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EXHIBIT 7.8
STOCK SUBSCRIPTION AGREEMENT
December 15, 0000
Xxxxx X. Xxxxxx (the "Investor")
c/o Geneva Capital
0000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
Xx. Xxxxxx:
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, 00000
Xxxxxxxx Xxxx, Xxxxxxxxxxxx, Xxxx 00000. 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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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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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 & Xxxxxxxxx,
Inc. and an actuarial analysis of the insurance
business of the Company's subsidiary updated on
September 28, 1998 prepared by Xxxxxxxx & Xxxxxxxxx,
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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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
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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.
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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/ Xxx Xxxxx
--------------------------------
By: Xxx Xxxxx
Its: Executive Vice President
The foregoing agreement is hereby accepted as of the date first above
written.
Number of Subscription Shares: 62,000 /s/ Xxxxx X. Xxxxxx
----------- ------------------------------
Purchase Price: $465,000.00 XXXXX X. XXXXXX
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($7.50 x number of Subscription Shares)
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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., Xxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxxxx, Mercantile Bank
of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO
Xxxxxxx Xxxxxxxx #08590033, Mercantile Bank of Northern Illinois, Trustee of the
Conseco Stock Option Director Plan FBO Xxxxxxx Xxxxxxxx #08590034, Xxxxx Xxxx,
Xxx Xxxxx, Turkey Vulture Fund XIII, Ltd., Xxxx X. Xxxxxx, Xxxxxx Family Limited
Partnership, Medical Mutual of Ohio, United Payors and United Providers, Inc.,
Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxx XXX, 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.
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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.
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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:
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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:
---------------------------------------------------------
XXXXX X. XXXXXX
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SIGNATURE PAGE TO AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
[NAME OF INVESTOR]
-------------------------------------
By:
Its:
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