Exhibit 1
CONTRIBUTION AND AMENDMENT AGREEMENT
CONTRIBUTION AND AMENDMENT AGREEMENT dated as of February
16 1999 (this "Agreement") by and among Insurance Partners, L.P., International
Managed Care Co-Investment, LLC, Xxxxx Xxxxx, Xxxxxx Xxxxxxxx and Xxxx X. Xxxxx.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to them in the Amended and Restated Limited
Liability Company Agreement of International Managed Care, LLC the "Operating
Agreement").
WHEREAS, the parties agreed in July 1998 that the Company
would make an investment in Ceres Group, Inc. (formerly Central Reserve Life
Corporation) ("Ceres");
WHEREAS, in July 1998, the Managing Member made the
investment in Ceres on behalf of the Company;
WHEREAS, the Company now desires to make an additional
investment in Ceres but is currently unable to make such an investment because
it lacks all necessary regulatory approvals;
WHEREAS, the Managing Member has agreed to make the
additional investment on behalf of the Company;
WHEREAS, the Managing Member desires to contribute both
investments to the Company; and
WHEREAS, the parties also desire to amend the Operating
Agreement (i) to reflect their agreement concerning the investment in Ceres and
(ii) to correct certain errors in the Operating Agreement.
NOW THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows.
1. Capital Contributions.
(a) Pursuant to Section 2.2 of the Operating Agreement, as
soon as the Company receives all necessary regulatory approvals, the Managing
Member shall contribute to the capital of the Company (i) 2,799,466 shares of
common stock of Ceres and warrants to purchase an additional 1,399,733 shares of
common stock of Ceres acquired on July 3, 1998 (collectively, the "Ceres Initial
Investment") and (ii) 949,818 shares of common stock of Ceres acquired on
February 16, 1999 (the "Ceres Additional Investment").
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(b) Pursuant to Section 2.2 of the Operating Agreement, the
Co-investment Company hereby contributes (i) $154,080.64 in cash to the capital
of the Company to fund the Ceres Initial Investment (and any related expenses)
and (ii) $71,222.63 in cash to the capital of the Company to fund the Ceres
Additional Investment (and any related expenses). Notwithstanding any provisions
of the Operating Agreement, the Company hereby agrees to distribute such cash to
the Managing Member and to decrease the Capital Account of the Managing Member
in accordance with Section 2.3(c) of the Operating Agreement.
(c) The Co-investment Company agrees to pay the Managing
Member $7,830.67 (representing interest on its capital contribution in respect
of the Ceres Initial Investment at the prime rate accruing from June 16, 1998).
(d) The parties agree that the Health Care Percentage for
the Ceres Initial Investment and the Ceres Additional Investment shall be 50%.
2. Amendments to Operating Agreement.
(a) In Section 1.7 of the Operating Agreement, the term
"IRR of the Members" is hereby deleted and replaced by the following:
` "IRR of the Members" means, as of any date, the internal
rate of return of IP on the disposed of Investments based
on the actual realized return of IP on the Invested Capital
relating to such disposed of Investments and Unallocated
Company Expenses. The IRR of the Members shall be
recalculated on each Vesting Date and shall take into
account all distributions to be made (including
distributions to be made to the Managing Members) as a
result of such Vesting Date. For purposes of computing the
IRR of the Members, all Capital Contributions and
distributions that are reflected in the computation shall
be taken into account (a) with respect to the CHD
Investment (including the CHD Investment Expenses) as of
March 3, 1997; (b) with respect to the Ceres Initial
Investment (including any expenses relating to the
acquisition of such investment) as of July 3, 1998; (c)
with respect to the Ceres Additional Investment (including
any expenses relating to the acquisition of such
investment) as of February 16, 1999; (d) in the case of
Start-Up Costs, as of the date set forth on Schedule 1.7B;
and (e) in all other cases (i) as of the last day of the
calendar quarter immediately preceding the date of any
Capital Contribution or distribution if such Capital
Contribution or distribution occurs during the first half
of the then current calendar quarter, or (ii) in each other
case, as of the last date of the calendar quarter during
which such Capital Contribution or distribution occurs.'
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(b) In Section 1.7 of the Operating Agreement, the term
"Preferred Return" is hereby deleted and replaced by the following:
` "Preferred Return" shall mean, as of any date, an amount
equal to Fifteen Percent (15%) per annum, compounded
annually, on the Unrecovered Capital of IP as of the last
day of the calendar quarter immediately preceding the date
of determination. For purposes of computing the Preferred
Return, all Capital Contributions and distributions that
are reflected in the computation of Unrecovered Capital of
IP shall be taken into account (a) in the case of IP, with
respect to the CHD Investment and the CHD Investment
Expenses, as of March 3, 1997; (b) in the case of IP, with
respect to the Ceres Initial Investment (including any
expenses relating to the acquisition of such investment) as
of July 3, 1998; (c) in respect of IP, with respect to the
Ceres Additional Investment (including any expenses
relating to the acquisition of such investment) as of
February 16, 1999; (d) in the case of Start-Up Costs, as of
the date set forth on Schedule 1.7B; and (e) in all other
cases (i) as of the last day of the calendar quarter
immediately preceding the date of any Capital Contribution
or distribution if such Capital Contribution or
distribution occurs during the first half of the then
current calendar quarter, or (ii) in each other case, as of
the last day of the calendar quarter during which such
Capital Contribution or distribution occurs.'
(c) The following definitions are hereby added to Section
1.7 of the Operating Agreement:
` "Ceres Additional Investment" shall mean the 949,818
shares of common stock of Ceres Group, Inc. acquired on
February 16, 1999 and contributed by IP to the capital of
the Company.'
` "Ceres Initial Investment" shall mean the 2,799,466
shares of common stock of Ceres Group, Inc. and warrants to
purchase an additional 1,399,733 shares of such common
stock acquired on July 3, 1998 and contributed by IP to the
capital of the Company.'
(d) Notwithstanding Section 3.8(iv) of the Operating
Agreement, the parties hereby agree that the remaining Items relating to the
Ceres Initial Investment and the Ceres Additional Investment after giving effect
to the allocations and distributions contemplated under Articles II and VI and
Section 3.8(iii) of the Operating Agreement (including, without limitation,
Investment Income or Loss and Investment Proceeds) shall be allocated or shared
99% by IP and 1% by the Coinvestment Company.
(e) The parties agree that, with respect to any future
Investment of the Company, the Managing Member and the Co-investment Company may
amend the terms of Section 3.8(iv) of the Operating Agreement as it applies to
and such future Investment (including, without limitation, requiring additional
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capital contributions from the Co-investment Company to fund a greater portion
of any such Investment) in a written instrument executed by each of them;
provided, that no other Member may be adversely affected by any such amendment.
(f) Schedule 1.7A of the Operating Agreement is hereby
deleted and replaced by Schedule 1.7A attached hereto.
(g) Schedule 1.7C of the Operating Agreement is hereby
amended so that (i) the heading titled "IRR of the Members" is hereby deleted
and replaced by "Specified IRR Percentage" and (ii) the heading titled
"Specified IRR Percentage for Fiscal Year" is hereby deleted and replaced by
"IRR of the Members for Fiscal Year."
(h) Xxxx X. Xxxxx is a Non-Managing Member and Management
Member for all purposes of the Operating Agreement and agrees to be bound by all
of the covenants, terms and conditions of the Operating Agreement applicable to
Non-Managing Members and Management Members.
3. Effectiveness of this Agreement. This amendments to the
Operating Agreement in Section 2 hereof shall be effective as of December 31,
1998.
4. Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by any part), hereto with out the prior written consent of the other
parties; provided, however, that this Section 4 shall not be deemed to prohibit
in an), manner and transfer or assignment of an Interest in the Company or the
Operating Agreement permitted by Article VII of the Operating Agreement.
5. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their permitted successors and
permitted assigns.
6. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7. Ratification of the Operating Agreement. Except as otherwise
provided herein, all of the terms and conditions of the Operating Agreement are
hereby ratified and shall remain unchanged and continue in full force and
effect.
8. APPLICABLE LAW. THIS AGREEMENT, THE RELATIONS, RIGHTS AND
DUTIES OF THE MEMBERS AMONG THEMSELVES AND ALL MATTERS PERTAINING TO THE MEMBERS
AND THE COMPANY SHALL BE GOVERNED BY, CONSTRUED UNDER AND IN ACCORDANCE WITH THE
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LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE.
IN WITNESS WHEREOF, the parties have executed or caused to
be executed this Agreement as of the date set forth
above.
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: /s/ Xxxxxx X. Spass
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Name: Xxxxxx X. Spass
Title: President
INTERNATIONAL MANAGED CARE
CO-INVESTMENT, LLC
By: /s/ Xxxx X. Xxxxx
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Name: Xxxx X. Xxxxx
Title: General Partner
/s/ Xxxxxx Xxxxxxxx
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Xxxxxx Xxxxxxxx
/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
/s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
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