1
EXHIBIT 7.2
STOCK SUBSCRIPTION AGREEMENT
January 20, 1999
Insurance Partners Offshore (Bermuda), L.P. (the "Investor")
One Chase Xxxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxx
Gentlemen:
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 February 4, 1999 or such other time and date (the "Closing Date") as
the Company may fix on two business 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 as follows:
(a) Issuance of Shares. The Subscription Shares, when issued, will
be duly authorized, validly issued, fully paid and nonassessable and free of
preemptive rights pursuant to law, by contract, in the Company's Certificate of
Incorporation or otherwise.
(b) Same Terms. All Common Shares offered or sold in the Offering
will be offered and sold at the same price and otherwise on the same terms.
2
(c) Authority. The Company has all requisite corporate power
and authority, without the consent of any other person, to execute and deliver
this Agreement and the agreements to be delivered by the Company, if any, on the
Closing Date and to carry out the transactions contemplated hereby and thereby.
All corporate acts or proceedings required to be taken by the Company to
authorize the execution, delivery and performance of this Agreement and all
transactions contemplated hereby have been or will be duly and properly taken.
(d) Validity. This Agreement has been, and the documents to be
delivered on the Closing Date by the Company, if any, will be, duly executed and
delivered and constitute lawful, valid and legally binding obligations of the
Company, 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 the Company 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) the Company's Certificate of Incorporation, Bylaws, or
other governing documents, (ii) any note, bond, indenture, contract, agreement,
permit, license or other instrument to which the Company is a party or by which
the Company or any of its assets is bound, (iii) any order, writ, injunction,
decree or judgment of any court or governmental agency applicable to the
Company, or (iv) any law, rule or regulation applicable to the Company.
(e) Due Organization. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware, and has
full power and authority to carry on the business in which it is engaged.
(f) Brokers. The Company 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.
(g) No Material Adverse Change. From December 31, 1998 until
the Closing Date, there shall not have occurred any Material Adverse Effect in
respect of the Company, Continental General, or any of their respective
subsidiaries. From the date of this Agreement until the Closing Date, there
shall not have occurred any material disruption of or material adverse change in
U.S. financial, banking or capital market conditions. For purposes of this
Agreement, "Material Adverse Effect" means any event, circumstance, condition,
fact, effect, or other matter that has had or could reasonably be expected to
have a material adverse effect on the business, assets, financial condition,
prospects, or results of operations of the Company, Continental General, and
their respective subsidiaries taken as a whole.
3. Representations and Warranties of Investor. Investor represents and
warrants to the Company as follows:
(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
2
3
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, permits, 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 nor 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 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
3
4
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 tile following legend:
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;
(ii) The Offering is fully subscribed and on the Closing
Date the Company has received payment in full for all Common
Shares;
4
5
(iii) The proceeds of the Offering will be used for
the purchase of Continental General and fees and expenses
related thereto;
(iv) Each investor who is acquiring Common Shares in
the Offering who was not a party to each of the Stockholders
Agreement (as defined below), the Voting Agreement (as
defined below), and the Registration Rights Agreement (as
defined below) as of the date of such agreements, has executed
and delivered to the Company one or more agreements whereby
such investor has agreed to be bound by the terms of each such
agreement; and
(v) Any applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, will have expired without action by the Justice
Department or the Federal Trade Commission to prevent
consummation of this Agreement or the transactions
contemplated hereby or any applicable waiting period will have
been terminated prior to expiration.
(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;
(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; and
(iv) Any applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, will have expired without action by the Justice
Department or the Federal Trade Commission to prevent
consummation of this Agreement or the transactions
contemplated hereby or any applicable waiting period will have
been terminated prior to expiration.
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, dated 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 legends as set forth in Section 3.2 of the Voting
Agreement and Section 3.5 of the Stockholders Agreement:
5
6
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 without the prior written consent of the
Company, which consent will not be unreasonably conditioned, delayed or
withheld. 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 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.
6
7
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.
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.
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/ XXXXXX X. SPASS
Number of -------------------------------------
Subscription Shares: 280,182 By: Xxxxxx X. Spass
--------- Its: President
Purchase Price: $2,101,365
----------------
($7.50 x number of Subscription Shares)
7
