purposes of this Agreement "Cause" shall be limited to (i) Nauert's conviction
of a felony or (ii) the continued willful malfeasance by Nauert of his duties
under this Agreement following repeated written requests by the Company to
perform in accordance with the terms hereof Notwithstanding anything herein to
the contrary, Nauert's inability to perform the duties of his position due to
his death or his total or partial disability shall not be deemed to constitute
Cause.
If in the opinion of the Board of Directors of the Company,
Nauert's employment shall become subject to termination for Cause, the Board of
Directors shall give Nauert written notice to that effect which notice shall
describe the matter or matters constituting such Cause. If, within thirty (30)
days of receipt of such notice, Nauert has not substantially eliminated or cured
each such matter or matters, then the Company shall have the right to give
Nauert notice of the termination of his employment. Nauert's employment
hereunder shall be considered terminated for Cause as of the date specified in
such notice of termination unless and until there is a final determination by a
court of competent jurisdiction that the cause of termination of Nauert's
employment did not exist at the time of giving said notice of termination. Upon
termination of Nauert's employment for Cause, this Agreement shall terminate
without further obligations to Nauert other than the Company's obligation (i) to
pay to Nauert within thirty (30) days after the date of termination that portion
of Nauert's aggregate compensation that is accrued through the date of
termination to the extent not theretofore paid and (ii) to pay or provide to
pay, to Nauert on a timely basis any other amounts or benefits required to be
paid or provided or which Nauert is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company to the extent not
theretofore paid or provided.
(b) WITHOUT CAUSE. The Company shall have the right to
terminate Nauert's employment hereunder without Cause at any time during the
Term. If the Board of Directors determines to terminate Nauert's employment
without Cause, the Company shall give notice of such termination to Nauert and
Nauert's employment hereunder shall be considered terminated without Cause as of
the date specified in such notice of termination. Upon termination of Nauert's
employment without Cause, Nauert shall be paid the following on the date of
termination (except as otherwise noted): (i) that portion of Nauert's aggregate
compensation that is accrued through the date of termination to the extent not
theretofore paid, (ii) any a-mounts or benefits required to be paid or provided
to which Nauert is eligible to receive under any plan, program, policy,
practice, contract or agreement of the Company to the extent not theretofore
paid or provided, (iii) all stock awards and cash payments that would have been
payable to Nauert pursuant to Paragraph 2(a) had Nauert remained employed by the
Company through the third anniversary of the Commencement Date, and (iv) any
incentive pay that would have been payable to Nauert pursuant to Paragraph 2(c)
during the remainder of the year of the Term in which Nauert's employment is
terminated, the payment of which shall occur following termination when the
amount of such incentive pay may be determined.
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<PAGE> 5
(c) BY NAUERT. Nauert may terminate his employment hereunder
at any time by retirement or resignation, upon notice to the Company. Upon such
termination by Nauert, no compensation for any period after the date of such
termination shall be payable to Nauert; provided, that if such termination by
Nauert is for Good Reason (as hereafter defined) then Nauert shall be entitled
to the payments described in clauses (i), (ii), and (iii) of the last sentence
of Paragraph 7(b). "Good Reason" shall mean any of the following:
(i) if at any time the Board of Directors of the
Company does not approve a material course of action recommended by Nauert as
Chief Executive Officer or approves a material course of action not recommended
by Nauert as Chief Executive Officer;
(ii) a change in Nauert's status as Chief Executive
Officer of the Company, the assignment to Nauert of any duties or
responsibilities which are inconsistent with Nauert's status as Chief Executive
Officer of the Company, or a reduction in the duties and responsibilities to be
exercised by Nauert as Chief Executive Officer of the Company;
(iii) any action by the Company that renders Nauert
unable to effectively discharge his duties and responsibilities as Chief
Executive Officer of the Company; or
(iv) a failure by the Company to continue in effect,
without material change, any benefit or incentive plan or arrangement in which
Nauert and all other executive officers of the Company participate, or the
taking of any action by the Company that would materially and adversely affect
Nauert's participation in, or materially reduce Nauert's benefits under, any
such plan or arrangement.
(d) CHANGE OF CONTROL. This agreement shall terminate
automatically upon a Change of Control. Upon such termination, Nauert shall be
entitled to the payments described in the last sentence of Paragraph 7(b).
"Change of Control" shall mean the occurrence of any of the following events:
(i) any person (as that term is defined in Section
13(d) of the Securities Exchange Act of 1934, as amended) shall become the
"beneficial owner" of securities of the Company representing the greater of (x)
thirty-three percent (33%) of the combined voting power of the Company's then
outstanding voting securities on a fully diluted basis or (y) the largest
percentage shareholder of the Company's then outstanding voting securities on a
fully diluted basis;
(ii) any consolidation or merger to which the Company
is a party, if following such consolidation or merger, the stockholders of the
Company immediately prior to such consolidation or merger shall not beneficially
own securities representing at least fifty-one percent (51%) of the combined
voting power of the outstanding voting securities on a fully diluted of the
surviving or continuing corporation; or
(iii) any sale, lease, exchange or other transfer (in
one transaction or in a series of related transactions) of all, or substantially
all, of the assets of the Company, other than. to an entity (or entities) of
which the Company or the stockholders of the Company immediately prior
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<PAGE> 6
to such transaction beneficially own securities representing at least fifty-one
percent (51%) of the combined voting power of the outstanding voting securities
on a fully diluted basis.
8. MINIMUM INVESTMENT. During the period commencing 180 days after the
Commencement Date and extending through the remainder of the Term, Nauert shall
retain, directly or indirectly, ownership of not less than 900,000 shares of
Common Stock unless, and except to the extent, released from this obligation in
writing by the Company. For purposes of this Agreement, "retain indirectly"
shall mean and refer to any shares of Common Stock that would be considered to
be owned by Nauert under Section 267(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), or the income of which would be taxable to Nauert, his
spouse or his children, or to any trust of which Nauert would be deemed the
owner under any of Sections 671 through 677, inclusive, of the Code.
9. TAX GROSS-UP. If upon the occurrence of a Change of Control or the
termination of Nauert's employment by Nauert for good reason, Nauert becomes
subject to any federal, state or local income or employment tax that may be
imposed on the Stock Awards contemplated by Paragraph 2(a) (the "Tax"), the
Company shall pay to Nauert upon demand an additional amount (the "Gross-up
Payment") (which shall include reimbursement for any penalties and interest that
may accrue in respect of such Tax) such that the net amount retained by Nauert
after reduction for any federal, state or local income or employment tax imposed
on the Gross-Up Payment provided for by this Paragraph shall be equal to the
amount of the Tax.
For purposes of determining the amount of the Gross-up Payment, Nauert
shall be deemed (i) to pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made; (ii) to pay any applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes if paid in
such year (determined without regard to limitations on deductions based upon the
amount of Nauert's adjusted gross income); and (iii) to have otherwise allowable
deductions for federal, state, and local income tax least equal to those
disallowed because of the inclusion of the Gross-up Payment in Nauert's adjusted
gross income.
10. COVENANTS.
(a) CONFIDENTIAL INFORMATION AND TRADE SECRETS. During
Nauert's employment by the Company, Nauert will enjoy access to the Company's
"confidential information" and "trade secrets." For purposes of this Agreement,
"confidential information" shall mean information which is not publicly
available including without limitation, information concerning customers,
material sources, suppliers, financial projections, marketing plans and
operation methods, Nauert's access to which derives solely from Nauert's
employment with the Company. For purposes of this Agreement, "trade secrets"
shall mean the Company's processes, methodologies and techniques known only to
those employees of the Company who need to know such secrets in order to perform
their duties an behalf of the Company. The Company takes numerous steps,
including these
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<PAGE> 7
provisions, to protect the confidentiality of its confidential information and
trade secrets, which it considers unique, valuable and special assets.
(b) RESTRICTED USE AND NON-DISCLOSURE. Nauert, recognizing the
Company's significant investment of time, efforts and money in developing and
preserving its confidential inflation, shall not, during his employment
hereunder and for a two (2) year period after the end of Nauert's employment
hereunder, use for his direct or indirect personal benefit any of the Company's
confidential information or trade secrets. For a two (2) year period after the
end of Nauert's employment hereunder, Nauert shall not disclose to any person
any of the Company's confidential information or trade secrets.
(c) RETURN OF THE COMPANY'S PROPERTY. Upon termination of
Nauert's employment with the Company, for whatever reason and in whatever
manner, Nauert shall return to the Company all copies of all writings and
records relating to the Company's business, confidential information or trade
secrets that are in Nauert's possession of such time.
(d) NON-COMPETITION. During Nauert's employment hereunder, and
in the event of (i) a termination of Nauert's employment by Nauert for Good
Reason, or (ii) a termination of Nauert's employment by the Company without
Cause, then for a period equal to the lesser of 12 months or the remainder of
original term of the Agreement, Nauert shall not engage, directly or indirectly,
whether as an owner, partner, employee, officer, director, agent, consultant or
other-wise, in any location where the Company or any of its subsidiaries is
engaged in business after the date hereof and prior to the termination of
Nauert's employment, in a business the same or similar to, any business now, or
at any time after the date hereof and prior to Nauert's termination, conducted
by the Company or any of its subsidiaries; provided however, that the mere
ownership of 5% or less of the stock of a company whose shares are traded on a
national securities exchange or are quoted on the National Association of
Securities Dealers Automated Quotation System shall not be deemed ownership
which is prohibited hereunder; provided, further, that upon the occurrence of a
Change of Control, the provisions of this Paragraph 10(d) shall no longer be of
any force or effect.
(e) NON-SOLICITATION. In the event of (i) a termination of
Nauert's employment by Nauert with Good Reason or (ii) a termination of Nauert's
employment by the Company without Cause, then during the period equal to the
lesser of twelve (12) months or the remainder of the original term of the
Agreement, Nauert shall not, directly or indirectly, induce employees of the
Company or any of its subsidiaries to leave such employment with the result that
such employees would engage in business activities which are substantially
similar or are closely related to the business activities such employee
performed on behalf of the Company and which compete against the Company;
provided that upon the occurrence of a Change of Control, the provisions of this
Paragraph 10(e) shall no longer be of any force or effect.
(f) ENFORCEABILITY. The necessity of protection against the
competition of Nauert and the nature and scope of such protection has been
carefully considered by the parties hereto. The parties hereto agree and
acknowledge that the duration, scope and geographic areas applicable to the
non-competition covenant in this Section 9 are fair, reasonable and necessary,
that adequate
Page 120 of 136 Pages
<PAGE> 8
compensation has been received by Nauert for such obligations, and that these
obligations do not prevent Nauert from earning a livelihood. If, however for any
reason any court determines that the restrictions in this Agreement arc not
reasonable, that consideration is inadequate or that Nauert has been prevented
from earning a livelihood, such restrictions shall be interpreted, modified or
rewritten to include as much of the duration, scope and geographic area
identified in this Section 9 as well render such restrictions valid and
enforceable.
(g) EQUITABLE REMEDIES. Notwithstanding the provisions of
Paragraph 11 hereof, in the event of a breach or threatened breach by Nauert of
any of the covenants set forth in this Paragraph, the Company or any of its
affiliates shall be entitled to seek in any court of proper jurisdiction all
appropriate remedies, including without limitation injunctive relief and
monetary damages.
(h) SURVIVAL. The covenants set forth in this Paragraph shall
survive termination of this Agreement.
11. ARBITRATION OF DISPUTES. Any controversy or claim, arising out of
or relating to this Agreement or the breach thereof shall be settled by
arbitration in the City of Chicago, Illinois, in accordance with the laws of the
State of Illinois by three arbitrators, one of whom shall be appointed by the
Company, one by Nauert and the third by the first two arbitrators. If the first
two arbitrators, cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the Chief Judge of the United States
District Court for the North District of Illinois, Eastern Division. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this paragraph. Judgement upon the award rendered
by the arbitrators may be entered in any court. having jurisdiction thereof. The
Company shall pay the fees and expenses of such arbitrator and the other costs
of arbitration. In addition, the Company shall pay (or Nauert shall be entitled
to recover from the Company, as the case may be) his reasonable attorneys' fees
and costs and expenses in connection with the successful enforcement of any of
his rights hereunder.
12. NOTICES. Any notice required or permitted pursuant to this
Agreement shall be deemed to have been properly given if in writing and when
delivered personally or by a national overnight courier service or five business
days after being sent by United States mail, certified or registered, postage
prepaid, addressed as follows:
If to the Company:
Central Reserve Life Corporation
17800 Royalton Road
Strongsville, Ohio 44136
Attention: Fred Lick
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<PAGE> 9
If to Nauert:
Peter W. Nauert
1750 East Golf Road
Suite 210
Schaumburg, Illinois 60173
With a copy to:
McDermott Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Stanley H. Meadows, P.C.
or to such other place as either party may designate to the other by written
notice in accordance with this Paragraph.
13. NO WAIVER. No waiver of any breach of any of the terms or
provisions of this Agreement shall be construed or held to be a waiver of any
other breach, or waiver of, acquiesence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party
without the written consent of the other party. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
15. GOVERNING LAW. This Agreement 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.
16. SEVERABILITY. If any provision of this Agreement is held for any
reason to be invalid, it will not invalidate any other provisions of this
Agreement 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. Any other written agreement between the parties hereto shall be
conclusively deemed to be an agreement independent of this Agreement.
17. HEADINGS. Paragraph headings hereunder are for convenience only and
shall not affect the meaning or interpretation of the provisions of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original without production of
the others.
19. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement and understanding among the parties hereto relating to the subject
matter hereof, and supersedes all
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<PAGE> 10
previous written or oral negotiations commitments and writings with respect to
the subject matter hereof. This Agreement may be amended only by a written
instrument signed by each party hereto.
* * *
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Val Rajic
--------------------------------
Its:
/s/ Peter W. Nauert
--------------------------------
Peter W. Nauert
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<PAGE> 12
EXHIBIT A
1998 $14,544,000
1999 $30,597,000
2000 $30,093,000
Page 125 of 136 Pages
<PAGE> 1
EXHIBIT 7.8
STOCK SUBSCRIPTION AGREEMENT
December 15, 1998
Peter W. Nauert (the "Investor")
c/o Geneva Capital
1750 East Golf Road, Suite 210
Schaumburg, Illinois 60173
Mr. Nauert:
Ceres Group, Inc., a Delaware corporation and successor-in-interest to
Central Reserve Life Corporation, an Ohio corporation (the "Company"), agrees
with Investor as follows:
1. Sale and Purchase of Subscription Shares. Pursuant to the Company's
private placement offering (the "Offering") of 2,000,000 shares of common stock,
par value $0.001 per share, of the Company (the "Common Shares") and subject to
the terms and conditions set forth in this Agreement, the Company agrees to sell
to Investor, and by its acceptance of the Agreement Investor agrees to purchase
from the Company for investment, on the Closing Date referred to below, the
number of Common Shares set forth opposite Investor's signature below. As
consideration for the purchase of Common Shares, Investor shall pay to the
Company the sum of $7.50 multiplied by the number of Common Shares set forth
opposite Investor's signature below (the "Purchase Price"). The Common Shares
being purchased by Investor are referred to as the "Subscription Shares."
The time and date of such sale and purchase of Subscription Shares
shall be January 15, 1999 or such other time and date (the "Closing Date") as
the Company may fix on two day's notice to Investor.
On or before the Closing Date, Investor shall deliver to Company or its
designated representatives, the Purchase Price by wire transfer of immediately
available funds. The closing shall take place at the Company's offices, 17800
Royalton Road, Strongsville, Ohio 44136. Within five days of the Closing Date or
as soon as practicable thereafter, the Company will deliver a certificate to
Investor for the Subscription Shares. The Company will bear all expenses in
connection with the preparation, issuance and delivery of the certificates
representing the Subscription Shares.
2. Representation and Warranty of the Company. The Company represents
and warrants to Investor that (a) the Subscription Shares, when issued, will be
duly authorized, validly
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<PAGE> 2
issued, fully paid and nonassessable by the Company and (b) the issuance of the
Subscription Shares will not entitle any holder of Common Shares to preemptive
rights.
3. Representations and Warranties of Investor.
(a) Authority. If Investor is a natural person, Investor has
all requisite power and authority, without the consent of any other person, to
execute and deliver this Agreement and the agreements to be delivered by
Investor, if any, on the Closing Date and to carry out the transactions
contemplated hereby and thereby. If Investor is a corporation, limited liability
company, partnership or other entity, Investor has all requisite corporate,
limited liability company, partnership or other, as applicable, power and
authority, without the consent of any other person, to execute and deliver this
Agreement and the agreements to be delivered by Investor, if any, on the Closing
Date and to carry out the transactions contemplated hereby and thereby. All
corporate, limited liability company, partnership, as applicable, and other acts
or proceedings required to be taken by Investor to authorize the execution,
delivery and performance of this Agreement and all transactions contemplated
hereby have been duly and properly taken.
(b) Validity. This Agreement has been, and the documents to be
delivered on the Closing Date by Investor, if any, will be, duly executed and
delivered and constitute lawful, valid and legally binding obligations of
Investor, enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting creditors' rights generally and by general
equitable principles. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation of any lien, charge or encumbrance of any kind or the acceleration of
any indebtedness or other obligation of Investor and are not prohibited by, do
not violate or conflict with any provision, and do not constitute a default
under or a breach of (i) Investor's certificate or articles of incorporation or
formation, bylaws, or other governing documents, (ii) any note, bond, indenture,
contract, agreement, permit, license or other instrument to which Investor is a
party or by which Investor or any of its assets is bound, (iii) any order, writ,
injunction, decree or judgment of any court or governmental agency applicable to
such Investor, or (iv) any law, rule or regulation applicable to Investor.
(c) Due Organization. Investor is a corporation, limited
liability company, partnership or other entity, as applicable, duly organized
and validly existing under the laws of its state of formation, and has full
power and authority to carry on the business in which it is engaged.
(d) Brokers. Investor has not retained any broker or finder or
incurred any liability or obligation for any brokerage fees, commissions or
finders' fees with respect to this Agreement or the transactions contemplated
hereby.
(e) Investment Representation.
(i) Investor understands that the Subscription Shares
have not been, and will not be, registered under the
Securities Act of 1933, as amended (the "Securities
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<PAGE> 3
Act"), as of the Closing Date or under any state securities laws and are being
offered and sold in reliance upon federal and state exemptions for transactions
not involving any public offering.
(ii) Investor represents that:
(A) it is acquiring the Subscription Shares
solely for its own account for investment purposes
and not with a view to the distribution thereof
within the meaning of the Securities Act;
(B) it is a sophisticated investor with
knowledge and experience in business and financial
matters;
(C) it has had access to all reports filed
by the Company during the current year and the year
preceding the current year pursuant to the Securities
Exchange Act of 1934, as amended, and has had the
opportunity to obtain additional information,
including the November 1998 Confidential Information
Memorandum prepared by Chase Manhattan Bank in
connection with the debt financing to be obtained for
the acquisition of Continental General Corporation, a
Nebraska corporation ("Continental General"), an
actuarial analysis of Continental General dated
November 2, 1998 prepared by Milliman & Robertson,
Inc. and an actuarial analysis of the insurance
business of the Company's subsidiary updated on
September 28, 1998 prepared by Milliman & Robertson,
Inc. in order to evaluate the merits and risks
inherent in holding the Subscription Shares;
(D) it has not been offered the Subscription
Shares by any form of general advertising or general
solicitation;
(E) it is able to bear the economic risk and
lack of liquidity inherent in holding the
Subscription Shares;
(F) it has been given the opportunity to ask
questions of, and to receive answers from, the
Company, or a person or persons acting on its behalf,
concerning the terms and conditions of the Offering
and the acquisition of Continental General; and it
has obtained all such information deemed necessary or
appropriate in order to evaluate whether to purchase
the Subscription Shares; and
(G) it is an "accredited investor" (as
defined in the Securities Act).
(iii) The certificate(s) representing the
Subscription Shares shall bear the following legend:
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<PAGE> 4
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS, AND ANY TRANSFER HEREOF
IS SUBJECT TO COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND REGULATIONS.
(g) Qualification and Conflicts. To the knowledge of Investor,
neither Investor nor any person holding any interest in Investor, directly or
indirectly, is disqualified from holding a direct or indirect interest in the
Company and its subsidiaries under the regulations of any state or other
governmental entity regulating the Company or any subsidiaries of the Company or
the business thereof nor is subject to any regulation, agreement or other
restriction that limits or precludes their ownership of an interest in the
Company or its subsidiaries or restricts their right to participate in the
management thereof.
4. Conditions to Purchase and Sale of Subscription Shares.
(a) Investor's obligation to purchase and pay for the
Subscription Shares shall be subject to the following conditions:
(i) The accuracy on the Closing Date of the
representations and warranties of the Company herein
contained.
(b) The Company's obligation to sell the Subscription Shares
is subject to the following conditions:
(i) the accuracy on the Closing Date of the
representations and warranties of Investor contained in this Agreement;
(ii) receipt by the Company of the Purchase Price;
and
(iii) receipt by the Company of a fairness opinion
from Advest, Inc. with respect to the fairness, from a
financial point of view, to the Company's stockholders of the
consideration to be received in the Offering.
5. Additional Agreements. Investor and the Company acknowledge that the
Subscription Shares are bound by and subject to the Stockholders Agreement by
and among the Company and the security holders listed on the signatures pages
thereof, dated as of July 1, 1998 (the "Stockholders Agreement"), and the Voting
Agreement, as of July 1, 1998, by and among the Company and the security holders
listed on the signatures pages thereof (the "Voting Agreement"). Investor and
the Company also acknowledge that the Subscription Shares are "Registrable
Shares" as that term is defined in the Registration Rights Agreement, dated as
of July 1, 1998, between the Company and the persons and entities set forth on
the signature pages attached thereto and as amended through Amendment No. 1 to
the Registration Rights Agreement attached hereto as Exhibit A. The
certificate(s) representing the Subscription Shares shall also bear the
following restrictive
Page 129 of 136 Pages
<PAGE> 5
legends as set forth in Section 3.2 of the Voting Agreement and Section 3.5 of
the Stockholders Agreement:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT
TO TRANSFER INSTRUCTIONS, 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 BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
6. Acceptance of Subscription. Investor acknowledges that subscriptions
will not necessarily be accepted in the order in which they are received, and
that the Company may reject any subscription in its sole discretion. In the
event that the Company rejects part but not all of the Subscription Shares
subscribed for herein, Investor acknowledges that it will be obligated to
purchase the balance of the Subscription Shares that are accepted.
7. Covenants and Representations to Survive Delivery; Assignment. All
covenants, agreements, representations and warranties made in this Agreement and
in the certificates delivered pursuant to this Agreement will survive the
delivery to Investor of the Subscription Shares and payment therefor and,
notwithstanding any investigation previously or in the future made by Investor
or on Investor's behalf, shall continue in full force and effect. Investor may
not assign any of its rights hereunder; provided, however, that with the prior
written consent of the Company, the rights created by this Section may be
transferred to such transferee of the Subscription Shares as is permitted by
such consent. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the heirs, successors and
permitted assigns of such party, and all covenants, promises and agreements in
this agreement by or on behalf of the Company, or by or on behalf of Investor,
shall bind and inure to the benefit of the heirs, successors and permitted
assigns of such party hereto.
8. Governing Law; Amendments. This Stock Subscription Agreement shall
be construed and enforced in accordance with the domestic substantive laws of
the State of Ohio without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other state. This Stock Subscription Agreement cannot be changed
orally, and can be changed only by an instrument in writing signed by the party
against whom enforcement of such change is sought.
9. Execution in Counterparts. This Stock Subscription Agreement may be
executed by any one or more of the parties will in any number of counterparts,
each of which will be deemed to be an original, but all such counterparts will
together constitute one and the same instrument.
10. Variations in Pronouns. All pronouns and nouns and any variations
thereof refer to the masculine, feminine, neuter, singular or plural, as the
context may require.
Page 130 of 136 Pages
<PAGE> 6
If the terms and conditions of this Agreement are satisfactory to you,
please sign the form of acceptance on the enclosed counterpart and return it to
the Company, whereupon this letter shall become a binding agreement between you
and the Company.
Very truly yours,
CERES GROUP, INC.
/s/ Val Rajic
--------------------------------
By: Val Rajic
Its: Executive Vice President
The foregoing agreement is hereby accepted as of the date first above
written.
Number of Subscription Shares: 62,000 /s/ Peter W. Nauert
----------- ------------------------------
Purchase Price: $465,000.00 PETER W. NAUERT
-----------
($7.50 x number of Subscription Shares)
Page 131 of 136 Pages
<PAGE> 7
EXHIBIT A
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT is made and
entered into this ___ day of February, 1999, by and between Ceres Group, Inc., a
Delaware corporation and successor-in-interest to Central Reserve Life
Corporation, an Ohio corporation (the "Company"), and the persons and entities
set forth on the signature page attached hereto.
WHEREAS, the Company and Insurance Partners, L.P., Insurance Partners
Offshore (Bermuda), L.P., Peter W. Nauert, Michael A. Cavataio, Mercantile Bank
of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO
Michael Cavataio #08590033, Mercantile Bank of Northern Illinois, Trustee of the
Conseco Stock Option Director Plan FBO Michael Cavataio #08590034, Karon Hill,
Val Rajic, Turkey Vulture Fund XIII, Ltd., Marc C. Krantz, Krantz Family Limited
Partnership, Medical Mutual of Ohio, United Payors and United Providers, Inc.,
Howard R. Conant, Joseph Cusimano IRA, and LEG Partners SBIC, L.P. (collectively
the "Investors"), executed a Registration Rights Agreement, dated July 1, 1998
(the "Registration Rights Agreement") pursuant to which the Investors would have
certain registration rights relating to shares of the Company's common stock,
par value $0.001 per share (the "Common Shares"), owned by the Investors;
WHEREAS, the Company has offered 2,000,000 Common Shares (the "Offering
Shares") in a private placement offering of even date herewith (the "Offering");
WHEREAS, the Company desires to include the Offering Shares in the
Registration Rights Agreement and make the purchasers of the Offering Shares
subject to and bound by the Registration Rights Agreement;
WHEREAS, the purchasers of the Offering Shares have agreed to be bound
by and subject to, and have the Offering Shares be included in the definition of
"Registrable Shares" in, the Registration Rights Agreement and
WHEREAS, the Company and the Investors listed on the signature page
attached hereto (together the "Parties") have agreed to modify the Registration
Rights Agreement upon the terms and conditions set forth herein:
NOW, THEREFORE, the Parties agree as follows:
1. The Investors listed on the signature page attached hereto, which
are holders of at least a majority of the Registrable Shares (as that term is
defined in the Registration Rights Agreement), hereby consent to this amendment
to the Registration Rights Agreement pursuant to Section 10.3 thereof.
Page 132 of 136 Pages
<PAGE> 8
2. The term "Investor" as defined in the Registration Rights Agreement
is modified to include the purchasers of Offering Shares that were not
"Investors" under the Registration Rights Agreement as of July 1, 1998.
3. The terms "Offering" and "Offering Shares" shall be added to Section
1 of the Registration Rights Agreement and shall be as follows:
"Offering" means the offering by the Company of 2,000,000 Common Shares
in a private placement offering in connection with the acquisition of
Continental General Corporation, a Nebraska corporation.
"Offering Shares" means the 2,000,000 Common Shares offered by the
Company in the Offering.
4. The definition of "Registrable Shares" in Section 1 of the
Registration Rights Agreement is modified, in its entirety, as follows:
"Registrable Shares" means at any time (i) any Common Shares then
outstanding which were issued pursuant to the Stock Purchase Agreement; (ii) any
Common Shares then outstanding which were issued pursuant to the Offering; (iii)
any Common Shares then outstanding and held by any Investor (including the
Common Shares issuable upon exercise of the Warrants (as defined in the Stock
Purchase Agreement)); (iv) any Common Shares then outstanding which were issued
as, or were issued directly or indirectly upon the conversion or exercise of
other securities issued as, a dividend or other distribution with respect or in
replacement of any shares referred to in (i), (ii) or (iii); and (v) any Common
Shares then issuable directly or indirectly upon the conversion or exercise of
other securities which were issued as a dividend or other distribution with
respect to or in replacement of any shares referred to in (i), (ii) or (iii);
provided, however, that Registrable Shares shall not include any shares which
have been registered pursuant to the Securities Act or which have been sold to
the public pursuant to Rule 144 of the Commission under the Securities Act. For
purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the then-existing right to
acquire such Registrable Shares, whether or not such acquisition actually has
been effected.
5. All questions concerning the construction, validity and
interpretation of this Amendment No. 1 to the Registration Rights Agreement, and
the performance of the obligations imposed by this Amendment No. 1, shall be
governed by the laws of the State of Ohio applicable to contracts made and
wholly performed in that state.
6. Except as specifically provided herein, all other terms of the
Registration Rights Agreement shall apply and shall remain unmodified and in
full force and effect.
Page 133 of 136 Pages
<PAGE> 9
IN WITNESS WHEREOF, the Parties hereby execute this Amendment No. 1 to
the Registration Rights Agreement as of the date set forth above.
CERES GROUP, INC.
-------------------------------------
By:
Its:
Page 134 of 136 Pages
<PAGE> 10
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
CONSENT OF HOLDERS OF A MAJORITY OF REGISTRABLE SHARES
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its General Partner
By: Insurance GenPar MGP, L.P.,
its General Partner
By: Insurance GenPar MGP, Inc.,
its General Partner
--------------------------------------
By:
Its:
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P.,
its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd.,
its General Partner
-------------------------------------
By:
Its:
---------------------------------------------------------
PETER W. NAUERT
Page 135 of 136 Pages
<PAGE> 11
SIGNATURE PAGE TO AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
[NAME OF INVESTOR]
-------------------------------------
By:
Its:
Page 136 of 136 Pages
