1
EXHIBIT 7.1
STOCK SUBSCRIPTION AGREEMENT
January 20, 1999
Insurance Partners, 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 of
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 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 the 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:
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
5
6
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, 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/ XXXXXX A SPASS
Number of Subscription Shares: 949,818 ------------------------------
Purchase Price: $7,123,635 By: Xxxxxx A Spass
($7.50 x number of Subscription Shares) Its: President
7
