Exhibit 2
CONTRIBUTION AND AMENDMENT AGREEMENT
CONTRIBUTION AND AMENDMENT AGREEMENT dated as of February
16, 1999 (this "Agreement") by and among Insurance Partners Offshore (Bermuda),
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 Partnership Agreement of International Managed Care
(Bermuda), L.P. (the "Partnership Agreement").
WHEREAS, the parties agreed in July 1998 that the
Partnership would make an investment in Ceres Group, Inc. (formerly, Central
Reserve Life Corporation) ("Ceres");
WHEREAS, in July 1998, the General Partner made the
investment in Ceres on behalf of the Partnership;
WHEREAS, the Partnership now desires to make an additional
investment in Ceres but is currently unable to make such investment because it
lacks all necessary regulatory approvals;
WHEREAS, the General Partner has agreed to make the
investment in Ceres on behalf of the Partnership;
WHEREAS, the General Partner desires to contribute the
investments in Ceres to the Partnership; and
WHEREAS, the parties also desire to amend the Partnership
Agreement (i) to reflect their agreement concerning the investments in Ceres and
(ii) to correct certain errors in the Partnership 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 Partnership Agreement,
as soon as the Partnership receives all necessary regulatory approvals, the
General Partner shall contribute to the capital of the Partnership (i) 1,545,990
shares of common stock of Ceres and warrants to purchase an additional 772,995
shares of common stock of Ceres acquired on July 3, 1998 (collectively, the
"Ceres Initial Investment") and (ii) 280,182 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 Partnership Agreement,
the Co-investment Company hereby contributes (i) $84,919.44 in cash to the
capital of the Partnership to fund the Ceres Initial Investment (and any related
expenses) and (ii) $21,027.37 in cash to the capital of the Partnership to fund
the Ceres Additional Investments (and any related expenses). Notwithstanding any
provisions of the Partnership Agreement, the Partnership hereby agrees to
distribute such cash to the General Partner and to decrease the Capital Account
of the General Partner in accordance with Section 2.4(c) of the Partnership
Agreement.
(c) The Co-investment Company agrees to pay the General
Partner $4,315.77 (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
each of the Ceres Initial Investment and the Ceres Additional Investment shall
be 50%.
2. Amendments to Partnership Agreement.
(a) In Section 1.7 of the Partnership Agreement, the term
"IRR of the Partners" is hereby deleted and replaced by the following:
` "IRR of the Partners" means, as of any date, the internal
rate of return of IPB on the disposed of Investments based
on the actual realized return of IPB on the Invested
Capital relating to such disposed of Investments and
Unallocated Partnership Expenses. The IRR of the Partners
shall be recalculated on each Vesting Date and shall take
into account all distributions to be made (including
distributions to be made to the General Partners) as a
result of such Vesting Date. For purposes of computing the
IRR of the Partners, 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;
(e) in all other cases W 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.'
(b) In Section 1.7 of the Partnership Agreement, the term
"Preferred Return" is hereby deleted and replaced by the following:
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` "Preferred Return" shall mean, as of any date, an amount
equal to Fifteen Percent (15%) per annum, compounded
annually, on the Unrecovered Capital of IPB 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
IPB shall be taken into account (a) in the case of IPB,
with respect to the CHD Investment and the CHD Investment
Expenses, as of March 3, 1997; (b) in the case of IPB, with
respect to the Ceres Initial Investment (including any
expenses relating to the acquisition of such investment) as
of July 3, 1998; (c) in the case of IPB, 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 Partnership Agreement:
` "Ceres Additional Investment" shall mean the 280,182
shares of common stock of Ceres Group, Inc. acquired on
February 16, 1999 and contributed by IPB to the capital of
the Partnership.'
` "Ceres Initial Investment" shall mean the 1,545,990
shares of common stock of Ceres Group, Inc, and warrants to
purchase an additional 772,995 shares of such common stock
acquired on July 3, 1998 and contributed by IPB to the
capital of the Partnership.'
(d) Notwithstanding Section 3.8(iv) of the Partnership
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 Partnership Agreement (including, without limitation,
Investment Income or Loss and Investment Proceeds) shall be allocated or shared
99% by IPB and 1% by the Co-investment Company.
(e) The parties agree that, with respect to any future
Investment of the Partnership, the General Partner and the Co-investment Company
may amend the terms of Section 3.8(iv) of the Partnership Agreement as it
applies to any such future Investment (including, without limitation, requiring
additional capital contributions from the Co-investment Partnership to fund a
greater portion of any such Investment) in a written instrument executed by each
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of them; provided, that no other Partner may be adversely, affected by any such
amendment.
(f) Schedule 1.7A of the Partnership Agreement is hereby
deleted and replaced by Schedule 1.7A attached hereto.
(g) Schedule 1.7C of the Partnership 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 Partners for Fiscal Year."
(h) Xxxx X. Xxxxx is a Limited Partner and Management
Partner for all purposes of the Partnership Agreement and agrees to be bound by
all of the covenants, terms and conditions of the Partnership Agreement
applicable to Limited Partners and Management Partners.
3. Effectiveness of this Agreement. This amendments to the
Partnership 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 party hereto with out the prior written consent of the other
parties; provided, however, that this Section 4 shall not be deemed to prohibit
in any manner and transfer or assignment of an Interest in the Partnership or
the Partnership Agreement permitted by Article VII of the Partnership 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 Partnership Agreement. Except as otherwise
provided herein, all of the terms and conditions of the Partnership 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 PARTNERS AMONG THEMSELVES AND ALL MATTERS PERTAINING TO THE
PARTNERS AND THE PARTNERSHIP SHALL BE GOVERNED BY, CONSTRUED UNDER AND IN
ACCORDANCE WITH THE LAWS OF BERMUDA WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.
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IN WITNESS WHEREOF, the parties have executed or caused to
be executed this Agreement as of the date set forth
above.
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), Ltd.,
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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