-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B3wkHqbMR2Q2UvCf/tPEEvTJ4Of39aopYByaWLqBw4+rML9L4Y3ILLzs1nlfP3Un tA6tEQw8ka8l6l96I2b42g== /in/edgar/work/20000809/0000950152-00-005761/0000950152-00-005761.txt : 20000921 0000950152-00-005761.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950152-00-005761 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000725 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERES GROUP INC CENTRAL INDEX KEY: 0000215403 STANDARD INDUSTRIAL CLASSIFICATION: [6311 ] IRS NUMBER: 341017531 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-08483 FILM NUMBER: 690059 BUSINESS ADDRESS: STREET 1: 17800 ROYALTON RD CITY: STRONGSVILLE STATE: OH ZIP: 44136 BUSINESS PHONE: 2165722400 MAIL ADDRESS: STREET 1: 17800 ROYALTON RD CITY: STRONGSVILLE STATE: OH ZIP: 44136 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL RESERVE LIFE CORP DATE OF NAME CHANGE: 19920703 8-K 1 e8-k.txt CERES GROUP, INC. FORM 8-K 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: July 25, 2000 (Date of earliest event reported) Ceres Group, Inc. (Exact Name or Registrant as specified in its charter) Delaware 0-8483 34-1017531 -------- ------ --------------------- (State or other jurisdiction (Commission File (IRS Employer of Incorporation) Number) Identification Number) 17800 Royalton Road, Cleveland, Ohio 44136 ------------------------------------------ (Address of Principle Executive Offices) (Zip Code) (440) 572-2400 -------------- (Registrant's telephone number, including area code) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS Effective July 26, 2000, Ceres Group, Inc. ("Ceres"), through Continental General Insurance Company, its wholly-owned subsidiary ("Continental General"), acquired The Pyramid Life Insurance Company ("Pyramid") from United Insurance Company of America ("United Insurance"), a subsidiary of Unitrin, Inc. of Chicago, for $67.5 million. Pyramid, based in Mission, Kansas, provides health and life insurance primarily for the senior market, including long-term care, home health care, Medicare supplement, and senior life insurance products. Funds for the acquisition were provided as follows: - - $20.0 million from the sale of 3,333,334 newly-issued shares of common stock, par value $0.001 per share, of Ceres (the "Common Shares") in a private placement offering (the "Pyramid Offering"); - - $7.5 million from the sale to United Insurance of 75,000 newly-issued shares of convertible voting preferred stock, par value $0.001 per share, of Ceres, which shares are convertible into Common Shares of Ceres (the "Voting Preferred Shares"); - - $25.0 million from a special pre-closing dividend paid by Pyramid to United Insurance in connection with the acquisition; and - - $15.0 million from a combination of funds from Continental General and financing provided by The Chase Manhattan Bank and associated banks. At June 30, 2000, Pyramid had assets of $140.9 million (prior to payment of the $25.0 million pre-closing dividend) and total revenues of $37.0 million. Pyramid markets senior insurance products through approximately 2,500 independent agents in 40 states. In conjunction with the acquisition of Pyramid, Ceres, along with The Chase Manhattan Bank and associated banks, amended the Credit Agreement, dated February 17, 1999, among Ceres, the lending institutions listed from time to time on Annex I thereto and The Chase Manhattan Bank, as Administrative Agent (the Credit Agreement is included in Ceres' Form 8-K, dated March 4, 1999, as Exhibit 10.1 and is incorporated herein by reference, and as amended by the First Amendment to the Credit Agreement, dated May 3, 1999, attached hereto as Exhibit 10.2 and incorporated herein by reference), to increase the revolver from $10.0 million to $15.0 million (the "Amendment"). The Amendment included provisions to allow for the Pyramid acquisition along with certain revisions in the financial covenants to be maintained by Ceres as follows: - - the leverage ratio (consolidated debt to consolidated total capital) of 0.40 to 1.00 through December 31, 2000, 0.35 to 1.00 thereafter through December 31, 2001, and 0.30 to 1.00 thereafter; - - minimum consolidated net worth of $80.0 million through December 31, 2000, $110.0 2 3 million thereafter through December 31, 2001, $160.0 million thereafter through December 31, 2002, and $200.0 million thereafter; and - - a fixed charge coverage ratio (borrower cash flow to the sum of consolidated interest expense and scheduled repayments) of not less than 1.05 to 1.00 for the period of June 30, 2000 through June 30, 2001, 1.10 to 1.00 thereafter through June 30, 2002, 1.20 to 1.00 thereafter through June 30, 2003, and 1.30 to 1.00 thereafter. This description of the Amendment is not and does not purport to be complete and is qualified in its entirety by reference to the Amendment. The Amendment is attached to this Form 8-K as Exhibit 10.3 and is incorporated herein by reference. The 3,333,334 Common Shares were sold by Ceres for $20.0 million, or $6.00 per Common Share. The Common Shares were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act") pursuant to Section 4(2) of the Act, and therefore, were not registered under the Act. The certificates representing the Common Shares contain a legend restricting transfer without compliance with the Act. Purchasers of the Common Shares in the Pyramid Offering were Castle Creek Capital Partners Fund IIa, LP and Castle Creek Capital Partners Fund IIb, LP, two California-based investment funds (together "Castle Creek"), Lunn-Ceres II, LLC, a private investment fund based in Chicago, and several individual investors. All of the Common Shares purchased in the Pyramid Offering are subject to the Amended and Restated Registration Rights Agreement, dated as of July 25, 2000, between Ceres and the persons and entities set forth on the signature pages attached thereto (the "Amended and Restated Registration Rights Agreement"). The Common Shares purchased by Castle Creek are subject to the Amended and Restated Voting Agreement, dated as of July 25, 2000, by and among Ceres and the security holders listed on the signature pages thereof (the "Amended and Restated Voting Agreement"). The Common Shares purchased by Lunn-Ceres II, LLC and the individual investors are subject to the Stockholders Agreement, as amended, dated as of July 1, 1998, by and among Ceres (as successor-in-interest to Central Reserve Life Corporation) and the security holders listed on the signature pages thereof (the "Stockholders Agreement"). The security holders, persons and entities that are parties to each of the Amended and Restated Voting Agreement, Stockholders Agreement and Amended and Restated Registration Rights Agreement are referred to in this Form 8-K as the "Stockholders." The Amended and Restated Registration Rights Agreement provides the Stockholders with certain rights to have their Common Shares registered pursuant to the Act. The Amended and Restated Registration Rights Agreement provides for (1) "Demand Registration" - if requested by at least $5.0 million of the then market value of outstanding Registrable Shares, as defined in the Amended and Restated Registration Rights Agreement, Ceres is obligated to use its best efforts to cause such shares to be registered, subject to certain restrictions; and (2) "Piggyback Registration" - if Ceres proposes to register any of its Common Shares in connection with a public distribution, Ceres will use its best effort to register any holder's "Registrable Shares," if so requested. In 3 4 addition, the Amended and Restated Registration Rights Agreement provides that, beginning July 25, 2001, the purchasers in the Pyramid Offering will be entitled to "Piggyback Registration" as well as one "Demand Registration" if requested by the holders of at least $10.0 million of the then market value of the Common Shares sold in the Pyramid Offering. This description of the Amended and Restated Registration Rights Agreement is not and does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Registration Rights Agreement. The Amended and Restated Registration Rights Agreement is attached to this Form 8-K as Exhibit 4.1 and is incorporated herein by reference. Pursuant to the Amended and Restated Voting Agreement, the Stockholders have agreed to cause the Board of Directors of Ceres to consist of nine directors designated by the Stockholders, some or all of whom will be the following individuals, subject to certain conditions: four individuals designated by International Managed Care, LLC and International Managed Care (Bermuda), L.P. (together "International Managed Care"), two individuals designated by Strategic Acquisition Partners, LLC, one individual designated by Turkey Vulture Fund XIII, Ltd., and one individual designated by Castle Creek. The Amended and Restated Voting Agreement further provides that no Stockholder may effect, cause to be effected, or permit any voluntary or involuntary sale, assignment, or transfer ("Transfer") of any Common Shares or any interest therein, except for Transfers pursuant to an effective registration statement or pursuant to Rule 144 under the Act, unless the transferee agrees to be bound by the provisions of the Amended and Restated Voting Agreement and the Stockholders Agreement and such Transfer is, where applicable, made in compliance with the terms of the Stockholders Agreement. This description of the Amended and Restated Voting Agreement is not and does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Voting Agreement. The Amended and Restated Voting Agreement is attached to this Form 8-K as Exhibit 4.2 and is incorporated herein by reference. Pursuant to the Stockholders Agreement, each of the Stockholders is provided certain rights in respect of its outstanding Common Shares in the event of certain sales of Common Shares by other Stockholders. Specifically, if International Managed Care disposes of Common Shares representing more than 20% of the outstanding Common Shares, International Managed Care, its affiliates, officers, directors and employees (the "International Managed Care Group") have the right to require each non-selling Stockholder (each, a "Co-Seller") to transfer a portion of its Common Shares which represents the same percentage of the fully diluted Common Shares held by such Co-Seller as the Common Shares being disposed of by the International Managed Care Group represent of the fully diluted Common Shares held by the International Managed Care Group. All Common Shares transferred pursuant to this provision of the Stockholders Agreement will be sold at the same price and time and otherwise be treated identically with the Common Shares being sold by the International Managed Care Group. The Stockholders Agreement further provides that if any Stockholder desires to effect a transfer of Common Shares (other than a transfer in an underwritten public offering pursuant to an effective registration statement under the Act) representing more than 20% of the outstanding 4 5 Common Shares, then the selling Stockholder must make an offer to each Co-Seller to include in the proposed sale a portion of such Co-Seller's Common Shares which represents the same percentage of such Co-Seller's fully diluted Common Shares as the Common Shares being sold by the selling Stockholder represent of its fully diluted Common Shares. This description of the Stockholders Agreement is not and does not purport to be complete and is qualified in its entirety by reference to the Stockholders Agreement. The Stockholders Agreement is included in Ceres' Proxy Statement dated May 28, 1998 as Exhibit D and is incorporated herein by reference. The 75,000 Voting Preferred Shares were sold to United Insurance by Ceres for $7.5 million, or $100.00 per share. The holders of the Voting Preferred Shares will have the right to convert each share into Common Shares at any time and will be obligated to convert all shares by the end of the third year from the date of issuance. The number of Common Shares into which each Voting Preferred Share will be convertible will be determined by dividing the $100 per share purchase price, plus any accrued and unpaid dividends, by the average market price of the Common Shares on July 26, 2000, subject to adjustment. Each holder of the Voting Preferred Shares will be entitled to vote on all matters presented for a vote of Ceres' stockholders, voting together with the Common Shareholders as one class, and will have the number of votes equal to the largest number of whole Common Shares into which the holders' Voting Preferred Shares can then be converted. The holders of the Voting Preferred Shares will also be entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the Common Shares at the rate of 10% per year and such dividends will be payable annually in additional Voting Preferred Shares. All dividends payable on the Voting Preferred Shares must be paid in order for Ceres to declare or pay any dividend on the Common Shares or for Ceres to repurchase or redeem any Common Shares. If at any time Ceres issues or sells any of its equity securities in a single or continuous offering for more than $20 million, then Ceres must repurchase all of the outstanding Voting Preferred Shares for $100 per share, plus any accrued and unpaid dividends. Ceres may redeem all or any part of the Voting Preferred Shares equal to the following percentage sum of the aggregate amount of shares multiplied by $100, plus any accrued and unpaid dividends: July 26, 2001 - 120%; July 26, 2002 - 115%; and July 26, 2003 - 110%. However, the holders of the Voting Preferred Shares have the right to convert at any time up to 20 days prior to the date of repurchase or redemption. This description of the Voting Preferred Shares is not and does not purport to be complete and is qualified in its entirety by reference to the terms of the Voting Preferred Shares as described in the Certificate of Amendment to Ceres' Certificate of Incorporation. The Certificate of Amendment is attached to this Form 8-K as Exhibit 3.1 and is incorporated herein by reference. All of the Voting Preferred Shares purchased by United Insurance are subject to the United Registration Rights Agreement, dated as of July 26, 2000, between Ceres and United Insurance (the "United Registration Rights Agreement"). Pursuant to the United Registration Rights Agreement, beginning three years from the date of the agreement, the holders of all, but not less than all, of the Common Shares issued upon conversion of the Voting Preferred Shares may request "Demand Registration" whereby Ceres is obligated to use its best efforts to cause all, but not less than all, of the Common Shares issued upon conversion of the Voting Preferred Shares to be registered. Beginning one year from the date of the United Registration Rights Agreement, United Insurance will also 5 6 have "Piggyback Registration" rights, whereby if Ceres proposes to register any of its Common Shares in a public offering, it will use its best efforts to register any shares subject to the United Registration Rights Agreement. The holders of the Voting Preferred Shares will rank the same as the holders of the Common Shares subject to the Amended and Restated Registration Rights Agreement. This description of the United Registration Rights Agreement is not and does not purport to be complete and is qualified in its entirety by reference to the United Registration Rights Agreement. The United Registration Rights Agreement is attached to this Form 8-K as Exhibit 4.4 and is incorporated herein by reference. ITEM 5. OTHER EVENTS. On July 25, 2000, Ceres filed a Certificate of Amendment of its Certificate of Incorporation with the Delaware Secretary of State, increasing the number of authorized Common Shares from 30.0 million to 50.0 million and authorizing the issuance of up to 100,000 Voting Preferred Shares. Ceres' stockholders approved these amendments on June 27, 2000 and April 14, 2000, respectively. Terms of the Voting Preferred Shares are described under Item 2 above. The Certificate of Amendment to the Certificate of Incorporation is attached to this Form 8-K as Exhibit 3.1 and is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED. Audited financial statements of Pyramid for the year ended December 31, 1999 will be filed not later than 60 days following the filing of this Form 8-K. (b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial statements of Ceres showing the effect of the acquisition of Pyramid will be filed not later than 60 days following the filing of this Form 8-K. (c) EXHIBITS. 2.1 Purchase Agreement dated October 7, 1999, by and between United Insurance Company of America and Ceres Group, Inc. 2.2 Amendment to Purchase Agreement by and between United Insurance Company of America and Ceres Group, Inc. dated as of April 17, 2000 2.3 Amendment No. 2 to Purchase Agreement by and between United Insurance Company of America and Ceres Group, Inc. dated as of July 5, 2000 6 7 3.1 Certificate of Amendment of the Certificate of Incorporation of Ceres Group, Inc. dated July 25, 2000 4.1 Amended and Restated Registration Rights Agreement dated as of July 25, 2000 between Ceres Group, Inc. (as successor-in-interest to Central Reserve Life Corporation) and the persons and entities set forth on the signature pages attached thereto 4.2 Amended and Restated Voting Agreement dated as of July 25, 2000 by and among Ceres Group, Inc. (as successor-in-interest to Central Reserve Life Corporation) and the security holders listed on the signature pages thereof 4.3 Form of Stockholders Agreement by and among Ceres Group, Inc. (as successor-in- interest to Central Reserve Life Corporation) and the security holders listed on the signature pages thereof (Incorporated by reference to Exhibit D to Ceres' Proxy Statement on Schedule 14A as filed with the Securities and Exchange Commission on May 26, 1998 (Reg. No. 000-08483)) 4.4 United Registration Rights Agreement dated as of July 26, 2000 between Ceres Group, Inc. and United Insurance Company of America 10.1 Credit Agreement, dated as of February 17, 1999, among Ceres Group, Inc., the lending institutions listed from time to time on Annex I thereto and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Ceres' Form 8-K as filed with the Securities and Exchange Commission on March 4, 1999 (Reg. No. 000-08483)) 10.2 First Amendment to the Credit Agreement, dated as of May 3, 1999, among Ceres Group, Inc., the lending institutions party to the Credit Agreement and The Chase Manhattan Bank, as Administrative Agent 10.3 Second Amendment to Credit Agreement, dated as of July 25, 2000, among Ceres Group, Inc., the lending institutions party to the Credit Agreement and The Chase Manhattan Bank, as Administrative Agent 7 8 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 9, 2000 CERES GROUP, INC. By: /s/ Charles E. Miller, Jr. ------------------------------ Chief Financial Officer 8 9 EXHIBITS Exhibit No. Exhibit ----------- ------- 2.1 Purchase Agreement dated October 7, 1999, by and between United Insurance Company of America and Ceres Group, Inc. 2.2 Amendment to Purchase Agreement by and between United Insurance Company of America and Ceres Group, Inc. as of dated April 17, 2000 2.3 Amendment No. 2 to Purchase Agreement by and between United Insurance Company of America and Ceres Group, Inc. dated as of July 5, 2000 3.1 Certificate of Amendment of the Certificate of Incorporation of Ceres Group, Inc. dated July 25, 2000 4.1 Amended and Restated Registration Rights Agreement dated as of July 25, 2000 between Ceres Group, Inc. (as successor-in-interest to Central Reserve Life Corporation) and the persons and entities set forth on the signature pages attached thereto 4.2 Amended and Restated Voting Agreement dated as of July 25, 2000 by and among Ceres Group, Inc. (as successor-in-interest to Central Reserve Life Corporation) and the security holders listed on the signature pages thereof 4.3 Form of Stockholders Agreement by and among Ceres Group, Inc. (as successor-in-interest to Central Reserve Life Corporation) and the security holders listed on the signature pages thereof (Incorporated by reference to Exhibit D to Ceres' Proxy Statement on Schedule 14A as filed with the Securities and Exchange Commission on May 26, 1998 (Reg. No. 000- 08483)) 4.4 United Registration Rights Agreement dated as of July 26, 2000 between Ceres Group, Inc. and United Insurance Company of America 10.1 Credit Agreement, dated as of February 17, 1999, among Ceres Group, Inc., the lending institutions listed from time to time on Annex I thereto and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Ceres' Form 8-K as filed with the Securities and Exchange Commission on March 4, 1999 (Reg. No. 000-08483)) 10.2 First Amendment to the Credit Agreement, dated as of May 3, 1999, among 9 10 Ceres Group, Inc., the lending institutions party to the Credit Agreement and The Chase Manhattan Bank, as Administrative Agent 10.3 Second Amendment to Credit Agreement, dated as of July 25, 2000, among Ceres Group, Inc., the lending institutions party to the Credit Agreement and The Chase Manhattan Bank, as Administrative Agent 10 EX-2.1 2 ex2-1.txt EXHIBIT 2.1 1 EXHIBIT 2.1 ----------- PURCHASE AGREEMENT PURCHASE AGREEMENT, dated as of October 7, 1999 (the "Agreement"), by and between United Insurance Company of America, an Illinois insurance company ("Seller"), and Ceres Group, Inc., a Delaware corporation ("Purchaser"). WHEREAS, except for directors' qualifying shares, Seller is the owner of all of the outstanding shares of capital stock of The Pyramid Life Insurance Company, a Kansas stock insurance company ("Pyramid") all of such outstanding shares (including directors' qualifying shares) being referred to herein as the Shares; and WHEREAS, Purchaser desires to purchase, and Seller desires to sell or cause to be sold to Purchaser, all of the Shares of Pyramid, subject to the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows: ARTICLE I PURCHASE AND SALE SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as hereinafter defined): (a) Seller shall sell, assign, transfer and deliver to Purchaser, and Purchaser shall purchase from Seller, all Shares held by Seller, and (b) Seller shall cause all directors of Pyramid holding directors' qualifying Shares to deliver to Purchaser certificates evidencing all such Shares, duly endorsed in blank or with accompanying stock powers duly executed in blank, in each case free and clear of all options, pledges, security interests, liens or other encumbrances or restrictions on voting or transfer ("Encumbrances"), other than restrictions imposed by Federal or state securities laws, the insurance laws of the State of Kansas and by Pyramid's articles of incorporation and by-laws in the case of the directors' qualifying Shares. Upon completion of the Closing, Purchaser shall own all of the Shares. SECTION 1.2 PURCHASE PRICE. On the Closing Date (as hereinafter defined) and subject to the terms and conditions set forth in this Agreement, in reliance on the representations, warranties, covenants and agreements of the parties contained herein and in consideration of the sale, assignment, transfer and delivery of the Shares, Purchaser shall pay to Seller an amount equal to $67,500,000 less the Pre-Closing Dividend amount paid to Seller by Pyramid immediately prior to Closing as contemplated by Section 6.2(h) below (the "Purchase Price") by wire transfer of immediately available funds to an account or accounts designated by Seller. 1 2 SECTION 1.3 CLOSING. (a) The sale and purchase of the Shares contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Seller in Chicago, Illinois on a date not later than the second business day following the satisfaction or waiver of all conditions to the obligations of the parties set forth in Article VI hereof or at such other place or at such other time or on such other date as Seller and Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date"). (b) At the Closing, Seller shall deliver or cause to be delivered to Purchaser: (i) stock certificates evidencing all Shares (including directors' qualifying Shares) duly endorsed in blank or accompanied by stock powers duly executed in blank, and (ii) all other previously undelivered certificates and other documents required to be delivered by Seller to Purchaser at or prior to the Closing Date in connection with the transactions contemplated hereby. (c) At the Closing, Purchaser shall deliver to Seller: (i) the Purchase Price by wire transfer in immediately available funds to an account or accounts designated by Seller, and (ii) all other previously undelivered certificates and other documents required to be delivered by Purchaser to Seller at or prior to the Closing Date in connection with the transactions contemplated hereby. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER Seller represents and warrants to Purchaser, at and as of the date hereof and again at and as of the Closing Date, as follows: SECTION 2.1 ORGANIZATION. (a) Pyramid is a stock insurance corporation duly organized, validly existing and in good standing under the laws of the State of Kansas and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, except where failure to be so organized, existing and in good standing or to have such power and authority would not have a Pyramid Material Adverse Effect (as hereinafter defined). Pyramid is duly qualified or licensed to do business and is in good standing in each jurisdiction listed in Section 2.1 of the written schedule delivered by Seller to Purchaser at or prior to the execution of this Agreement and attached hereto (the "Disclosure Schedule"). Pyramid transacts no business directly or indirectly in any jurisdiction other than those enumerated in Section 2.1 of the Disclosure Schedule, except where the failure to be so licensed or qualified would not have a Pyramid Material Adverse Effect. As used in this Agreement, "Pyramid Material Adverse Effect" means any material adverse change in, or material adverse effect on, the business, assets, financial condition or operations of Pyramid, taken as a whole; PROVIDED, HOWEVER, that, the effects of changes that arise from or are generally applicable to the life and health insurance markets in which Pyramid operates or the United States economy, shall in each case be excluded 2 3 from the determination of a Pyramid Material Adverse Effect; and PROVIDED, FURTHER, that any adverse effect on Pyramid resulting from the execution of this Agreement and the announcement of this Agreement and the transactions contemplated hereby shall also be excluded from the determination of a Pyramid Material Adverse Effect. (b) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois. Seller has all corporate power and authority to own the Shares, to carry on its business as it is now being conducted, and to enter into and carry out its obligations under this Agreement. SECTION 2.2 CAPITALIZATION/SUBSIDIARIES. (a) Section 2.2 of the Disclosure Schedule sets forth the authorized, issued and outstanding capital stock of Pyramid. Each of the outstanding shares of capital stock of Pyramid is duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights. The Shares constitute all of the issued and outstanding capital stock of Pyramid. There are no existing (i) options, warrants, calls, subscriptions or other rights, convertible securities, agreements or commitments of any character obligating Seller or Pyramid or any Pyramid director owning qualifying Shares to issue, transfer or sell any shares of capital stock or other equity interest in Pyramid or securities convertible into or exchangeable for such shares or equity interests, (ii) contractual obligations of Pyramid to repurchase, redeem or otherwise acquire any capital stock of Pyramid, or (iii) voting trusts or similar agreements to which Seller or Pyramid or any Pyramid director owning qualifying Shares is a party with respect to the voting of the capital stock of Pyramid. (b) Pyramid has no subsidiaries. Pyramid is not a partner, shareholder or joint venturer in any entity, except to the extent related to the investment activities of Pyramid in the ordinary course of business as disclosed in Pyramid's statutory financial statements described in Section 2.6 of this Agreement. SECTION 2.3 OWNERSHIP OF STOCK. Seller has all corporate power, right and authority to own the Shares. Seller has good title to the Shares (except the qualifying directors' Shares). The Shares are owned by Seller (or, in the case of directors' qualifying Shares, by Pyramid's directors) free and clear of all Encumbrances, other than restrictions imposed by Federal and state securities laws, the insurance laws of the State of Kansas and by Pyramid's articles of incorporation and by-laws in the case of directors' qualifying Shares. Upon the consummation of the transactions contemplated hereby, Purchaser will acquire title to the Shares, free and clear of all Encumbrances, other than restrictions noted in the preceding sentence. The certificates representing the Shares do not contain any restrictive legend or reference to any agreement. SECTION 2.4 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has full power and authority to execute and deliver this Agreement and, except for delivery of directors' qualifying Shares, to consummate the transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement, and the consummation by it of the transactions contemplated hereby, 3 4 has been duly authorized by all necessary corporate action, and no other corporate action on the part of Seller is necessary to authorize the execution and delivery by Seller of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller and (assuming due and valid authorization, execution and delivery hereof by Purchaser) is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. SECTION 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for: (a) filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (b) matters specifically described in Section 2.5 of the Disclosure Schedule, neither the execution, delivery or performance of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will require on the part of Seller or Pyramid any filing or registration with, notification to, or authorization, consent or approval of, any court, legislative, executive or regulatory authority or government agency (a "Governmental Entity"); except for such filings, registrations, notifications, authorizations, consents or approvals the failure of which to obtain would not have a Pyramid Material Adverse Effect and would not materially adversely affect the ability of Seller to consummate the transactions contemplated by this Agreement. Except as disclosed in Section 2.5 of the Disclosure Schedule, neither the execution, delivery or performance of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will: (i) violate any provision of the articles of incorporation or by-laws of Seller or Pyramid, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Seller or Pyramid is a party or by which their properties or assets may be bound, or (iii) violate any order, writ, judgment, injunction, decree, law, statute, rule or regulation applicable to Seller or Pyramid or any of their properties or assets, except in each case for such violations, breaches or defaults as would not have a Pyramid Material Adverse Effect and would not materially adversely affect the ability of Seller to consummate the transactions contemplated by this Agreement. SECTION 2.6 FINANCIAL STATEMENTS. (a) Seller has delivered to Purchaser copies of audited statutory financial statements of Pyramid as of and for the years ended December 31, 1997 and 1998, and unaudited financial statements as of and for the quarters ended March 31, 1999 and June 30, 1999 as filed with the Kansas Insurance Department (collectively, the "SAP Financial Statements"). The SAP Financial Statements were prepared in conformity with accounting practices prescribed or permitted by the State of Kansas ("SAP"). Each of the balance sheets included in the SAP Financial Statements fairly presents in all material respects the financial position of Pyramid as of its date, and each of the statements of operations included in the SAP Financial Statements 4 5 fairly presents in all material respects the results of operations of Pyramid for the period therein set forth, in each case in accordance with SAP. Each of the SAP Financial Statements (i) was timely filed with the insurance regulatory authorities in each of the jurisdictions listed in Section 2.1 of the Disclosure Schedule, and (ii) were true, complete and correct in all material respects when and as filed. All Assessments (as hereinafter defined) against Pyramid that relate to events occurring or business done prior to the Closing Date have been paid or properly reserved on the books and records of Pyramid. The amounts reserved by Pyramid for any estimated Assessments that have not been finalized and satisfied have been computed in all material respects in accordance with SAP and sound reserving practices, consistently applied; PROVIDED that the foregoing representation does not and is not intended to constitute in any way a representation or guaranty as to the adequacy or sufficiency of such reserves. For purposes of this Agreement, the term "Assessments" means all guaranty fund and other residual market assessments required by any Governmental Entity to be paid by Pyramid. (b) Notwithstanding any other provision of this Agreement (including Sections 2.6, 2.7 and 2.17), Seller makes no representation or warranty that the insurance reserves of Pyramid for future insurance policy benefits, losses, claims and expenses are adequate or sufficient and nothing in this Agreement is intended to, or shall be construed to, provide a guaranty of the adequacy or sufficiency of such reserves as shown in the SAP Financial Statements. SECTION 2.7 NO UNDISCLOSED LIABILITIES. As of June 30, 1999, Pyramid had no material liabilities or obligations except: (a) as disclosed in Section 2.7 of the Disclosure Schedule, (b) liabilities and obligations reflected in the interim unaudited balance sheet of Pyramid as of June 30, 1999 included in the SAP Financial Statement for the quarter then ended, and (c) liabilities and obligations incurred in the ordinary course of business that are not required to be reflected in a balance sheet prepared in accordance with SAP (assuming the same application of SAP as was used in preparing the SAP Financial Statements) and that would not, individually or collectively, have a Pyramid Material Adverse Effect. SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Except as: (a) disclosed in the SAP Financial Statements, (b) disclosed in Section 2.8 of the Disclosure Schedule, or (c) contemplated by this Agreement, since June 30, 1999, Pyramid has not: (i) suffered any change constituting a Pyramid Material Adverse Effect; (ii) amended its articles of incorporation or by- laws; (iii) split, combined or reclassified the Shares or issued additional Shares; (iv) declared or set aside or paid any dividend or other distribution with respect to the Shares, (v) made any material changes in the compensation or benefits of Pyramid's employees other than changes made in the ordinary course of business, or (vi) materially changed its accounting principles, practices or methods, except as required by SAP or applicable law. SECTION 2.9 EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 2.9(a) of the Disclosure Schedule sets forth a list of all material employee benefit plans, programs and agreements, (including but not limited to plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), maintained, 5 6 participated in, contributed to, or obligated to be contributed to by Pyramid, or by any trade or business, whether or not incorporated , which together with Pyramid, would be deemed a single employer within the meaning of Section 4001(b)(1) of ERISA (an "ERISA Affiliate") for the benefit of employees of Pyramid ("Benefit Plans"). (b) With respect to each Benefit Plan, Seller has made available to Purchaser complete copies of all existing plan documents (including all amendments thereto) and, where applicable, the most recent summary plan description, all other material employee communications and the most recent Internal Revenue Service determination letter, if any, relating to such Benefit Plan. (c) Each Benefit Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including, without limitation, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), except where the failure to so administer such plan would not reasonably be expected to have a Pyramid Material Adverse Effect. (d) Except as disclosed in Section 2.9(d) of the Disclosure Schedule, neither Pyramid nor any ERISA Affiliate sponsors or contributes to, and has not within the six (6) years preceding the Closing, sponsored or contributed to or has had an obligation to contribute to a "multiemployer plan," as defined in Section 3(37) of ERISA, and no Benefit Plan provides medical or death benefits with respect to current or former employees of Pyramid beyond their termination of employment other than (i) to the extent required by applicable law, (ii) death benefits under any "pension plan" (as defined in Section 3(2) of ERISA) or (iii) benefits the full cost of which is borne by the current or former employees (or their beneficiaries). Neither Pyramid nor any ERISA Affiliate maintains, has established, or has participated in within the six (6) years preceding the Closing, a "multiple employer welfare arrangement," as defined in Section 3(40)(A) of ERISA. (e) As of the last valuation date prior to the date hereof, the market value of assets under each Benefit Plan which is subject to Title IV of ERISA (other than any multiemployer plan) is not less than the present value of all liabilities thereunder determined for purposes of the minimum funding requirements of Section 412 of the Code and Statement of Financial Accounting Standards No. 87. SECTION 2.10 LITIGATION. Any and all litigation, actions, suits and proceedings involving Pyramid as of the date of this Agreement are listed in Section 2.10 of the Disclosure Schedule. Except as disclosed in Section 2.10 of the Disclosure Schedule, as of the date of this Agreement there is no action, suit or proceeding pending or, to the knowledge of Seller or Pyramid, threatened, involving Seller or any of Seller's affiliates (as hereinafter defined) by or before any arbitrator or Governmental Entity or by any third party that (i) challenges the validity of or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement or (ii) is reasonably likely to have a Pyramid Material Adverse Effect. As used in this Agreement, an "affiliate" of, or a person "affiliated" with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is 6 7 under common control with, the person specified. For purposes of the foregoing definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. SECTION 2.11 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. (a) Pyramid is not in default or violation of any term, condition or provision of: (i) its articles of incorporation or by-laws; (ii) any of its Material Agreements (as hereinafter defined); (iii) any statute, law, rule, regulation, judgment, decree, order, arbitration award, or Permit (as hereinafter defined) applicable to Pyramid including, without limitation, laws, rules and regulations relating to the environment, occupational health and safety, employee benefits, wages, workplace safety, equal employment opportunity and race, religious or sex discrimination, excluding from the foregoing clauses (ii) and (iii), defaults or violations which would not reasonably be expected to have a Pyramid Material Adverse Effect. Except as set forth in Section 2.11(a) of the Disclosure Schedule, Pyramid has not received any written notice from any Governmental Entity alleging any violation of the type described in clause (iii) above or directing Pyramid to take any remedial action, in any case which has not been settled or otherwise finally resolved or which would reasonably be expected to have a Pyramid Material Adverse Effect. (b) Pyramid has been duly authorized by all applicable state insurance regulatory authorities to issue the insurance policies that it is currently writing in the respective states in which it conducts its business, except for authorizations the failure to have which would not, individually or in the aggregate, have a Pyramid Material Adverse Effect. Pyramid has all other material licenses, permits, consents, approvals and authorizations of any Governmental Entity ("Permits") necessary to conduct its business in the manner and in the jurisdictions in which it is presently being conducted, and all such Permits are valid and in full force and effect, except where the failure to have such a Permit or the invalidity or ineffectiveness thereof would not, individually or in the aggregate, have a Pyramid Material Adverse Effect. SECTION 2.12 TAXES. Except as disclosed in Section 2.12 of the Disclosure Schedule: (a) Pyramid has: (i) timely filed or caused to be filed all Tax Returns (as hereinafter defined) required to be filed by it for all fiscal periods ended before the Closing Date, and all such returns were true, correct and complete in all material respects when filed, and (ii) paid or accrued (in accordance with SAP) all Taxes (as hereinafter defined) shown to be due on such Tax Returns other than such Taxes that are being contested in good faith by Pyramid. 7 8 (b) There are no ongoing federal, state, local or foreign audits or examinations of any Tax Return of Pyramid or any consolidated Tax Return in which Pyramid has joined. (c) There are no outstanding written requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against Pyramid and no written notice of any claim for Taxes, whether pending or threatened, has been received. (d) Pyramid is not a party to any agreement providing for the allocation or sharing of Taxes and is not otherwise liable or obligated to indemnify any person or entity with respect to any Taxes. (e) There are no liens for Taxes upon the assets of Pyramid which are not provided for in the SAP Financial Statements. (f) "Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, gross income, net income, gross receipts, premium, privilege, excise, real or personal property, sales, withholding, employment, unemployment, social security, occupation, use, service, service use, value added, license, net worth, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the United States Internal Revenue Service or any taxing authority (including, without limitation, any state or local government or any subdivision or taxing agency thereof), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes. SECTION 2.13 PROPERTIES USED IN BUSINESS. Pyramid has sufficient title, leaseholds or rights to all real and tangible personal property used by it to conduct its business as currently conducted in all material respects. Section 2.13 of the Disclosure Schedule lists all real property owned or leased by Pyramid (the "Real Property"). All tangible personal property used by Pyramid in conducting its business has been adequately maintained for its continued use, reasonable wear and tear excepted. With respect to the Real Property: (a) there is no pending condemnation or similar proceeding affecting the Real Property or any portion thereof, and Pyramid has not received any written notice, and has no knowledge, that any such proceeding is contemplated; (b) except as disclosed in Section 2.13 of the Disclosure Schedule, there are no Material Agreements (as defined in Section 2.15 below) which affect any portion of the Real Property. With respect to any such contract, following Purchaser's written request delivered to Seller, 8 9 Seller shall, and shall cause Pyramid to, use its reasonable best efforts to cancel the contract or cause it to be so amended that it may be unilaterally cancelled by Purchaser after Closing upon not more than 30 days' written notice without penalty to Purchaser; (c) except as disclosed in Section 2.13 of the Disclosure Schedule, no work has been performed or is in progress by Pyramid at, and no materials have been furnished to, the Real Property which would give rise to any material Encumbrances against the Real Property; (d) except as disclosed in Section 2.13 of the Disclosure Schedule, there are no parties in possession of the Real Property or any part thereof other than Pyramid, and no party has been granted any license, lease or other right relating to the use or possession of the Real Property; (e) to Seller's and Pyramid's knowledge, there are no violations of any federal, state, county or municipal law, ordinance, order, regulation or requirement affecting any portion of the Real Property, and no written notice of any such violation has been received by Pyramid from any Governmental Entity, except for any such violations which would not reasonably be expected to have a Pyramid Material Adverse Effect; and (f) the Real Property is currently zoned for its current use and Pyramid has received no notice of any alleged zoning violations. SECTION 2.14 INTELLECTUAL PROPERTY. Pyramid did not and does not utilize any patent, trademark, tradename, service mark, copyright, trade secret, know-how, or software material to Pyramid's operations as currently conducted except for those listed on Section 2.14 of the Disclosure Schedule (the "Pyramid Intellectual Property"), all of which are either owned or properly licensed by Pyramid and, in the case of Pyramid Intellectual Property owned by Pyramid, such ownership is free and clear of any and all Encumbrances. To the knowledge of Seller and Pyramid, Pyramid does not infringe upon or unlawfully or wrongfully use any patent, trademark, tradename, service mark, copyright or trade secret owned or claimed by another. Pyramid is not in default under, and has not received any notice of any claim of infringement or any other claim or proceeding relating to any such patent, trademark, tradename, service mark, copyright, or trade secret. To the knowledge of Seller and Pyramid, no present or former employee of Pyramid and no other person owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part, in any patent, trademark, tradename, service mark or copyright, or in any application therefor, or in any trade secret, which Pyramid owns, possesses or uses in its operations as now or heretofore conducted. Section 2.14 of the Disclosure Schedule lists all material confidentiality or non-disclosure agreements to which Pyramid or any of Pyramid's employees is a party which relates to the business or operations of Pyramid. Pyramid has such ownership of or such rights by license, lease or other agreement to the Pyramid Intellectual Property as is necessary to permit it to conduct its business as currently conducted, except where the failure to have such rights would not have a Pyramid Material Adverse Effect. SECTION 2.15 CONTRACTS. Seller has delivered or made available to Purchaser or will make available to Purchaser during the On-Site Period (as defined in Section 4.2) copies of all 9 10 written Material Agreements (as hereinafter defined). Except as set forth in Section 2.15 of the Disclosure Schedule, each Material Agreement is in full force and effect and, to the knowledge of Seller and Pyramid, is valid and enforceable by Pyramid in accordance with its terms. Except as set forth in Section 2.15 of the Disclosure Schedule, Pyramid is not in default in the observance or the performance of any term or obligation to be performed by it under any Material Agreement except for such defaults the effect of which, individually or in the aggregate, would not have a Pyramid Material Adverse Effect. To the knowledge of Seller and Pyramid, no other person is in default in the observance or the performance of any term or obligation to be performed by it under any Material Agreement. As used in this Agreement, "Material Agreement" shall mean each agreement, arrangement, instrument, bond, commitment, franchise, indemnity, indenture, lease, license or understanding to which Pyramid is a party or to which any of its properties is subject, that: (i) obligates Pyramid to pay an amount in excess of $75,000 in any twelve-month period beginning after December 31, 1998; (ii) provides for the extension of credit by or to Pyramid in excess of $75,000; (iii) provides for a guaranty by Pyramid of obligations of others in excess of $75,000; (iv) constitutes an employment agreement, severance agreement or personal service contract not terminable on less than sixty (60) days' notice without penalty; (v) constitutes a reinsurance agreement or treaty under which Pyramid is a reinsured or is the reinsurer, or (vi) expressly limits, in any material respect, the ability of Pyramid to engage in any line of business, compete with any person or expand the nature or geographic scope of its business. Notwithstanding the foregoing, the term "Material Agreement" does not include insurance policies issued by, or agreements with insurance agents and brokers entered into by, Pyramid in the ordinary course of business. SECTION 2.16 LABOR MATTERS. Pyramid is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, and there is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of Seller or Pyramid, threatened against Pyramid. SECTION 2.17 RESERVES. All insurance reserves reflected in the SAP Financial Statements have been computed in all material respects in accordance with SAP and in accordance with sound loss reserving principles, consistently applied; PROVIDED that the foregoing representation does not and is not intended to constitute in any way a representation or guaranty as to the adequacy or sufficiency of the insurance reserves of Pyramid. SECTION 2.18 INSURANCE PRODUCERS. Section 2.18 of the Disclosure sets forth a summary description of the compensation arrangements in place on the date of this Agreement with Pyramid's insurance agents, managers, brokers and other producers, which summary is true and complete in all material respects. Seller has provided to Purchaser copies of each form of agreement in place on the date of this Agreement between Pyramid and its insurance producers. SECTION 2.19 CERTIFICATES OF AUTHORITY. Section 2.19 of the Disclosure Schedule lists all active licenses (including, without limitation, licenses and Certificates of Authority from insurance regulatory authorities ), permits or authorizations to transact the business of insurance (the "Certificates of Authority," and each a "Certificate of Authority"), and sets forth the lines of 10 11 insurance which are permitted to be written with respect to each such Certificate of Authority. Except as otherwise described in Section 2.19 of the Disclosure Schedule, no Certificate of Authority identified in such Schedule has been revoked, restricted, suspended, limited or modified nor is any Certificate of Authority the subject of, nor to the knowledge of Seller or Pyramid is there a reasonable basis for, a proceeding for revocation, restriction, suspension, limitation or modification, nor, to the knowledge of Seller or Pyramid, has any such proceeding been threatened by any licensing authority, nor is Pyramid operating under any formal or informal agreement or understanding with any insurance regulatory authority which restricts its authority to do business or to take, or refrain from taking, any action. SECTION 2.20 RELATED PARTY TRANSACTIONS. Except as disclosed in Section 2.20 of the Disclosure Schedule, Pyramid has made no loans to any of its officers, directors or employees or the officers, directors or employees of any affiliate (as defined in Section 2.10) of Pyramid which remain outstanding nor has Pyramid entered into any contract, commitment or understanding with Seller or any affiliate of Seller for the purchase or sale of property or services or reinsurance from or to Seller or any affiliate of Seller or any such director, officer or employee. SECTION 2.21 YEAR 2000 READINESS. (a) "Year 2000 Problem" shall mean the failure of computer hardware, software or equipment containing embedded microchips used by Pyramid in the operation of its business (collectively, "Systems") to process dates or time periods occurring after December 31, 1999 at least as effectively and reliably as such Systems process dates or time periods occurring before January 1, 2000, including the making of leap year calculations. (b) Seller has reviewed Pyramid's operations with a view towards assessing whether its Systems are vulnerable to a Year 2000 Problem. Seller has taken all actions necessary and committed resources adequate to assure that Pyramid's Systems are free of Year 2000 Problems that could cause a Pyramid Material Adverse Effect. Seller has a reasonable basis to believe that no Year 2000 Problem will cause a Pyramid Material Adverse Effect. Pyramid has inquired of its principal suppliers as to the Year 2000 readiness of such suppliers and has made or will make available to Purchaser copies of any written responses received from such suppliers regarding their readiness; provided that, nothing herein shall be construed as a representation or warranty by Seller or Pyramid as to the Year 2000 readiness of any such supplier. SECTION 2.22 BROKERS OR FINDERS. Neither Seller nor Pyramid has retained or engaged any agent, broker, finder, investment banker, financial advisor or other similar firm or person in connection with any of the transactions contemplated by this Agreement. 11 12 SECTION 2.23 INSURANCE; REINSURANCE; CLAIMS AND SERVICE AGREEMENTS. (a) Section 2.23(a) of the Disclosure Schedule contains a complete and correct list of all types of insurance policy products material to Pyramid's current operations issued by Pyramid on or after January 1, 1994 and currently in force or currently issuable by Pyramid. Seller has made or will make available to Purchaser complete and correct copies of all forms of insurance policy products material to Pyramid's current operations together with all forms of endorsements used in connection with such forms. (b) Section 2.23(b) of the Disclosure Schedule contains a complete and correct list of all reinsurance agreements to which Pyramid is a party. Copies of all such reinsurance agreements have been or will be made available to Purchaser. (c) Section 2.23(c) of the Disclosure Schedule contains a complete and correct list of all claims and service administration agreements to which Pyramid is a party. Copies of all such claims and service administration agreements have been or will be made available to Purchaser. (d) No default of or breach by Pyramid or, to the knowledge of Seller and Pyramid, by any other party under any such reinsurance agreement or claims and service administration agreement has occurred and, to the knowledge of Seller and Pyramid, no basis currently exists for the declaration of any default or termination right thereunder, except for agreements that, prior to the Closing Date, have or will have expired by their terms or have been terminated in accordance with this Agreement, and, to the knowledge of Seller and Pyramid, each party to such reinsurance agreement was, at the date each reinsurance agreement was executed and delivered, and is currently solvent and financially capable of fulfilling its obligation thereunder. (e) Pyramid has not written any insurance policy or coverage that does not comply in all material respects with any terms and conditions set forth for such insurance in the reinsurance agreement or agreements, if any, pursuant to which such policy or coverage is reinsured. Pyramid has not written any insurance policy or coverage that has not been reinsured, at least in part, pursuant to a reinsurance agreement identified in Section 2.23(b) of the Disclosure Schedule, except where the failure to so reinsure would not have a Pyramid Material Adverse Effect. SECTION 2.24 ENVIRONMENTAL MATTERS. Except as disclosed in Section 2.24 of the Disclosure Schedule, Pyramid has conducted and is conducting its business in compliance in all material respects with all applicable federal, state and local laws, regulations and requirements currently in force relating to the protection of the environment ("Environmental Laws") and there is no pending, or to the knowledge of Seller, threatened, civil or criminal litigation, written notice of violation, or administrative proceeding relating to such Environmental Laws involving Pyramid which would reasonably be expected to have a Pyramid Material Adverse Effect. There is no condition existing with respect to the release, emission, discharge or presence of hazardous substances in connection with the business of Pyramid or any of the properties currently or previously owned by Pyramid which would have a Pyramid Material Adverse Effect. Pyramid 12 13 has received all approvals, consents, licenses, and permits with respect to environmental matters necessary to carry on its business substantially as currently conducted, other that any such approvals, consents, licenses or permits the failure of which to receive would not, individually or in the aggregate, have a Pyramid Material Adverse Effect. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to Seller, at and as of the date hereof and again at and as of the Closing Date, as follows: SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. Purchaser has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Purchaser of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate proceedings, and no other corporate action on the part of Purchaser or its shareholders is necessary to authorize the execution and delivery by Purchaser of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser (and assuming due and valid authorization, execution and delivery hereof by Seller) is a valid and binding obligation of Purchaser enforceable against it in accordance with its terms, except that: (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for: (a) filings pursuant to the HSR Act, (b) approvals or consents of Governmental Entities under insurance holding company laws of the State of Kansas, (c) filings of such pre-acquisition notifications as may be required in certain states, and (d) matters specifically described in the written schedule delivered by Purchaser to Seller at or prior to the execution of this Agreement and attached hereto (the "Purchaser's Consent Schedule"), neither the execution, delivery or performance of this Agreement by Purchaser nor the consummation by Purchaser of the transactions contemplated hereby will require on the part of Purchaser any filing or registration with, notification to, or authorization, consent or approval of, any Governmental Entity. Except as described in Purchaser's Consent Schedule, neither the execution, delivery or performance of this Agreement by Purchaser nor the consummation by Purchaser of the transactions contemplated hereby will: (i) violate any provision of the articles of incorporation or by-laws of Purchaser; (ii) result in a violation or breach of, or constitute (with or without due notice or lapse 13 14 of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation that is material to Purchaser and to which Purchaser is a party or by which its properties or assets may be bound; (iii) violate any order, writ, judgment, injunction, decree, law, statute, rule or regulation applicable to Purchaser or any of its properties or assets; or (iv) except in the case of clauses (ii) and (iii) for such violations, breaches or defaults which, or filings, registrations, notifications, authorizations, consents or approvals the failure of which to obtain which would not materially adversely affect the ability of Purchaser to consummate the transactions contemplated by this Agreement. SECTION 3.4 ACQUISITION FOR INVESTMENT. Purchaser is acquiring the Shares solely for its own account and not with a view to any distribution or other disposition of such Shares, and the Shares will not be transferred except in a transaction registered or exempt from registration under the Securities Act of 1933, as amended. SECTION 3.5 FINANCING. Purchaser has sufficient funds available to it to finance the purchase of the Shares as contemplated by this Agreement. SECTION 3.6 BROKERS OR FINDERS. Neither Purchaser or any of its subsidiaries or affiliates has retained or engaged any agent, broker, finder, investment banker, financial advisor or other similar firm or person in connection with any of the transactions contemplated by this Agreement, except for Philo Smith & Co., Inc., whose fees and expenses will be paid by Purchaser in accordance with Purchaser's agreement with such firm. SECTION 3.7 EXCLUSIVITY OF SELLER'S REPRESENTATIONS. In entering into this Agreement, Purchaser acknowledges and agrees that: (i) Seller makes no representations or warranties relating in any way to Pyramid or the Shares except as specifically set forth in Article II and the related Disclosure Schedule and neither Seller, Pyramid, nor any of their affiliates, nor any persons acting on their behalf, has made or is authorized to make any other representations or warranties; and (ii) neither Seller, Pyramid nor any of their affiliates shall be liable to Purchaser in contract, tort or otherwise for any information supplied to Purchaser or any statements made to Purchaser except for information or statements contained in Article II and the Disclosure Schedule subject, in each case, to the limitations and requirements for indemnification contained in this Agreement. ARTICLE IV COVENANTS SECTION 4.1 INTERIM OPERATIONS OF PYRAMID. Seller covenants and agrees that, except: (i) as contemplated by this Agreement, (ii) as disclosed in the Disclosure Schedule, or (iii) with the prior written consent of Purchaser, after the date hereof and prior to the Closing Date: (a) the business of Pyramid shall be conducted only in the ordinary and usual course; 14 15 (b) Pyramid will not amend its articles of incorporation or by-laws; (c) Pyramid will not: (i) split, combine or re-classify the Shares; (ii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to the Shares; (iii) issue or sell any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, the Shares; or (iv) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (d) Pyramid will not: (i) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend in any material respect any existing employee benefit plan sponsored by it, except as may be required by applicable law, or (ii) increase any compensation, award or pay any bonuses or enter into or amend any employment, severance, termination or similar agreement with any of its present or future officers, directors or employees, except for normal compensation increases in the ordinary and usual course of business and the payment of cash bonuses to employees pursuant to and consistent with existing plans or practices; (e) except as may be required or contemplated by this Agreement or in the ordinary and usual course of business, Pyramid will not acquire, sell, lease or dispose of any assets which in the aggregate are material to Pyramid; (f) Pyramid will not: (i) incur or assume any long-term or short-term debt or issue any debt securities; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the material obligations of any other person except in the ordinary and usual course of business consistent with past practice in an amount not material to Pyramid; (iii) make any material loans, advances or capital contributions to, or investments in, any other person other than in the ordinary and usual course of business consistent with past practice; (iv) pledge or otherwise encumber the Shares; or (v) mortgage or pledge any of its material assets, tangible or intangible, or create any material Encumbrance of any kind with respect to any such asset; (g) Pyramid will not: (i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any equity interest therein (other than purchases of marketable securities in the ordinary course of business); (ii) authorize or make any new capital expenditures in excess of $50,000 in the aggregate except for those capital expenditures already planned or committed to on the date of this Agreement and which are listed in Section 4.1(g) of the Disclosure Agreement; or (iii) enter into or amend any contract, agreement, commitment or arrangement providing for the taking of any action which would be prohibited hereunder; (h) Pyramid will not adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization; 15 16 (i) Pyramid will not materially change any of the accounting methods used by it unless required by SAP or applicable law; (j) except for the settlement in the ordinary course of its business of claims made under insurance policies issued or assumed by Pyramid, Pyramid will not settle or compromise any claim or litigation, which after insurance reimbursement is material to Pyramid, without the prior written consent of Purchaser, which consent will not be unreasonably withheld; (k) neither Seller nor Pyramid will authorize or enter into an agreement to do any of the foregoing; (l) the Real Property will be reasonably maintained in at least as good a condition and state of repair as existing on the date hereof; (m) Pyramid will not enter into any Material Agreement with respect to the operation or maintenance of any portion of the Real Property; and (n) Pyramid will not create any material Encumbrance with respect to the Real Property in any manner whatsoever. SECTION 4.2 ON-SITE DUE DILIGENCE. Purchaser acknowledges that it has performed a preliminary due diligence review of Pyramid based on documents and other information supplied to Purchaser by Seller's ultimate parent company, Unitrin, Inc. ("Unitrin"). In order to permit Purchaser the opportunity to perform a confirmatory due diligence investigation at Pyramid's offices, for a period of fifteen (15) business days after the date of this Agreement (the "On-Site Period"), Seller shall cause Pyramid to afford Purchaser's officers, employees, accountants, counsel and other authorized representatives full and complete access during normal business hours to Pyramid's offices, employees, properties, contracts, commitments, books and records and to use all reasonable efforts to cause Pyramid's representatives to furnish promptly to Purchaser such additional financial and operating data and other information as to Pyramid's businesses and properties as Purchaser or its duly authorized representatives may from time to time reasonably request; PROVIDED, HOWEVER, that nothing herein shall require Seller or Pyramid to disclose any information to Purchaser if such disclosure would be in violation of applicable laws or regulations of any Governmental Entity. Unless otherwise required by law and until the Closing Date, Purchaser will hold any such information which is nonpublic in confidence in accordance with the provisions of the Confidentiality Agreement between Unitrin and Purchaser, entered into on April 20, 1999 (the "Confidentiality Agreement"). During the On-Site Period, Purchaser shall have reasonable access to the Real Property for the purpose of inspecting the condition of the Real Property. In this connection, Purchaser's inspection rights shall include performing soil tests, environmental tests or audits, structural or mechanical inspections and such other inspections as Purchaser may reasonably require. Seller shall make available to Purchaser (i) copies of the most recent tax statements from all taxing authorities having jurisdiction over the 16 17 Real Property, (ii) copies of all Material Agreements and leases which affect any portion of the Real Property, and (iii) copies of any site plans, surveys, soil studies, and plans and specifications of any kind in Pyramid's possession. At the conclusion of the On-Site Period, unless expressly objected to in a written notice delivered by Purchaser to Seller within five (5) business days after the end of the On-Site Period, Purchaser will be deemed: (i) to have been afforded reasonable access to the books, records, personnel, facilities and other things reasonably related to the Shares and the business and affairs of Pyramid; (ii) to have been given a reasonable opportunity to ask questions relating to the Shares and the business and affairs of Pyramid and to receive answers thereto; and (iii) to be satisfied with the results of its due diligence review of the Shares and the business and affairs of Pyramid. In the event that Purchaser delivers a timely written objection to any of the foregoing to Seller, then the following procedures shall apply. If Purchaser's objection relates to matters described in clauses (i) or (ii) above, then the On-Site Period shall be extended for up to an additional five (5) business days to allow Purchaser to complete its confirmatory due diligence to its reasonable satisfaction. If Purchaser's objection relates to the results of its confirmatory due diligence, Purchaser's sole and exclusive remedy shall be as provided in Section 7.1(d) to the extent applicable. Notwithstanding the foregoing, a reasonable number of days shall be added to the On-Site Period to the extent warranted by the subject matter of any notice given by Seller to Purchaser pursuant to Section 4.7 hereof. SECTION 4.3 TAX MATTERS. (a) TAX RETURNS. Seller shall prepare and file, or cause to be prepared and filed, on a timely basis and in a manner consistent with prior returns, all Tax Returns (and any amendments thereto) of Pyramid for taxable periods ending on or before the Closing Date. Purchaser shall prepare and file, or cause Pyramid to prepare and file, all Tax Returns (and any amendments thereto) for taxable periods ending after the Closing Date. (b) SELLER INDEMNIFICATION. Seller shall be liable for, and shall indemnify and hold Purchaser and/or Pyramid harmless against, all Taxes of Pyramid payable for any taxable year or taxable period ending on or before the Closing Date, but only to the extent such Taxes exceed the amount of Taxes that have been reserved for in the SAP books and records of Pyramid as of the Closing Date. To appropriately apportion any income taxes relating to any taxable year beginning before (and ending after) the Closing Date, the parties hereto shall apportion such income taxes to the taxable period ending on or before the Closing Date by a closing of Pyramid's books consistent with its past practice for reporting items, except that exemptions, allowances or deductions that are calculated on a time basis, such as the deduction for depreciation, shall be apportioned on a time basis. To appropriately apportion any non-income taxes relating to any taxable year beginning before (and ending after) the Closing Date, the parties hereto shall apportion such non-income taxes to the taxable period ending on or before the Closing Date as follows: (w) premium taxes shall be accrued based on statutory premium recorded in the SAP books and records of Pyramid, (x) AD VALOREM Taxes (including, without limitation, real and personal property taxes) shall be accrued on a monthly basis over the period for which such taxes are levied, or if it cannot be determined over the period such taxes are being levied, over the fiscal period of the relevant taxing authority, in each case irrespective of the lien 17 18 or assessment date of such taxes, (y) all Taxes relating to actions outside the ordinary course of business occurring on or after the Closing on the Closing Date shall be apportioned to the period ending after the Closing Date, and (z) franchise and other privilege taxes not measured by income shall be accrued on a monthly basis over the period to which the privilege relates. (c) PURCHASER INDEMNIFICATION. Except as otherwise provided in (a) above, the Purchaser and Pyramid shall be liable for, and shall indemnify and hold Seller and its affiliates harmless against, any and all Taxes imposed on Pyramid relating or apportioned to any taxable year or portion thereof ending after the Closing Date. (d) REFUNDS OR CREDITS. Purchaser or Pyramid shall promptly pay to Seller any refunds or credits (including interest thereon) relating to Taxes for taxable periods ending on or prior to the Closing Date, but only to the extent any such refund or credit exceeds the amount of Taxes that have been recorded in the SAP books and records of Pyramid as of the Closing Date. For purposes of this Section (c), the terms "refund" and "credit" shall include a reduction in Taxes and the use of an overpayment of Taxes as an audit or other Tax offset. Receipt of a refund shall occur upon the filing of a return or an adjustment thereto using such reduction, overpayment or offset, or upon the receipt of cash. Upon the reasonable request of Seller, Purchaser shall prepare and file, or cause to be prepared and filed, all claims for refunds relating to such Taxes; PROVIDED, HOWEVER, that Purchaser shall not be required to file such claims for refund to the extent such claims for refund would have a Pyramid Material Adverse Effect in future periods or to the extent the claims for refund relate to a carryback of an item. Purchaser shall be entitled to all other refunds and credits of Taxes; PROVIDED, HOWEVER, it will not allow the amendment of any Tax Return relating to any Taxes for a period (or portion thereof) ending on or prior to the Closing Date or the carryback of an item to a period ending prior to Closing without Seller's prior written consent. (e) MUTUAL COOPERATION. As soon as practicable, but in any event within 30 days after either Seller's or Purchaser's request, as the case may be, Purchaser shall deliver to Seller or Seller shall deliver to Purchaser, as the case may be, such information and other data relating to the Tax Returns and Taxes of Pyramid and shall provide such other assistance as may reasonably be requested, to cause the completion and filing of all Tax Returns or to respond to audits by any taxing authorities with respect to any Tax Returns or taxable periods or to otherwise enable Seller, Purchaser or Pyramid to satisfy their accounting or Tax requirements. From and after the Closing until the applicable statute of limitations has expired, Purchaser and Seller shall, and shall cause their affiliates to, maintain and make available to the other party, on such other party's reasonable request, copies of any and all information, books and records referred to in this Section 4.3(e). After the applicable statute of limitations has expired (taking into account any agreements with any taxing authorities to extend said period), Purchaser or Seller may dispose of such information, books and records, provided that prior to such disposition, Purchaser or Seller shall give the other party prior written notice of its intent to dispose and the opportunity to take possession of such information, books and records. If Seller is responsible for filing an income tax return which requires the signature of an officer of Pyramid, Seller shall present a completed version of such return for the signature of the officer and shall supply any support for such return 18 19 the officer may reasonably request. Such officer shall sign the return and deliver it to Seller not later than five (5) days after Seller's delivery to such officer of the completed return and any requested support for such return. (f) CONTESTS. Whenever any taxing authority asserts a claim, makes an assessment, or otherwise disputes the amount of Taxes for which Seller is or may be liable under this Agreement, Purchaser shall, if informed of such an assertion, promptly inform Seller, and Seller shall have the right to control any resulting proceedings (at its sole expense) and to determine whether and when to settle any such claim, assessment or dispute to the extent such proceedings or determinations affect the amount of Taxes for which Seller may be liable under the Agreement, PROVIDED, HOWEVER, should a settlement increase the amount of Taxes owed by Pyramid for taxable periods ending after the Closing Date, then Seller must receive the consent of Purchaser prior to consummating any such settlement, which consent shall not be unreasonably withheld. Whenever any taxing authority asserts a claim, makes an assessment or otherwise disputes the amount of Taxes for which Purchaser is liable under this Agreement, Purchaser shall have the right to control any resulting proceedings and to determine whether and when to settle any such claim, assessment or dispute, except to the extent such proceedings affect the amount of Taxes for which Seller are liable under this Agreement. (g) RESOLUTION OF DISAGREEMENTS BETWEEN SELLER AND PURCHASER. If either Seller or Purchaser disagrees as to the amount of Taxes for which it may be liable under this Agreement, it shall promptly consult the other party to resolve such dispute. If any such point of disagreement cannot be resolved within 60 days of the date of the initial consultation, Seller and Purchaser shall within 10 days after such 60-day period jointly select a nationally recognized independent public accounting firm other than KPMG LLP, Ernst & Young or any other such firm then serving as the principal auditing firm for either Seller or Purchaser (the "Accounting Firm"), to act as an arbitrator to resolve, within 60 days after its selection, all points of disagreement concerning Tax matters with respect to this Agreement and presented to such Accounting Firm at the time of its selection. If the parties cannot agree on the selection of the Accounting Firm within such ten-day period, then the parties shall request the American Arbitration Association to select an Accounting Firm that so far as possible otherwise satisfies the requirements set out in this paragraph. All fees and expenses of the Accounting Firm (and, if necessary, the fees and expenses of the American Arbitration Association) in rendering a decision hereunder shall be borne equally by the parties. (h) SURVIVAL OF OBLIGATIONS. The obligations of the parties set forth in this Section 4.3 shall be unconditional and absolute, and shall remain in effect indefinitely subject to applicable statutes of limitation. (i) PRE-CLOSING DIVIDEND TAX REIMBURSEMENT. In addition to the Purchase Price, Purchaser shall pay to Seller $ 272,500 on the Closing Date, representing the estimated amount of Taxes payable by Seller pursuant to Section 805(a)(4)(D) of the Code as a result of the Pre- Closing Dividend. Purchaser shall pay such amount to Seller by wire transfer of immediately available funds to an account or accounts designated by Seller. 19 20 (j) TAX TREATMENT OF REINSURANCE TRANSACTION. For Tax purposes, both Seller and Purchaser shall treat the Reinsurance Transaction described in Sections 4.6 and 6.3(e) of this Agreement as occurring on the calendar day immediately following the Closing Date in a manner consistent with Section 1.1502-76(b)(1)(ii)(B) of the Code. SECTION 4.4 EMPLOYEE MATTERS. (a) Purchaser agrees to give any Pyramid employees whom Purchaser elects not to retain in the employ of Pyramid following the Closing Date reasonable advance notice of their intended termination dates, but in no event less than 30 days' notice, and Purchaser further agrees to comply with all applicable "plant closing" and other laws governing the termination of employees. Purchaser will provide severance benefits in accordance with the schedule of severance benefits attached hereto and made a part hereof to all terminated Pyramid employees, with the exception of any such terminated Pyramid employees who become employed directly by Unitrin on the Closing Date. (b) With respect to any employee benefits that are provided after the Closing Date to Pyramid's employees under any of the employee benefit plans, programs, policies and arrangements, including vacation policies, of Purchaser or its affiliates ("Purchaser Plans"), service accrued by Pyramid's employees during their employment by Pyramid prior to the Closing Date shall be recognized by Purchaser for purposes of determining eligibility and vesting in Purchaser Plans, but not for purposes of benefit accruals thereunder. Purchaser shall cause each Purchaser Plan to waive: (i) any preexisting condition restriction which was waived under the terms of any analogous Benefit Plan immediately prior to the Closing, or (ii) waiting period limitation which would otherwise be applicable to a Pyramid employee on or after the Closing to the extent such Pyramid employee had satisfied any similar waiting period limitation under an analogous Benefit Plan prior to the Closing. Pyramid employees shall also be given credit for any deductible or co-payment amounts paid in respect of the Benefit Plan year in which the Closing occurs, to the extent that, following the Closing, they participate in any Purchaser Plan for which deductibles or co-payments are required. For purposes of this Agreement, "Pyramid employees" shall include those Pyramid employees who, as of immediately prior to the Closing Date, are on lay-off, disability or leave of absence, paid or unpaid. (c) Effective upon Closing, Seller shall cause Pyramid to terminate its participation in all employee benefit plans sponsored or maintained by any affiliate of Pyramid, including the Unitrin, Inc. Pension Plan, the Unitrin 401K Savings Plan and appropriate welfare benefit plans. (d) Following the Closing: (i) Seller shall indemnify and hold Purchaser and its ERISA Affiliates harmless against all Losses (as defined in Section 5.1(a) ) arising under or with respect to any Benefit Plan, including Losses arising out of or due to any inaccuracy of any representation or the breach of any warranty arising under Section 2.9, and for any failure to comply with the notice and healthcare continuation coverage requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan, in each case to the extent such Losses arise out of events or circumstances that occur on or prior to the Closing Date; and (ii) Purchaser shall indemnify and hold Seller and its ERISA Affiliates 20 21 harmless against all Losses arising under or with respect to any Benefit Plan, and for any failure to comply with the notice and healthcare continuation coverage requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan, in each case to the extent such Losses arise out of events or circumstances that occur after the Closing Date. For purposes of clause (ii) of the preceding sentence, Benefit Plan and ERISA Affiliate shall be determined by taking into account the change in ownership of Pyramid resulting from the transaction contemplated by this Agreement. (e) The obligations of the parties set forth in this Section 4.4 shall be unconditional and absolute, and shall remain in effect indefinitely subject to applicable statutes of limitation. SECTION 4.5 PUBLICITY. Neither Purchaser nor Seller nor any of their respective affiliates shall issue or cause the publication of any press release or other public announcement with respect to this Agreement or the transactions contemplated hereby without the prior agreement of the other party, except as may be required by law. SECTION 4.6 APPROVALS AND CONSENTS; COOPERATION. (a) The parties hereto shall use all reasonable efforts, and cooperate with each other, to obtain as promptly as practicable all Permits and third-party consents necessary or advisable to consummate the transactions contemplated by this Agreement, and each party shall keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. Purchaser and Seller shall have the right to review in advance, and shall consult with the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to Seller, Pyramid or Purchaser, as the case may be, and any of their respective affiliates, which appear in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement, provided, however, that nothing contained herein shall be deemed to provide either party with a right to review any information provided to any Governmental Entity on a confidential basis in connection with the transactions contemplated hereby. The party responsible for any such filing shall promptly deliver to the other party evidence of the filing of all applications, filings, registrations and notifications relating thereto (except for any confidential portions thereof), and any supplement, amendment or item of additional information in connection therewith (except for any confidential portions thereof). The party responsible for a filing shall also promptly deliver to the other party a copy of each material notice, order, opinion and other item or correspondence received by such filing party from any Governmental Entity in respect of any such application (except for any confidential portions thereof). If necessary to (i) complete Purchaser's financing of the Purchase Price or (ii) permit payment of the Pre-Closing Dividend and/or Post-Closing Dividend, Purchaser shall request approval from the Kansas Insurance Department on a timely basis for a reinsurance transaction between Pyramid and Reassurance Company of Hannover or such other reinsurer(s) as is reasonably acceptable to Seller (the "Reinsurance Transaction"). The Reinsurance Transaction will be structured to: (i) take effect immediately following the Closing, (ii) provide coinsurance of not more than 45% of Pyramid's policies in force as of the Closing Date and not more than 20% of policies issued by 21 22 Pyramid after the Closing Date, (iii) provide for a transfer of not more than 49% of Pyramid's assets to such reinsurer(s), and (iv) provide for a ceding commission payable to Pyramid of up to $11 million on an after-tax basis. (b) Seller and Purchaser shall take all actions necessary to file as soon as practicable all notifications, filings and other documents required to obtain all governmental authorizations, approvals, consents or waivers, including, without limitation, under the HSR Act, and to respond as promptly as practicable to any inquiries received from the Federal Trade Commission, the Antitrust Division of the Department of Justice and any other Governmental Entity for additional information or documentation and to respond as promptly as practicable to all inquiries and requests received from any other Governmental Entity in connection therewith. (c) Without limiting the generality of the foregoing, within 20 business days after the date hereof, Purchaser shall make a Form A filing with the Kansas Insurance Department with respect to the transactions contemplated hereby. Purchaser shall promptly make any and all other filings and submissions of information with state insurance departments which are required or requested by such insurance departments to obtain the approvals required by such insurance departments to consummate the transactions contemplated hereby. Seller agrees to furnish or to cause Pyramid to furnish Purchaser with such information and reasonable assistance as Purchaser may reasonably request in connection with its preparation of such Form A filing and other filings or submissions. Purchaser shall keep Seller fully apprised of its actions with respect to all such filings and submissions and shall provide Seller with copies of such Form A filing and other filings or submissions in connection with the transactions contemplated by this Agreement, provided that Seller shall keep confidential any portions of such filings indicated by Purchaser as confidential. (d) Purchaser and Seller shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any requisite regulatory approval will not be obtained or that the receipt of any such approval will be materially delayed. SECTION 4.7 UPDATES BY SELLER. Seller shall give prompt notice to Purchaser of: (i) the occurrence of any event or circumstance that constitutes a Pyramid Material Adverse Effect, (ii) the occurrence or failure to occur of an event that would cause any condition to the consummation of the transactions contemplated by this Agreement not to be satisfied, (iii) any notice or other communication received by Seller or Pyramid relating to a default or event which, with notice or lapse of time or both, would become a default under any Material Agreement, and (iv) any matter which, if it had occurred prior to the date of this Agreement, would have been required to be included in the Disclosure Schedule. SECTION 4.8 FURTHER ASSURANCES. Each party hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. 22 23 SECTION 4.9 INTERCOMPANY AGREEMENTS AND BALANCES. Except as otherwise expressly provided in this Section 4.9, as of or prior to the Closing, other than with respect to Taxes, Seller shall (i) settle, or cause to be settled, all intercompany balances between Pyramid, on the one hand, and Seller and any of Seller's other affiliates, on the other hand, and (ii) terminate, or cause to be terminated, each contract between Pyramid, on the one hand, and Seller and any of Seller's other affiliates, on the other hand. Notwithstanding the foregoing, Purchaser acknowledges that Pyramid currently administers the group medical benefits program for Seller's parent company, Unitrin, and its subsidiaries, and additionally performs accounting services for the Worksite Products Division of Seller. Purchaser agrees that, for a period beginning at Closing and ending December 31, 2000, it will cause Pyramid to continue such benefit administration and accounting services on the same basis and for the same charges as prior to the Closing. With respect to such benefit administration and accounting services after Closing, Purchaser shall, and shall cause Pyramid to, cooperate with Unitrin and use its reasonable best efforts in facilitating Unitrin's transition of these functions to another service provider prior to December 31, 2000. SECTION 4.10. GAAP FINANCIAL STATEMENTS. Within thirty (30) business days after the date of this Agreement, Seller shall cause to be prepared and delivered to Purchaser annual financial statements for Pyramid based upon generally accepted accounting principles for the years ended December 31, 1998, 1997 and 1996 (the "GAAP Financial Statements") and the independent auditors' report issued by KPMG LLP relating to such GAAP Financial Statements. Within five (5) business days of Seller's delivery of the GAAP Financial Statements and auditors' report to Purchaser, Purchaser shall reimburse Seller for all costs and expenses reasonably incurred by Seller in connection with the preparation of the GAAP Financial Statements and auditors' report, including, without limitation, the fees and expenses charged by KPMG LLP. Such reimbursement obligation shall survive any termination of this Agreement. Notwithstanding anything contained in this Section 4.10, Purchaser acknowledges and agrees that no representation or warranty is or shall be made by Seller with respect to the GAAP Financial Statements or any auditors' report or any information contained therein whatsoever. SECTION 4.11. COVENANT NOT TO NEGOTIATE SALE OF PYRAMID. During the period between the date of this Agreement and the Closing Date, unless the Agreement is otherwise terminated pursuant to Section 7.1 below, neither Pyramid nor Seller will (i) solicit, initiate, encourage or accept the submission of any proposal or offer from any person or party relating to the acquisition of Pyramid or a substantial portion of the assets of Pyramid, or the Shares from Seller, whether directly or indirectly, or any merger, consolidation or similar transaction or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person or party to do or seek any of the foregoing. During such period, unless this Agreement is otherwise terminated, Seller will notify Purchaser immediately if any person or party makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. SECTION 4.12. CERTAIN ENVIRONMENTAL REMEDIATION. With respect to Pyramid's home office facility in Mission, Kansas identified in Section 2.13 of the Disclosure Schedule, Seller shall cause Pyramid to use its best efforts to effect prior to Closing the removal and disposal of 23 24 all (i) spray-applied fireproofing material containing asbestos located in the Mechanical and Boiler Rooms and (ii) thermal system insulation containing asbestos located in the Supply Room. ARTICLE V INDEMNIFICATION SECTION 5.1 INDEMNIFICATION. None of the provisions of this Section 5.1 shall apply to the claims, obligations, liabilities, covenants and representations under Section 4.3 or 4.4, which shall be governed solely by the terms thereof. (a) INDEMNIFICATION BY SELLER. Subject to the limits and other requirements set forth in this Section 5.1, Seller agrees to indemnify, defend and hold Purchaser and Pyramid, and their respective officers, directors, agents and affiliates, harmless from and in respect of any and all liabilities, obligations, losses, damages, costs and reasonable expenses including, without limitation, reasonable expenses of investigation and defense fees and disbursements of counsel and other professionals (collectively, "Losses"), that they may incur arising out of or due to (i) any inaccuracy of any representation or the breach of any warranty, covenant, undertaking or other agreement of Seller contained in this Agreement or the Disclosure Schedule and (ii) any litigation commenced within one (1) year after the Closing Date in which Pyramid is named as a party defendant and which arises solely out of the market conduct practices of Seller and its other life and health insurance company affiliates in connection with the sale of insurance policies not issued by Pyramid. (b) INDEMNIFICATION BY PURCHASER. Subject to the limits and other requirements set forth in this Section 5.1, Purchaser agrees to indemnify, defend and hold Seller, its officers, directors, agents and affiliates, harmless from and in respect of any and all Losses that they may incur arising out of or due to any inaccuracy of any representation or the breach of any warranty, covenant, undertaking or other agreement of Purchaser contained in this Agreement. (c) SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in Article II and Article III shall survive the Closing Date and will remain in full force and effect thereafter for a period of one year from the Closing Date except for the representations and warranties contained in Section 2.3, which shall survive the Closing Date indefinitely. The covenants contained in Article IV shall survive the Closing Date and will remain in full force and effect for a period of one year from the Closing Date except as otherwise specifically provided in Article IV. All other agreements and undertakings in this Agreement shall survive the Closing Date indefinitely. (d) LIMITATIONS. Regardless of anything to the contrary contained in this Agreement: (i) neither party shall be entitled to recover from the other party under this Section 5.1 unless and until the total of all claims for Losses with respect to any inaccuracy of any representations or the breach of any warranties, covenants, undertakings or other agreements exceeds $500,000 and then only for the amount by which such claims for Losses exceed $500,000; (ii) neither party shall be entitled to recover from the other party more than the Purchase Price in the aggregate 24 25 pursuant to this Section 5.1, and (iii) neither party shall be obligated to indemnify the other party for any consequential, incidental or punitive damages sustained by such other party. Seller's indemnification obligations under Section 5.1(a) shall be subject to the financial limitations set forth in this Section 5.1(d), irrespective of whether the Losses covered by such indemnification meet the definition of a "Pyramid Material Adverse Effect" as set forth in Section 2.1. (e) NOTICE AND OPPORTUNITY TO DEFEND. If there occurs an event that a party asserts is an indemnifiable Loss pursuant to Section 5.1(a) or 5.1(b), the party seeking indemnification (the "Indemnitee") shall notify the other party obligated to provide indemnification (the "Indemnifying Party") promptly but in all cases within the applicable survival period specified in Section 5.1(c). If such event involves any claim or the commencement of any action or proceeding by a third person, the Indemnitee will permit the Indemnifying Party to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee and, after notice to the Indemnitee of the Indemnifying Party's election to assume the defense thereof, the Indemnifying Party shall not be liable to the Indemnitee hereunder for any legal expenses of other counsel or any other expenses subsequently incurred by Indemnitee in connection with the defense thereof. The Indemnitee will cooperate fully with the Indemnifying Party and its counsel in the defense against any such claim, action or proceeding. The Indemnitee shall have the right to participate at its own expense in the defense thereof but in no event shall an Indemnifying Party be liable for any settlement effected by the Indemnitee without its consent. (f) ADJUSTMENT FOR INSURANCE AND TAXES. The amount which an Indemnifying Party is required to pay to, for or on behalf of an Indemnitee pursuant to this Section 5.1 shall be adjusted (including, without limitation, retroactively): (i) by any insurance proceeds actually recovered by or on behalf of such Indemnitee or any of its affiliates in reduction of the related indemnifiable Loss (the "Indemnifiable Loss"), and (ii) to take account of any tax benefit realized as a result of any Indemnifiable Loss. If an Indemnitee or any of its affiliates shall have been indemnified under this Section 5.1 in respect of an Indemnifiable Loss and shall subsequently receive insurance proceeds or realize any tax benefit in connection with such Indemnifiable Loss, then the Indemnitee shall promptly notify the Indemnifying Party of the amount and nature of such proceeds and benefits and pay to the Indemnifying Party the amount of such insurance proceeds or tax benefit but in no event more than the amount previously received by the Indemnitee under this Section 5.1 in respect of the Indemnifiable Loss. (g) Each Indemnitee shall be obligated to use all reasonable efforts to mitigate to the fullest extent practicable the amount of any Loss for which it is entitled to seek indemnification hereunder, and the Indemnifying Party shall not be required to make any payment to an Indemnitee in respect of such Loss to the extent such Indemnitee failed to comply with the foregoing obligation. (h) Upon making any indemnification payment, the Indemnifying Party will, to the extent of such payment, be subrogated to all rights of the Indemnitee against any third party in respect of the Loss to which the payment relates; provided, however, that until the Indemnitee 25 26 recovers full payment of its Loss, any and all claims of the Indemnifying Party against any such third party on account of such payment are hereby made expressly subordinated and subjected in right of payment of the Indemnitee's rights against such third party. Without limiting the generality of any other provision hereof, each Indemnitee and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above described subrogation and subordination rights. (i) Neither Seller nor Purchaser shall have any right to set-off any Losses against any payments to be made by such party or parties pursuant to this Agreement, except as otherwise expressly provided herein. (j) Following the Closing, the indemnification provided for in Section 5.1 hereof shall be the sole and exclusive remedies of Seller and Purchaser and their respective officers, directors, employees, affiliates, agents, representatives, successors and assigns for any inaccuracy of any representation or any breach of any warranty, covenant, undertaking or other agreement contained in this Agreement (except for the covenants contained in Sections 4.3 and 4.4, which are separately governed by the terms thereof) and neither Seller nor Purchaser shall be entitled to a recission of this Agreement or to any further rights or remedies of any nature whatsoever in respect thereof (whether by contract, common law, statute, law, regulation or otherwise) all of which Seller and Purchaser hereby waive, provided nothing herein is intended to waive any claims for intentional fraud. ARTICLE VI CONDITIONS SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING. The obligations of Seller, on the one hand, and Purchaser, on the other hand, to consummate the Closing are subject to the satisfaction (or, if permissible, waiver by the party for whose benefit such conditions exist) of the following conditions: (a) no arbitrator or Governmental Entity shall have issued any order, decree or ruling, and there shall not be any statute, rule or regulation, restraining, enjoining or prohibiting the sale and transfer of the Shares by Seller to Purchaser under this Agreement; (b) any waiting period applicable to the transactions contemplated hereby under the HSR Act shall have expired or been terminated; (c) all authorizations, approvals or consents required to permit the consummation of the transactions contemplated hereby shall have been obtained and be in full force and effect, except where the failure to have obtained any such authorizations, approvals or consents would not have a Pyramid Material Adverse Effect; and (d) each of Pyramid and Seller's affiliate, Unitrin Services Company - -- Unitrin Data Systems division ("USC"), shall have executed a written agreement under which USC will 26 27 provide computer and data processing services to Pyramid for a period of time following the Closing, and such agreement shall be mutually satisfactory to Purchaser and Seller in all respects. SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of Purchaser to consummate the transactions contemplated hereby are subject to the satisfaction (or waiver by Purchaser) of the following further conditions: (a) the representations and warranties of Seller in this Agreement that are not qualified as to materiality shall be true in all material respects as of the Closing Date as if made at and as of such time (except for representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need to be true in all material respects only as of such date or with respect to such period); (b) the representations and warranties of Seller in this Agreement that are qualified as to materiality shall be true in all respects as of the Closing Date as if made at and as of such time (except for representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need to be true in all respects only as of such date or with respect to such period); (c) Seller shall have performed in all material respects the obligations hereunder required to be performed by it at or prior to the Closing Date; (d) Pyramid shall not have suffered any Pyramid Material Adverse Effect; (e) Each member of Pyramid's board of directors shall have tendered his resignation as a director in writing, effective as of the Closing; (f) Purchaser shall have received a certificate signed by the President or a Vice President of Seller, dated as of the Closing Date, to the effect that the conditions set forth in paragraphs (a), (b), (c) and (d) of this Section 6.2 have been satisfied, PROVIDED THAT, the officer signing such certificate shall not be personally liable for its contents; (g) Pyramid shall have secured written consents or waivers under, or amendments of, all Material Agreements requiring any such consents, waivers or amendments as the result of the transfer of the Shares pursuant to this Agreement, all in a manner reasonably satisfactory in form and substance to Purchaser in order to permit the consummation of the transactions contemplated by this Agreement without adversely affecting the rights of Pyramid under any such Material Agreement unless, in the reasonable opinion of Purchaser, any such adverse effects, considered in the aggregate, would not result in a Pyramid Material Adverse Effect; (h) Seller shall have obtained the approval of the Kansas Insurance Department for Pyramid to pay an extraordinary dividend immediately prior to Closing in an amount up to $ 25,000,000 (the "Pre-Closing Dividend"), and such Pre-Closing Dividend shall have been paid to Seller; and 27 28 (i) Purchaser shall have obtained the approval of the Kansas Insurance Department for Pyramid to pay an extraordinary dividend immediately after the Closing (the "Post-Closing Dividend") in the amount of $10,000,000, PROVIDED, HOWEVER, that in the event (x) such approval either is not obtained or is for a lesser dividend amount, and (y) Purchaser has other funding resources reasonably available to it which, together with the Post-Closing Dividend (if any), are capable of providing funds equal to or in excess of $10,000,000, such approval of the Post- Closing Dividend shall not be a condition to the obligations of Purchaser hereunder. SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations of Seller to consummate the transactions contemplated hereby are subject to the satisfaction (or waiver by Seller) of the following further conditions: (a) the representations and warranties of Purchaser in this Agreement that are not qualified as to materiality shall be true in all material respects as of the Closing Date as if made at and as of such time (except for representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need to be true in all material respects only as of such date or with respect to such period); (b) the representations and warranties of Purchaser in this Agreement that are qualified as to materiality shall be true in all respects as of the Closing Date as if made at and as of such time (except for representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need to be true in all respects only as of such date or with respect to such period); (c) Purchaser shall have performed in all material respects all of the obligations hereunder required to be performed by Purchaser, at or prior to the Closing Date; (d) Seller shall have received a certificate signed by the President or a Vice President of Purchaser, dated as of the Closing Date, to the effect that the conditions set forth in paragraphs (a), (b) and (c) of this Section 6.3 have been satisfied, PROVIDED THAT, the officer signing such certificate shall not be personally liable for its contents; and (e) If the Reinsurance Transaction is necessary to complete Purchaser's financing of the Purchase Price or is necessary to permit payment of the Pre-Closing Dividend and/or Post- Closing Dividend, (i) the structure of the Reinsurance Transaction shall be reasonably satisfactory to Seller in all respects, (ii) Purchaser shall have obtained the Kansas Insurance Department's approval of the Reinsurance Transaction, if required, and (iii) and such approval shall be reasonably satisfactory to Seller in all respects. 28 29 ARTICLE VII TERMINATION SECTION 7.1 TERMINATION. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing Date: (a) by the mutual consent of Seller and Purchaser; (b) by Seller or Purchaser; (i) if the Closing shall not have occurred on or prior to February 15, 2000; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 7. l(b)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or prior to such date; or (ii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties hereto shall use their best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; (c) by Seller if Purchaser: (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein, or (y) breaches its representations and warranties in any material respect such that the conditions set forth in Section 6.1 or Section 6.3 would not be satisfied; PROVIDED, HOWEVER, that if any such breach is curable by Purchaser through the exercise of its best efforts and for so long as Purchaser shall be using its best efforts to cure such breach, the Seller may not terminate this Agreement pursuant to this Section 7.1(c) as a result of such breach; or (d) by Purchaser if Seller: (x) breaches or fails in any material respect to perform or comply with any of their material covenants and agreements contained herein, or (y) breaches its representations and warranties in any material respect and such breach would have a Pyramid Material Adverse Effect, in each case such that the conditions set forth in Section 6.1 or Section 6.2 would not be satisfied; PROVIDED, HOWEVER, that if any such breach is curable by Seller through the exercise of Seller's best efforts and for so long as Seller shall be using its best efforts to cure such breach, Purchaser may not terminate this Agreement pursuant to this Section 7.1(d) as a result of such breach. SECTION 7.2 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event of the termination and abandonment of this Agreement by Seller or Purchaser pursuant to Section 7.1 hereof, written notice thereof shall forthwith be given to the other party. If the transactions contemplated 29 30 by this Agreement are terminated as provided herein: (a) each party will return all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; (b) all confidential information received by any party hereto with respect to the business of any other party or its subsidiaries or affiliates shall be treated in accordance with the provisions of the Confidentiality Agreement, which shall survive the termination of this Agreement; and (c) neither party to this Agreement will have any liability under this Agreement to the other except: (i) as stated in subparagraphs (a) and (b) of this Section 7.2, (ii) as stated in Section 4.10 above, (iii) for any willful breach of any provision of this Agreement, and (iv) as provided in the Confidentiality Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION. The laws of the State of Illinois (irrespective of its choice of law principles) shall govern all issues concerning the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of Illinois and the Federal courts of the United States of America located in the State of Illinois (and the Illinois State and Federal courts having jurisdiction over appeals therefrom) in respect of the transactions contemplated by this Agreement, the other agreements and documents referred to herein and the transactions contemplated by this Agreement and such other documents and agreements. SECTION 8.2 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement may be amended, modified and supplemented in any and all respects by written agreement of the parties hereto at any time prior to the Closing Date with respect to any of the terms contained herein. SECTION 8.3 NOTICES. All notices, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered: (a) by hand or by Federal Express or a similar overnight courier, (b) by United States certified mail as evidenced by a signed return receipt, or (c) by facsimile transmission as evidenced by a machine-generated printout indicating successful transmission of the entire document (with a confirming copy of such communication to be sent as provided in clauses (a) or (b) above), to the party for whom intended at the address or fax number set forth below (or at such other address or fax number for a party as shall be specified by like notice, PROVIDED, HOWEVER, that any notice of change of address or fax number shall be effective only upon receipt): 30 31 (a) if to Purchaser, to: Ceres Group, Inc./Central Reserve Life Insurance Company 17800 Royalton Road Strongsville, Ohio 44136 Telephone No.: (440)572-2400 Fax No.: (440)572-4500 Attention: Billy Hill, Esq. with a copy to: Polsinelli, White, Vardeman & Shalton 700 West 47th Street, Suite 1000 Kansas City, Missouri 64112 Telephone No.: (816)753-1000 Fax No.: (816)753-1536 Attention: Frank J. Ross, Jr., Esq. (b) if Seller, to: United Insurance Company of America c/o Unitrin, Inc. One East Wacker Drive Chicago, Illinois 60601 Telephone: (312)661-4600 Fax: (312) 661-4941 Attention: General Counsel SECTION 8.4 INTERPRETATION. (a) The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. The words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. The phrase "to the knowledge of" or any similar phrase shall mean such facts and other information which as of the date of determination are actually known to any vice president or chief financial officer and any officer superior to any of the foregoing, of the referenced party. The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested 31 32 by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to October 7, 1999. As used in this Agreement, the term "business day" means a day, other than a Saturday or a Sunday, on which banking institutions in the City of Chicago are required to be open. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. (b) The Disclosure Schedule shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Any matter disclosed pursuant to the Disclosure Schedule shall be deemed to be disclosed for all purposes under this Agreement, but such disclosure shall not be deemed to be an admission or representation as to the materiality of the item so disclosed. (c) Headings are for convenience of the parties only and shall be given no substantive or interpretative effect whatsoever. SECTION 8.5 COUNTERPARTS. This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement (including the documents and the instruments referred to herein), the Confidentiality Agreement and the Disclosure Schedule (i) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (ii) except as expressly provided herein, are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. SECTION 8.7 SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. SECTION 8.8 SERVICE OF PROCESS. Each party irrevocably consents to the service of process outside the territorial jurisdiction of the courts referred to in Section 8.1 hereof in any such action or proceeding by mailing copies thereof by certified United States mail, postage prepaid, return receipt requested, to its address as specified in or pursuant to Section 8.3 hereof. However, the foregoing shall not limit the right of a party to effect service of process on the other party by any other legally available method. SECTION 8.9 ASSIGNMENT. Except as otherwise expressly provided in this Section, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned 32 33 by either party hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Purchaser may assign its right to acquire the Shares to a wholly owned subsidiary of Purchaser, but Purchaser shall remain liable for all of its obligations under this Agreement. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective permitted successors and assigns. SECTION 8.10 EXPENSES. Except as otherwise provided herein, all costs and expenses incurred in connection with the transactions contemplated hereby, this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the transactions contemplated hereby is consummated. SECTION 8.11 WAIVERS. Except as otherwise provided in this Agreement, any failure of either party to comply with any obligation, covenant, agreement or condition herein may be waived by the other party only by a written instrument signed by such other party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 33 34 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. UNITED INSURANCE COMPANY OF AMERICA By: /s/ Donald G. Southwell ------------------------------------ Name: Donald G. Southwell ----------------------------------- Title: President ---------------------------------- CERES GROUP, INC. By: /S/ Peter W. Nauert ------------------------------------ Name: Peter W. Nauert ----------------------------------- Title: Chairman and Ceo ---------------------------------- 34 35 ANNEX A -- INDEX OF DEFINED TERMS (not part of Agreement) Defined in TERMS SECTION Affiliate.......................................................2.10 Agreement...................................................Preamble Benefit Plans...............................................2.9(a) Business day................................................8.4(a) Closing Date................................................1.3(a) Closing.....................................................1.3(a-c) Code........................................................2.9(c) Confidentiality Agreement.......................................4.2 Disclosure Schedule.........................................2.1 Encumbrances....................................................1.1(b) ERISA Affiliate.............................................2.9(a) ERISA.......................................................2.9(a) Governmental Entity.........................................2.5 HSR Act.....................................................2.5 Indemnifiable Loss..........................................5.1(f) Indemnifying Party..........................................5.1(e) Indemnitee..................................................5.1(e) Losses......................................................5.1(a) Material Agreement..........................................15 Permits.....................................................2.11(b) Post-Closing Dividend...........................................6.2(i) Pre-Closing Dividend............................................6.2(h) Purchase Price..............................................1.2 Purchaser...................................................Preamble Purchaser's Consent Schedule....................................3.3 Purchaser Plans.............................................4.4(b) Reinsurance Transaction.........................................4.6 SAP.........................................................2.6(a) SAP Financial Statements........................................2.6(a) Pyramid Intellectual Property...............................2.14 Pyramid..................................................... Recitals Pyramid Material Adverse Effect.............................2.1 Shares...................................................... Recitals Tax Return..................................................12(f) Taxes.......................................................2.12(f) EX-2.2 3 ex2-2.txt EXHIBIT 2.2 1 EXHIBIT 2.2 ----------- AMENDMENT TO PURCHASE AGREEMENT This Amendment modifies and forms a part of that certain Purchase Agreement, dated as of October 7, 1999 (the "Agreement"), by and between United Insurance Company of America, an Illinois insurance company ("Seller"), and Ceres Group, Inc., a Delaware corporation ("Purchaser"). Capitalized terms not expressly defined in this Amendment have the same meanings as in the Agreement. WHEREAS, Purchaser has proposed to Seller that the Agreement be amended to reflect the changes in Purchaser's intent regarding certain aspects of the transactions contemplated by the Agreement; and WHEREAS, subject to the terms and conditions set forth in this Amendment, Seller is willing to amend the Agreement consistent with Purchaser's proposals. NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants and agreements set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties intending to be legally bound hereby agree as follows: 1. To reflect the modification in the form of the consideration to be paid to Seller by Purchaser in exchange for the Shares, the Agreement is amended as follows: A. Section 1.2 is deleted in its entirety and replaced with the following: SECTION 1.2. CONSIDERATION FOR THE SHARES. On the Closing Date (as hereinafter defined) and subject to the terms and conditions set forth in this Agreement, in reliance on the representations, warranties, covenants and agreements of the parties contained herein and in consideration of the sale, assignment, transfer and delivery of the Shares, Purchaser shall (i) issue, transfer, convey and deliver to Seller 75,000 shares of Convertible Voting Preferred Stock, par value $0.001 per share, of Purchaser (the "Voting Preferred Stock"), and (ii) pay to Seller an amount equal to $60,000,000 less the Pre-Closing Dividend amount paid to Seller by Pyramid immediately prior to Closing as contemplated by Section 6.2(h) of this Agreement (the "Cash Consideration"). B. Section 1.3(c) is deleted in its entirety and replaced with the following: (c) At the Closing, Purchaser shall deliver to Seller: (i) a stock certificate representing the Voting Preferred Stock showing Seller as the owner thereof, (ii) the Cash Consideration by wire transfer in immediately 1 2 available funds to an account or accounts designated by Seller, and (iii) all other previously undelivered certificates and other documents required to be delivered by Purchaser to Seller at or prior to the Closing Date in connection with the transactions contemplated hereby. C. The following Section 3.8 is added to Article III: SECTION 3.8. VOTING PREFERRED STOCK. Purchaser has obtained all consents, approvals and authorizations, and provided all notifications, necessary to permit (i) the issuance, transfer, conveyance and delivery of the Voting Preferred Stock to Seller as contemplated by Section 1.2 hereof, and (ii) the execution, delivery and performance of that certain Subscription Agreement, dated April 17, 2000, by and between Purchaser and Seller, and that certain Registration Rights Agreement by and between Purchaser and Seller to be executed at Closing. D. In the first sentence of Section 4.3(i), the words "Purchase Price" are deleted and replaced with the words "Cash Consideration." E. In item (ii) of the first sentence of Section 5.1(d), the words "Purchase Price" are deleted and replaced with the figure "$67,500,000." 2. To reflect that Purchaser does not intend to enter into the Reinsurance Transaction, the Agreement is amended as follows: A. Section 4.3(j) is deleted in its entirety. B. The last two sentences of Section 4.6(a) are deleted in their entirety. C. Section 6.3(e) is deleted in its entirety. 3. To reflect that the parties have agreed in principle to the form and substance of the written computer and data processing services agreement referenced in Section 6.1(d) of the Agreement, Section 6.1(d) is deleted in its entirety and the following Section 4.13 is added to Article IV: SECTION 4.13. TRANSITIONAL COMPUTER SERVICES AGREEMENT. Contemporaneous with the Closing and immediately following the Seller's transfer of the Shares to the Purchaser, Pyramid and Seller's affiliate, Unitrin Services Company -- Unitrin Data Systems division, shall execute the Transitional Computer Services Agreement attached as Exhibit "A" hereto. 4. To reflect that Purchaser does not intend to cause Pyramid to pay the Post-Closing Dividend, Section 6.2(i) is deleted in its entirety. 2 3 5. To extend the time for completing the transactions contemplated by the Agreement, Section 7.1(b)(i) is amended by deleting the date "February 15, 2000" and replacing it with the date "June 30, 2000." 6. To reflect the fact that Pyramid has eliminated its directors' qualifying shares, all references to directors' qualifying shares contained in the Agreement are deleted in their entirety. 7. This Amendment shall become effective as of April 17, 2000. 8. Except as otherwise expressly set forth above, this Amendment does not alter, modify, amend, vary or waive any of the terms or conditions of the Agreement. 9. This Amendment may be executed in multiple counterparts, all of which shall together be considered one and the same instrument. [Remainder of page intentionally left blank.] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective corporate officers as of the 17th day of April, 2000. UNITED INSURANCE COMPANY OF AMERICA Attest: /s/ Scott Renwick /s/ Charles L. Wood - ------------------------------------- ------------------- Assistant Secretary Charles L. Wood Title: Vice President Attest: /s/ Linda S. Standish /s/ Glen A. Laffoon - ------------------------------------- ------------------- Secretary Glen A. Laffoon Title: Executive Vice President 4 EX-2.3 4 ex2-3.txt EXHIBIT 2.3 1 EXHIBIT 2.3 ----------- AMENDMENT NO. 2 TO PURCHASE AGREEMENT THE PURCHASE AGREEMENT dated October 7, 1999, by and between UNITED INSURANCE COMPANY OF AMERICA, an Illinois insurance company ("Seller"), and CERES GROUP, INC., a Delaware corporation ("Purchaser"), as thereafter amended by AMENDMENT TO PURCHASE AGREEMENT dated April 17, 2000, (the "Agreement") is hereby amended by agreement of Seller and Purchaser in accordance with this AMENDMENT NO. 2 TO PURCHASE AGREEMENT ("Amendment"). RECITALS WHEREAS, the parties desire to amend the Agreement so as to extend the time for completing the transactions contemplated by the Agreement. NOW, THEREFORE, in consideration of the foregoing Recital, which constitutes a material part of this Amendment, and the mutual covenants of the parties, the parties agree as follows: 1. Section 7.1(b)(i) of the Agreement is hereby deleted and the following is substituted in place thereof: if the Closing shall not have occurred on or prior to July 17, 2000; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 7.1(b)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or prior to such date; or 2. Except as specifically amended or modified herein, all of the terms, conditions and covenants contained in the Agreement shall remain in full force and effect and are hereby fully ratified and confirmed by the parties. 3. Capitalized terms used in this Amendment shall have the same meaning as specified in the Agreement, except as otherwise expressly provided herein. 4. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which when taken together shall constitute one and the same agreement. All parties hereto agree that a facsimile of their signature shall be as valid and binding as if the same were an original signature. 5. The terms and conditions of this Amendment shall be binding upon the parties hereto, their successors and assigns. 2 IN WITNESS WHEREOF, this Amendment No. 2 to Purchase Agreement has been duly executed as of the 5th day of July, 2000. UNITED INSURANCE COMPANY OF AMERICA By: /s/ Scott Renwick -------------------------------- Scott Renwick Title: Vice President -------------------------------- CERES GROUP, INC. By: /s/ Charles E. Miller, Jr. -------------------------------- Charles E. Miller, Jr. Title: Executive Vice President and CFO -------------------------------- -2- EX-3.1 5 ex3-1.txt EXHIBIT 3.1 1 EXHIBIT 3.1 ----------- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF CERES GROUP, INC. Ceres Group, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: Article IV of the Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as follows: "ARTICLE IV CAPITAL STRUCTURE 4.1 Authorized Capital Stock. The aggregate number of shares of all classes of stock that the Corporation is authorized to issue is 52,000,000 shares, consisting of: (a) 100,000 Convertible Voting Preferred Shares, par value $0.001 per share (the "Voting Preferred Shares"); (b) 1,900,000 Non-Voting Preferred Shares, par value $0.001 per share (the "Non-Voting Preferred Shares" and, together with the Voting Preferred Shares, the "Preferred Shares"); and (c) 50,000,000 Common Shares, par value $0.001 per share (the "Common Shares"). 4.2 Voting Preferred Shares. 4.2.1 Effective Date. For purposes of this Section 4.2, the term "Effective Date" shall mean July 26, 2000. 4.2.2 Voting Rights. Except as may otherwise be provided by the Delaware General Corporation Law, each holder of Voting Preferred Shares shall be entitled to vote on all matters presented for a vote of the stockholders of the Corporation, including, without limitation, the election of directors. Each holder of Voting Preferred Shares shall have the number of votes equal to the largest number of whole Common Shares into which such Voting Preferred Shares could then be converted pursuant to Section 4.2.4 hereof (such number to be calculated as of the record date for the determination of holders of Common Shares having the right to vote on such matters, or if no record date has been established, on the date such vote is taken). The holders of the Voting 2 Preferred Shares and the holders of the Common Shares shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 4.2.3 Dividends and Distributions. (a) The holders of Voting Preferred Shares shall be entitled to receive dividends, to the extent permitted by the Delaware General Corporation Law, prior and in preference to any declaration or payment of any dividend on the Common Shares, at the rate of 10% per annum, based on a 365-day year. Such dividends shall be cumulative and shall be paid annually on the last day of June (except that if any such date is a Saturday, Sunday or legal holiday, then such dividend shall be payable on the next day that is not a Saturday, Sunday or legal holiday) in each year, commencing on the Effective Date, for each full year and each portion of a year that the share entitled to such dividend is outstanding. Such dividends shall be paid in additional fully paid and nonassessable Voting Preferred Shares. No formal declaration of any such dividends by the Board of Directors shall be required. (b) As long as any Voting Preferred Shares are outstanding, the Corporation shall not declare or pay on any Common Shares any dividend whatsoever, whether in cash, stock, property or otherwise, nor shall the Corporation make any distribution on any Common Shares, nor shall any Common Shares be purchased or redeemed by the Corporation, nor shall any monies be paid or made available for a purchase, retirement or sinking fund for the purchase or redemption of any Common Shares, unless all dividends that the holders of the Voting Preferred Shares are then entitled to receive under Section 4.2.3(a) hereof for all previous dividend periods have been paid. 4.2.4 Conversion Rights. (a) The holders of Voting Preferred Shares shall have the right to convert each such share into fully paid and nonassessable Common Shares, at the Voting Preferred Conversion Rate (as defined in Section 4.2.4(b) hereof) in effect on the date of conversion, at any time after the Effective Date. (b) The holders of Voting Preferred Shares shall be obligated to convert each such share into fully paid and nonassessable Common Shares, at the Voting Preferred Conversion Rate in effect on the date of conversion, by no later than July 26, 2003. Any Voting Preferred Share that has not been converted into Common Shares by July 26, 2003 shall automatically convert into Common Shares at the Voting Preferred Conversion Rate then in effect; provided, however, that if the Market Price on that date is less than the Initial Voting Preferred Conversion Price, then the Corporation shall promptly pay the aggregate amount of the shortfall to the holders of the Voting Preferred Shares in cash based on the number of shares held by each such holder. Notwithstanding that the certificates evidencing any such converted shares shall not have been surrendered, the shares shall no longer be deemed outstanding and all rights whatsoever with respect to the converted shares (except the right of the holders to convert such shares upon surrender of their certificates therefor) shall terminate. For purposes of this Section 4.2.4, the term: 2 3 (i) "Initial Voting Preferred Conversion Price" means the Market Price on the Effective Date. (ii) "Market Price" means the thirty-day average closing price per Common Share on the New York Stock Exchange ("NYSE") on the day immediately preceding the conversion if the Common Shares are then traded on the NYSE, or the thirty-day average closing bid price per Common Share on the day immediately preceding the conversion if the Common Shares are then traded on The Nasdaq Stock Market, Inc. ("Nasdaq") National Market or any other national securities exchange; provided, however, that if the Common Shares are not then listed on a national securities exchange or Nasdaq, then the Market Price shall be the current fair market value per Common Share on such date as determined in good faith by the Board of Directors. (iii) "Voting Preferred Conversion Rate" means, with respect to each Voting Preferred Share, the result of dividing (A) the sum of the Voting Preferred Liquidation Preference (as defined in Section 4.2.7(a) hereof) plus any accrued and unpaid dividends on such share by (B) the Initial Voting Preferred Conversion Price. (c) If, at any time after the Effective Date, the Common Shares issuable on conversion of the Voting Preferred Shares are changed into the same or a different number of shares of any other class or classes of stock of the Corporation, whether by reclassification, subdivision, combination, stock dividend, exchange of shares or otherwise, then the holders of the Voting Preferred Shares shall, upon such conversion, be entitled to receive, in lieu of the Common Shares that the holders would have become entitled to receive but for such change, a number of shares of such other class or classes of stock that would have been subject to receipt by the holders if they had exercised their rights of conversion of the Voting Preferred Shares immediately before such change. (d) If, at any time after the Effective Date, there shall be a capital reorganization of the Common Shares (including any subdivision or combination of the Common Shares but excluding any reclassification, subdivision, combination, dividend or exchange provided for in Section 4.2.4(c) hereof), or a merger or consolidation of the Corporation with another corporation or entity, or a statutory stock exchange, or a sale of all or substantially all of the Corporation's assets or securities to any other person, then, as a part of such reorganization, merger, consolidation, exchange or sale, lawful provision shall be made so that the holders of the Voting Preferred Shares shall thereafter be entitled to receive upon conversion of their Voting Preferred Shares the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation, to which holders of the Common Shares deliverable upon conversion of the Voting Preferred Shares would have been entitled on such capital reorganization, merger, consolidation, exchange or sale if the Voting Preferred Shares had been converted immediately before that capital reorganization, merger, consolidation, exchange or sale to the end that the provisions of this Section 4.2.4(d) (including but not -3- 4 limited to adjustment of the Voting Preferred Conversion Rate then in effect) shall be applicable after that event as nearly equivalently as may be practicable. (e) In order to convert the Voting Preferred Shares into Common Shares, the holder thereof shall deliver to the Corporation, at its principal office or such other office or agency maintained by the Corporation for such purpose: (i) a complete and executed conversion certificate in the form attached hereto as EXHIBIT A (a "Notice of Voting Preferred Conversion"); and (ii) the certificate or certificates representing the Voting Preferred Shares being converted (collectively, the "Converted Voting Preferred Certificate"). The Notice of Voting Preferred Conversion shall be effective and in full force and effect if delivered to the Secretary of the Corporation by facsimile transmission at (440) 572-4500. Provided that a copy of the Notice of Voting Preferred Conversion is delivered to the Corporation by the close of business on such date by facsimile transmission or otherwise, and provided that the original Notice of Voting Preferred Conversion and the Converted Voting Preferred Certificate are delivered to the Corporation within three business days thereafter at 17800 Royalton Road, Strongsville, Ohio 44136-5197, Attention: Secretary, the date on which the Notice of Voting Preferred Conversion is given shall be deemed to be the date set forth therefor in the Notice of Voting Preferred Conversion (the "Voting Preferred Conversion Date"), and the person or persons entitled to receive the Common Shares issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Shares as of the Voting Preferred Conversion Date. If the original Notice of Voting Preferred Conversion and the Converted Voting Preferred Certificate are not delivered to the Corporation within three business days after the Voting Preferred Conversion Date, then the Notice of Voting Preferred Conversion shall become null and void as if it were never given and the Corporation shall, within two business days thereafter, return to the holder by overnight courier any Converted Voting Preferred Certificate that may have been submitted in connection with such conversion. In the event that any Converted Voting Preferred Certificate submitted represents a number of Voting Preferred Shares that is greater than the number of such shares that is being converted pursuant to the Notice of Voting Preferred Conversion delivered in connection therewith, the Corporation shall deliver, together with the certificates for the Common Shares issuable upon such conversion as provided herein, a certificate representing the remaining number of Voting Preferred Shares not converted. (f) Upon receipt of a Notice of Voting Preferred Conversion, the Corporation shall absolutely and unconditionally be obligated to cause a certificate or certificates representing the number of Common Shares to which a converting holder of Voting Preferred Shares shall be entitled to receive as provided herein to be issued to, delivered by overnight courier to and received by such converting holder within ten business days after the Voting Preferred Conversion Date. Such delivery shall be made at such address as such converting holder may designate therefor in the Notice of Voting Preferred Conversion or in its written instructions submitted together therewith. (g) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Voting Preferred Shares pursuant hereto; provided, however, that the Corporation shall not -4- 5 be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (h) No less than 500 Voting Preferred Shares may be converted at any one time, unless the holder then holds less than 500 shares and converts all such shares at that time. (i) No fractional Common Shares shall be issued upon conversion of the Voting Preferred Shares. Instead, the number of Common Shares to be issued shall be rounded down to the nearest whole share and the Corporation shall promptly pay in lieu of a fractional Common Share a cash adjustment equal to the corresponding fraction of the Market Price on the Voting Preferred Conversion Date. (j) The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Shares, solely for the purpose of effecting the conversion of the Voting Preferred Shares into Common Shares as provided herein, the full number of Common Shares deliverable from time to time upon the conversion of all outstanding Voting Preferred Shares. 4.2.5 Repurchase Obligation. (a) If at any time after the Effective Date the Corporation issues or sells any of its equity securities, in a single or continuous offering, for an aggregate purchase price in excess of $20,000,000 (other than an offering for the purpose of financing the acquisition of The Pyramid Life Insurance Company, a Kansas stock insurance company), then the Corporation shall repurchase all outstanding Voting Preferred Shares, at a price equal to the aggregate Voting Preferred Liquidation Preference of such shares plus any accrued and unpaid dividends thereon, within ninety days after the date of issuance or sale of such equity securities. (b) The Corporation shall provide written notice of any repurchase required by this Section 4.2.5 specifying the repurchase date and the procedure for the repurchase, by first class or certified mail, postage prepaid, to each holder of Voting Preferred Shares at the address for such holder last shown on the records of the Corporation or its transfer agent, not more than sixty nor less than thirty days before the repurchase date. (c) Notwithstanding Section 4.2.5(a) hereof, the holders of the Voting Preferred Shares shall have the right to convert any of their shares into Common Shares, in accordance with the provisions of Section 4.2.4 hereof, at any time up to twenty days prior to the repurchase date specified in the notice of repurchase from the Corporation. (d) No holder of redeemed Voting Preferred Shares shall be entitled to any dividends with respect to such shares after the repurchase date, and on such date all rights of such holder as a stockholder of the Corporation by reason of the ownership of such shares shall cease, except the right to receive the price of such shares without interest, upon -5- 6 presentation and surrender of the certificate representing such shares, and such shares will not after the repurchase date be deemed to be outstanding. (e) On or before the repurchase date, the Corporation shall deposit an amount equal to the aggregate repurchase price for all outstanding Voting Preferred Shares with a bank or trust company in a trust fund for the benefit of the respective holders of such shares together with instructions and authority to the bank or trust company to pay such price for such shares to the respective holders, after the repurchase date and upon receipt of notification from the Corporation that such holder has surrendered to the Corporation all of the certificates representing the Voting Preferred Shares of such holder. The Corporation shall have the right to request the return of the balance of any monies deposited by the Corporation remaining unclaimed at the expiration of sixty days following the repurchase date. 4.2.6 Redemption Rights. (a) The Corporation may, on any of the dates specified below and as may be determined by the Board of Directors, redeem all or any part of the Voting Preferred Shares for an amount equal to the following percentage of the sum of the aggregate Voting Preferred Liquidation Preference of the shares to be redeemed on such date and any accrued and unpaid dividends thereon: REDEMPTION DATE APPLICABLE PERCENTAGE ----------------------------------------------------- July 26, 2001 120% July 26, 2002 115% July 26, 2003 110% (b) The Corporation shall provide written notice of any redemption pursuant to this Section 4.2.6 specifying the applicable redemption date, the number or percentage of shares to be redeemed and the procedure for redemption, by first class or certified mail, postage prepaid, to each holder of Voting Preferred Shares at the address for such holder last shown on the records of the Corporation or its transfer agent, not more than sixty nor less than thirty days before the applicable redemption date. Upon mailing of any such notice of redemption, the Corporation shall become obligated to redeem Voting Preferred Shares specified in such notice. (c) Notwithstanding Section 4.2.6(a) hereof, the holders of the Voting Preferred Shares shall have the right to convert any of their shares into Common Shares, in accordance with the provisions of Section 5 hereof, at any time up to twenty days prior to the repurchase date specified in any notice of redemption from the Corporation. (d) No holder of redeemed Voting Preferred Shares shall be entitled to any dividends with respect to such shares after the applicable redemption date, and on such date all rights of such holder as a stockholder of the Corporation by reason of the ownership -6- 7 of such shares shall cease, except the right to receive the price of such shares without interest, upon presentation and surrender of the certificate representing such shares, and such shares will not after such redemption date be deemed to be outstanding. In the event that the Corporation redeems less than all of the outstanding Voting Preferred Shares, the Corporation shall issue to each holder a replacement certificate representing the Voting Preferred Shares that were not so redeemed. (e) On or before the applicable redemption date, the Corporation shall deposit an amount equal to the applicable redemption price for all Voting Preferred Shares to be redeemed on such date with a bank or trust company in a trust fund for the benefit of the respective holders of the Voting Preferred Shares designated for redemption together with instructions and authority to the bank or trust company to pay such price for such shares to the respective holders, after the redemption date and upon receipt of notification from the Corporation that such holder has surrendered to the Corporation all of the certificates representing the Voting Preferred Shares of such holder that are being redeemed. The Corporation shall have the right to request the return of the balance of any monies deposited by the Corporation remaining unclaimed at the expiration of sixty days following the redemption date. 4.2.7 Liquidation Rights. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Common Shares and any class or series of Non-Voting Preferred Shares ranking on liquidation junior or subordinate to the Voting Preferred Shares, but after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Voting Preferred Shares, the holders of each Voting Preferred Share shall be entitled to receive an amount of cash, out of funds legally available therefor, equal to the sum of (i) the original purchase price of $100 per Voting Preferred Share, as appropriately adjusted for any combinations, subdivisions or similar recapitalizations affecting the Voting Preferred Shares after the Effective Date (the "Voting Preferred Liquidation Preference"), plus (ii) an amount equal to any accrued and unpaid dividends thereon. After the full preferential liquidation amount has been paid to, or determined and set apart for, the Voting Preferred Shares and any class or series of Preferred Shares ranking on liquidation on a parity with the Voting Preferred Shares, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed ratably to the holders of any class or series of Non-Voting Preferred Shares ranking on liquidation junior or subordinate to the Voting Preferred Shares and the holders of the Common Shares, as their interests may appear. (b) If the assets and surplus funds of the Corporation legally available to be distributed to the holders of the Voting Preferred Shares on liquidation are insufficient to permit the payment to such holders of the full preferential amounts to which they are entitled pursuant to Section 4.2.7(a) hereof, then the holders of the Voting Preferred Shares and any class or series of Preferred Shares ranking on liquidation on a parity with the Voting -7- 8 Preferred Shares shall share ratably in any remaining assets and surplus funds of the Corporation legally available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (c) A merger or consolidation of the Corporation with or into any other company, a share exchange or the sale or conveyance of all or any part of the assets of the Corporation (that does not in fact result in a liquidation, dissolution or winding up of the affairs of the Corporation and the distribution of assets to its stockholders) shall not be deemed a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation within the meaning of this Section 4.2.7. (d) If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, payment shall have been made to the holders of Voting Preferred Shares of the full amount to which they shall be entitled hereunder, then such holders shall not be entitled to any further participation in the distribution of the remaining assets of the Corporation available for distribution to its stockholders. 4.2.8 No Sinking Fund. The Voting Preferred Shares shall not be subject to the operation of any purchase, retirement or sinking fund. 4.2.9 Preemptive Rights. The holders of the Voting Preferred Shares are not entitled to any preemptive or subscription rights in respect of any securities of the Corporation. 4.2.10 Reacquired Shares. Any Voting Preferred Shares that are converted into Common Shares, or are redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever, shall be promptly retired and cancelled and shall not subject to reissuance. 4.2.11 Ranking. Notwithstanding any provision of this Section 4.2 to the contrary, the Voting Preferred Shares shall rank senior to or on a parity with all other classes or series of Preferred Shares hereafter designated as to the payment of dividends and the distribution of assets, unless otherwise consented to or agreed in writing by the holders of a majority of the outstanding Voting Preferred Shares. 4.2.12 Subordination. Notwithstanding any provision of this Section 4.2 to the contrary, the Corporation shall not be required to declare or pay, or set aside for payment, any dividends or distributions with respect to the Voting Preferred Shares, or to repurchase or redeem any Voting Preferred Shares, if such action would constitute a default pursuant to the Corporation's agreements with its senior lenders; provided that the holders of the Voting Preferred Shares shall always be entitled to convert their Voting Preferred Shares into Common Shares in accordance with the provisions of this Section 4.2. 4.2.13 Severability. In the event any term, provision, sentence or paragraph of this Section 4.2 is declared by a court of competent jurisdiction to be invalid or unenforceable, such term, provision, sentence or paragraph shall be deemed severed from the remainder of this Section 4.2, and -8- 9 the balance of this Section 4.2 shall remain in effect and be enforced to the fullest extent permitted by law and shall be construed to preserve the intent and purposes of this Section 4.2. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such term, provision, sentence or paragraph of this Section 4.2 in any other jurisdiction. 4.3 Non-Voting Preferred Shares. (a) Designations by Board of Directors. The Non-Voting Preferred Shares may be issued from time to time in one or more classes or series without voting rights, and with such designations, preferences and relative, participating, optional or special rights and qualifications, limitations or restrictions as are stated herein and as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors as hereinafter prescribed. (b) Voting Rights. Except as may otherwise be required by the Delaware General Corporation Law, the holders of Non-Voting Preferred Shares shall not be entitled to vote on any matters to be voted on by the stockholders of the Corporation. (c) Terms of the Non-Voting Preferred Shares. Authority is hereby expressly granted to and vested in the Board of Directors or any designated committee thereof to authorize the issuance of the Non-Voting Preferred Shares from time to time in one or more classes or series, to determine and take necessary proceedings to fully effectuate the issuance and redemption of any such Non-Voting Preferred Shares and, with respect to each class or series of Non-Voting Preferred Shares, to fix and state from time to time, by resolution or resolutions providing for the issuance thereof, the following: (i) the number of shares to constitute the class or series and the designations thereof; (ii) the preferences and relative, participating, optional or special rights, if any, and qualifications, limitations or restrictions thereof, if any, of the class or series; (iii) whether the shares of the class or series will be redeemable and, if redeemable, the redemption price or prices and the time or times at which, and the terms and conditions upon which, such shares will be redeemable and the manner of redemption; (iv) whether the shares of the class or series will be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking funds are to be established, the annual amount thereof and the terms and conditions relative to the operation thereof; (v) the dividend rate, whether dividends are payable in cash, stock or otherwise, the conditions upon which and the times when such dividends are payable, the preference or relation to the payment of dividends on any other class or series of stock, whether or not such dividends will be cumulative or noncumulative and, if cumulative, the -9- 10 date or dates from which such dividends will accumulate; (vi) the preferences, if any, and the amounts thereof that the holders of the class or series will be entitled to receive upon the voluntary or involuntary dissolution, liquidation or winding up of, or upon any distribution of the assets of, the Corporation; (vii) whether the shares of the class or series will be convertible into, or exchangeable for, the shares of any other class or classes, or of any other series of the same or any other class or classes, of stock of the Corporation and the conversion price or prices, or ratio or ratios, or rate or rates, at which such conversion or exchange may be made, with such adjustments, if any, as shall be expressed or provided for in such resolution or resolutions; and (viii) such other special rights and protective provisions with respect to the class or series as the Board of Directors or any designated committee thereof may deem advisable. The shares of each class or series of Non-Voting Preferred Shares may vary from the shares of any other class or series thereof in any or all of the foregoing respects. The Board of Directors or any designated committee thereof may from time to time increase the number of shares of Non-Voting Preferred Shares designated for any existing class or series by a resolution adding to such class or series authorized but unissued shares of Non-Voting Preferred Shares not designated for any other class or series thereof. The Board of Directors or any designated committee thereof may from time to time decrease the number of shares of Non-Voting Preferred Shares designated for any existing class or series by a resolution subtracting from such class or series any unissued shares of Non-Voting Preferred Shares designated for such class or series, and the shares so subtracted shall become authorized, unissued and undesignated shares of Non-Voting Preferred Shares. 4.4 Common Shares. (a) Powers, Preferences and Rights. Except as may otherwise be provided by the Delaware General Corporation Law, the powers, preferences and rights of the Common Shares, and the qualifications, limitations or restrictions thereof, shall be in all respects identical. (b) Voting Rights. Except as may otherwise be provided by the Delaware General Corporation Law, each holder of Common Shares shall be entitled to one vote for each share held of record on the applicable record date on all matters presented for a vote of the stockholders of the Corporation, including, without limitation, the election of directors. (c) Dividends. Except as may otherwise be provided in this Certificate of Incorporation or by the Delaware General Corporation Law, if, as and when dividends on the Common Shares are declared payable from time to time by the Board of Directors as provided in this Section 4.4(c), whether payable in cash, property, stock or other securities, the holders of Common Shares shall be entitled to share equally, on a per share basis, in such dividends. -10- 11 (d) Liquidating Distributions. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or upon any sale or conveyance of all or substantially all of the assets of the Corporation, after payment or provision for payment of all the liabilities of the Corporation and the expenses of liquidation, and after the holders of the Preferred Shares shall have been paid in full the amounts, if any, to which they are entitled or a sum sufficient for such payment in full shall have been set aside, the remaining assets of the Corporation available for distribution shall be distributed ratably to the holders of the Common Shares. For the purpose of this Section 4.4(d), a merger, consolidation, sale or conveyance shall not be deemed to be a liquidation or winding up of the Corporation unless the transaction provides for the cessation of the business of the Corporation." SECOND: The amendment to the Certificate of Incorporation effected hereby has been proposed by the Board of Directors of the Corporation and adopted by the stockholders of the Corporation in the manner and by the vote prescribed by the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by the undersigned duly authorized officer as of the 25th day of July, 2000. /s/ Linda S. Standish ------------------------------- Linda S. Standish, Secretary -11- 12 EXHIBIT A --------- NOTICE OF CONVERSION OF CONVERTIBLE VOTING PREFERRED STOCK OF CERES GROUP, INC. The undersigned holder ("Holder") hereby surrenders to Ceres Group, Inc., a Delaware corporation (the "Corporation"), one or more certificates representing Convertible Voting Preferred Shares, par value $0.001 per share, of the Corporation (the "Voting Preferred Shares") in connection with the conversion of all or part of the Voting Preferred Shares into Common Shares, par value $0.001 per share, of the Corporation (the "Common Shares") as set forth below. 1. Holder acknowledges that the Corporation issued the Voting Preferred Shares pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). 2. Holder represents and warrants that all offers and sales of the Common Shares to be issued to Holder upon such conversion of the Voting Preferred Shares were made (a) pursuant to an effective registration statement under the Securities Act (in which case Holder represents that a prospectus has been delivered), (b) in compliance with Rule 144, or (c) pursuant to some other applicable exemption from registration. Number of Voting Preferred Shares to be converted: ------------------------------ Delivery instructions for certificates of Common Shares and for new certificates representing any remaining Voting Preferred Shares: ----------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature of Holder: ----------------------------------------------------------- Printed Name of Holder: -------------------------------------------------------- Social Security or Tax Identification Number of Holder: ------------------------ Dated: ------------------------------------------------------------------------- EX-4.1 6 ex4-1.txt EXHIBIT 4.1 1 EXHIBIT 4.1 ----------- CERES GROUP, INC. AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Amended and Restated Registration Rights Agreement (this "Agreement"), dated as of July 25, 2000, is between CERES GROUP, INC., a Delaware corporation (the "Corporation"), and the persons and entities set forth on Exhibit A hereto (the "Investors"). R E C I T A L S --------------- The Corporation and International Managed Care, LLC, International Managed Care (Bermuda), L.P., Peter W. Nauert, Michael A. Cavataio, Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590033, Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590034, Karon Hill, Val Rajic, Turkey Vulture Fund XIII, Ltd., Marc C. Krantz, Krantz Family Limited Partnership, Medical Mutual of Ohio, Howard R. Conant, Joseph Cusimano IRA, and LEG Partners SBIC, L.P., Glen A. Laffoon, Charles E. Miller, Jr., Lunn-Ceres, LLC, John Cochrane, Bruce Henry, Andrew A. Boemi, Sally J. Krogh, Michael A. Cavataio IRA, Kenneth A. Mannino IRA, Ralph Alexander, Ronald L. Kotowski, Richard Kusnic, George A. Gehringer, Anthony J. Pino, Billy B. Hill, Jr. and John Kertis are parties to a Registration Rights Agreement, dated July 1, 1998, as amended by Amendment No. 1 to Registration Rights Agreement, dated February 17, 1999 (the "Original Registration Rights Agreement"), pursuant to which the Investors would have certain registration rights relating to shares of the Corporation's common stock, par value $0.001 per share (the "Common Shares"), owned by the Investors; The Corporation has offered up to 3,333,334 Common Shares (the "Pyramid Offering Shares") in a private placement offering; The Corporation has offered Convertible Voting Preferred Stock, par value $0.001 per share, which are convertible into ________ Common Shares (the "United Offering Shares"), to United Insurance Company of America, an Illinois insurance corporation ("United"), in a private placement offering; The Corporation desires to enter into a separate registration rights agreement with United as of the date hereof; The Corporation desires to include the Pyramid Offering Shares in the Original Registration Rights Agreement, as amended, and make the purchasers of the Pyramid Offering Shares subject to and bound by the Original Registration Rights Agreement; 2 The purchasers of the Pyramid Offering Shares have agreed to be subject to and bound by the Original Registration Rights Agreement; and The Corporation and the Investors listed on the signature page attached hereto representing a majority of the Registrable Shares in the Original Registration Rights Agreement (together the "Parties") have agreed to amend and restate the Original Registration Rights Agreement to include the Pyramid Offering Shares and to make certain other modifications. AGREEMENTS ---------- In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. As used in this Agreement. "Commission" means the Securities and Exchange Commission. "Common Shares" means the Common Shares, $0.001 par value per share, of the Corporation. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Offering" means (1) the offering by the Corporation on February 17, 1999 of 2,000,000 Common Shares in a private placement offering in connection with the acquisition of Continental General Corporation, a Nebraska corporation (the "Continental Offering"), and (2) the offering by the Corporation on ________, 2000 of 3,333,334 Common Shares in a private placement offering in connection with the acquisition of Pyramid Life Insurance Company, a Kansas stock insurance company (the "Pyramid Offering"). "Offering Shares" means (1) the 2,000,000 Common Shares offered by the Corporation in the Continental Offering, and (2) the 3,333,334 Common Shares offered by the Corporation in the Pyramid Offering. "Person" means a natural person, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act or any comparable statement under any comparable federal statute then in effect. -2- 3 "Pyramid Registrable Shares" means at any time (i) any Common Shares then outstanding which were issued pursuant to the Pyramid Offering; (ii) any Common Shares then outstanding and held by any purchaser in the Pyramid Offering; (iii) 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) or (ii); and (iv) 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) or (ii); PROVIDED, HOWEVER, that Pyramid 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 Pyramid Registrable Shares whenever such Person has the then-existing right to acquire such Pyramid Registrable Shares, whether or not such acquisition actually has been effected. "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, except for purposes of Section 2.1 of this Agreement where the term "Registrable Shares" does not include the Common Shares issued in the Pyramid 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)), except for the purposes of Section 2.1 of this Agreement where the term "Registrable Shares" does not include the Common Shares issued in the Pyramid Offering; (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. "Securities Act" means the Securities Act of 1933, as amended. "Stock Purchase Agreement" means the Amended and Restated Stock Purchase Agreement dated as of March 30, 1998, by and among the Corporation, Strategic Acquisition Partners, L.L.C., Insurance Partners, L.P. and Insurance Partners Offshore (Bermuda). "United Registrable Shares" means the securities registrable under the Registration Rights Agreement, dated as of __________, 2000, by and between Ceres Group, Inc. and United Insurance Company of America (the "United Registration Rights Agreement"). 2. DEMAND REGISTRATION. -3- 4 2.1 REQUESTS FOR REGISTRATION. Subject to the terms of this Agreement, (i) the holders of at least $5,000,000 of the then market value of the outstanding Registrable Shares, at any time, may request registration under the Securities Act of all or part of their Registrable Shares, and (ii) beginning one year from the date of this Agreement, the holders of at least $10,000,000 of the then market value of the outstanding Pyramid Registrable Shares may request registration under the Securities Act of at least $5,000,000 of their Pyramid Registrable Shares, on Form S-1 or any similar long-form registration ("Long Form Registrations") or, if available, then at the option of the Corporation, on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations"). Within ten (10) days after receipt of any request pursuant to this Section 2.1, the Corporation will give written notice of such request to all other holders of Registrable Shares, United Registrable Shares and Pyramid Registrable Shares, subject to Section 2.4, and will include in such registration all Registrable Shares, United Registrable Shares and Pyramid Registrable Shares with respect to which the Corporation has received written requests for inclusion within thirty (30) days after delivery of the Corporation's notice. All registrations requested pursuant to this Section 2 are referred to herein as "Demand Registrations." 2.2 PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Corporation will pay all Registration Expenses (as defined in Section 6 below) for (i) two Demand Registrations initiated by International Managed Care, LLC, (ii) one Demand Registration initiated by Turkey Vulture Fund XIII, Ltd., (iii) one Demand Registration initiated by Strategic Acquisition Partners, LLC (or its principals or affiliates), and (iv) one Demand Registration initiated by the holders of at least $10,000,000 of the then market value of the outstanding Pyramid Registrable Shares (including those under Section 2.3) (whether a Long-Form Registration or a Short-Form Registration). A registration will not count as one of the Corporation-paid Demand Registrations until it has become effective and the holders of Registrable Shares are able to register and sell at least 90% of the Registrable Shares requested to be included in such registration (or in the case of a shelf registration, it remains effective for not less than 180 days); PROVIDED, HOWEVER, that in any event the Corporation will pay all Registration Expenses in connection with any registration initiated as a Demand Registration even though such registration shall not count as a Corporation-paid Demand Registration. In a Demand Registration other than the five Demand Registrations referred to in the first sentence of this Section (including those under Section 2.3), the Registration Expenses of such registration shall be borne by the holders of Registrable Shares to be registered thereunder PRO RATA based on the number of Registrable Shares, United Registrable Shares and other securities requested or permitted to be included in such registration pursuant to the terms of this Agreement. 2.3 SHORT-FORM REGISTRATIONS. Demand Registrations will be Short-Form Registrations whenever the Corporation is permitted to use any applicable short form. The Corporation will use its best efforts to make Short-Form Registrations available for the sale of Registrable Shares and United Registrable Shares. If a Short-Form Registration is to be an underwritten public offering, and if the underwriters for marketing or other reasons request the inclusion in the registration statement of information which is not required under the Securities Act to be included in a registration statement on the applicable form for the Short-Form Registration, the Corporation will provide such information as may be reasonably requested for inclusion by the underwriters in the Short-Form Registration. -4- 5 2.4 PRIORITY. If a Demand Registration is an underwritten public offering and the managing underwriters advise the Corporation in writing that in their opinion the inclusion of the number of Registrable Shares and United Registrable Shares and other securities requested to be included (by the Corporation or others) creates a substantial risk that the price per Common Share will be reduced, the Corporation will include in such registration, prior to the inclusion of any securities which are not Registrable Shares or United Registrable Shares, the number of Registrable Shares and United Registrable Shares requested to be included which in the opinion of such underwriters can be sold without creating such a risk, PRO RATA among the respective holders of Registrable Shares and United Registrable Shares on the basis of the number of Registrable Shares and United Registrable Shares owned by such holders, with further successive PRO RATA allocations among the holders of Registrable Shares and United Registrable Shares if any such holder of Registrable Shares and United Registrable Shares has requested the registration of less than all such Registrable Shares and United Registrable Shares it is entitled to register. 2.5 RESTRICTIONS. The Corporation will not be obligated to effect any Demand Registration within 180 days after the effective date of a previous Demand Registration. The Corporation may postpone for up to ninety (90) days the filing or the effectiveness (but not the preparation) of a registration statement for a Demand Registration if the Board of Directors of the Corporation reasonably and in good faith determines that such filing would require a disclosure of a material fact that would have a material adverse effect on the Corporation or any plan by the Corporation to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other significant transaction. In order to postpone the filing of a registration statement pursuant to this Section 2.5, the Corporation shall promptly (but in any event within ten (10) days), upon determining to seek such postponement, deliver to each holder who has requested the registration of all or any part of its Registrable Shares and United Registrable Shares, a certificate signed by an executive officer of the Corporation stating that the Corporation is postponing such filing pursuant to this Section 2.5 and a general statement of the reason for such postponement and an approximation of the anticipated delay. Within twenty (20) days after receiving such certificate, the holders of a majority of the Registrable Shares and United Registrable Shares held who have requested the registration of all or any part of their respective Registrable Shares and United Registrable Shares and for which registration was previously requested may withdraw such demand request by giving written notice to the Corporation; if withdrawn, the demand request shall be deemed not to have been made for all purposes of this Agreement. The Corporation may postpone the filing of a particular registration statement pursuant to this Section 2.5 only once. 2.6 SELECTION OF UNDERWRITERS. The holders of at least a majority of the Registrable Shares included in any Demand Registration pursuant to Section 2.1 of this Agreement shall have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Corporation's approval which will not be unreasonably withheld or delayed, and any existing contract rights of Advest, Inc. -5- 6 3. PIGGYBACK REGISTRATION. 3.1 RIGHT TO PIGGYBACK. Whenever the Corporation proposes to register any of its equity securities under the Securities Act (other than pursuant to a Demand Registration hereunder or on Form S-8 or S-4 or any successor form thereto) and the registration form to be used may be used for the registration of any Registrable Shares and United Registrable Shares (a "Piggyback Registration"), the Corporation will give prompt written notice (which shall be given not less than thirty (30) days prior to the effective date of the registration statement) to all holders of the Registrable Shares and United Registrable Shares of its intention to effect such a registration and will include in such registration all Registrable Shares and United Registrable Shares (in accordance with the priorities set forth in Sections 3.2 and 3.3 below) with respect to which the Corporation has received written requests for inclusion within fifteen (15) days after the delivery of the Corporation's notice; PROVIDED, HOWEVER, that the holders of the Pyramid Registrable Shares and the United Registrable Shares will only be permitted to include any of their Pyramid Registrable Shares or United Registrable Shares, as the case may be, in such registration beginning one year from the date of this Agreement. 3.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an underwritten primary registration on behalf of the Corporation and the managing underwriters advise the Corporation in writing that in their opinion the number of securities requested to be included in the registration creates a substantial risk that the price per Common Share will be reduced, the Corporation will include in such registration FIRST, the securities that the Corporation proposes to sell, SECOND, the Registrable Shares and United Registrable Shares requested to be included in such registration, PRO RATA among the holders of such Registrable Shares and United Registrable Shares on the basis of the number of shares which are owned by such holders, and THIRD, other securities requested to be included in such registration. 3.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Corporation's securities and the managing underwriters advise the Corporation in writing that in their opinion the number of securities requested to be included in the registration creates a substantial risk that the price per Common Share will be reduced, the Corporation will include in such registration FIRST, the securities requested to be included therein by the holders requesting such registration and the Registrable Shares and United Registrable Shares requested to be included in such registration, PRO RATA among the holders of such securities on the basis of the number of Common Shares or Registrable Shares and United Registrable Shares which are owned by such holders, and SECOND, other securities requested to be included in such registration. 3.4 OTHER REGISTRATIONS. If the Corporation has previously filed a registration statement with respect to Registrable Shares or Pyramid Registrable Shares pursuant to Section 2 or Registrable Shares pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, the Corporation will not file or cause to be effected any other registration -6- 7 of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. 3.5 SELECTION OF UNDERWRITERS. In connection with any Piggyback Registration, the holders of at least a majority of the Registrable Shares and United Registrable Shares requested to be registered shall have the right to select the managing underwriters (subject to the approval of the Corporation which shall not be unreasonably withheld or delayed) to administer any offering of the Corporation's securities in which the Corporation does not participate, and the Corporation will have such right in any offering in which it participates. 4. HOLDBACK AGREEMENTS. 4.1 HOLDERS' AGREEMENTS. Each holder of Registrable Shares agrees not to effect any public sale or distribution of equity securities of the Corporation, or any securities convertible into or exchangeable or exercisable for such securities or make any demand for registration under Sections 2 or 3 hereof, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which Registrable Shares are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. Nothing herein shall prevent a holder of Registrable Shares that is a partnership from making a distribution of Registrable Shares to its partners, a holder of Registrable Shares that is a trust from making a distribution of Registrable Shares to its beneficiaries or a holder of Registrable Shares that is a corporation from making a distribution of Registrable Shares to its stockholders, provided that the transferees of such Registrable Shares agree to be bound by the provisions of this Agreement to the extent the transferor would be so bound. 4.2 CORPORATION'S AGREEMENTS. The Corporation agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, (ii) to use all reasonable efforts to cause each holder of at least five percent (5%) (on a fully diluted basis) of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities to agree not to effect any public sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree, subject to the registration obligations of the Corporation under the Common Share Purchase Warrants and (iii) if requested by the underwriters managing the registered public offering, to use all reasonable efforts to cause each other holder of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, purchased from the Corporation at any time (other than in a registered public offering) to agree not to effect any public sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise -7- 8 permitted), unless the underwriters managing the registered public offering otherwise agree, subject to the registration obligations of the Corporation under the Common Share Purchase Warrants. 5. REGISTRATION PROCEDURES. Whenever the holders of Registrable Shares have requested that any Registrable Shares be registered pursuant to this Agreement, the Corporation will use its best efforts to effect the registration and sale of such Registrable Shares in accordance with the intended method of disposition thereof and, pursuant thereto, the Corporation will as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Corporation will furnish copies of all such documents proposed to be filed to the counsel or counsels for the sellers of the Registrable Shares covered by such registration statement); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus(es) used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than nine months and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Shares and the underwriters such number of copies of such registration statement, each amendment and supplement thereto, the prospectus(es) included in such registration statement (including each preliminary prospectus) and such other documents as such seller or underwriter may reasonably request in order to facilitate the disposition of the Registrable Shares; (d) use its best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as any seller or underwriter reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller or underwriter to consummate the disposition in such jurisdictions of the Registrable Shares (provided that the Corporation will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (ii) consent to general service of process in any such jurisdiction); (e) promptly notify each seller of such Registrable Shares, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Corporation will prepare a supplement or amendment to such prospectus or registration statement so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus or registration statement will not -8- 9 contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Shares to be (i) listed on each securities exchange on which similar securities issued by the Corporation are then listed, (ii) authorized to be quoted and/or listed (to the extent applicable) on the NASD Automated Quotation System or The Nasdaq National Market if the Registrable Shares so qualify, or (iii) if no similar securities issued by the Corporation are then listed on a securities exchange, a securities exchange selected by the holders of at least a majority of the Registrable Shares included in such registration; (g) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of at least a majority of the Registrable Shares being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Shares (including, but not limited to, effecting a stock split or a combination of shares). (i) make available for inspection by any seller of Registrable Shares, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Corporation, and cause the Corporation's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state securities or other regulatory authority suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) at least forty eight (48) hours prior to the filing of any registration statement or prospectus, or any amendment or supplement to such registration statement or prospectus, furnish a copy thereof to each seller of such Registrable Shares and refrain from filing any such registration statement, prospectus, amendment or supplement to which counsel selected by the holders of at least a majority of the Registrable Shares being registered shall have reasonably objected on the grounds that such document does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, unless, in the case of an amendment or supplement, in the opinion of counsel for the Corporation the filing of such amendment or supplement is reasonably necessary to protect the Corporation from any liabilities under any applicable federal or state law and such filing will not violate applicable laws; -9- 10 (l) at the request of any seller of such Registrable Shares in connection with an underwritten offering, furnish on the date or dates provided for in the underwriting agreement: (i) an opinion of counsel, addressed to the underwriters and the sellers of Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, including such matters as are customarily furnished in connection with an underwritten offering and (ii) a letter or letters from the independent certified public accountants of the Corporation addressed to the underwriters and the sellers of Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, in which letter(s) such accountants shall state, without limiting the generality of the foregoing, that they are independent certified public accountants within the meaning of the Securities Act and that in their opinion the financial statements and other financial data of the Corporation included in the registration statement, the prospectus(es), or any amendment or supplement thereto, comply in all material respects with the applicable accounting requirements of the Securities Act; (m) make generally available to the Corporation's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than thirty (30) days after the end of the twelve (12) month period beginning with the first day of the Corporation's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover such twelve (12) month period, and which requirement will be deemed to be satisfied if the Corporation timely files complete and accurate information on Forms 10-Q, 10-K, and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; (n) if requested by the managing underwriter or any seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (o) cooperate with each seller and each underwriter participating in the disposition of such Registrable Shares and their respective counsel in connection with any filings required to be made with the NASD; (p) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act; and (q) notify each seller of Registrable Shares promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information. -10- 11 6. REGISTRATION EXPENSES. 6.1 CORPORATION'S EXPENSES. Except as provided in Section 2.2 hereof, all expenses incident to the Corporation's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Corporation and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Corporation (all such expenses being herein called "Registration Expenses"), will be borne by the Corporation. In addition, the Corporation will pay its internal expenses (including, but not limited to, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance obtained by the Corporation; the expenses and fees for listing the securities to be registered on each securities exchange, expenses incurred in obtaining any comfort letters, and all fees and expenses associated with filings required to be made with the NASD. 6.2 HOLDER'S EXPENSES. Except as provided in Section 2.2 hereof, in connection with any registration statement in which Registrable Shares are included, the Corporation will reimburse the holders of Registrable Shares covered by such registration for the reasonable cost and expenses incurred by such holders in connection with such registration, including, but not limited to, reasonable fees and disbursements of one counsel chosen by the holders of at least a majority of such Registrable Shares. 7. INDEMNIFICATION. 7.1 BY THE CORPORATION. The Corporation agrees to indemnify and reimburse, to the fullest extent permitted by law, each holder of Registrable Shares, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including, but not limited to, attorney's fees) caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact, required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are directly caused by statements or omissions made in reliance on and in strict conformity with the information furnished in writing to the Corporation by such holder regarding such holder expressly for use therein or by such holder's failure to deliver a copy of the prospectus or any amendments or supplements thereto after the Corporation has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Corporation will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the extent customary. The payments required by this Section 7.1 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred, subject to an obligation of repayment in the event such indemnity is determined not to be owed. -11- 12 7.2 BY EACH HOLDER. In connection with any registration statement in which a holder of Registrable Shares is participating, each such holder will furnish to the Corporation in writing such information regarding such holder as the Corporation reasonably requests for use in connection with any such registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto and, to the extent permitted by law, will indemnify the Corporation, its directors and officers and each Person who controls the Corporation (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished in writing by such holder specifically for inclusion in the registration statement or prospectus; provided, that the obligation to indemnify will be several, and not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be limited to the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement; further provided, however, that such seller of Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Corporation information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto that corrected or made not misleading information previously furnished to the Corporation. 7.3 PROCEDURE. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying Person of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person except to the extent such failure to provide notice materially prejudices the indemnifying Person) and (ii) unless in such indemnified Person's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably delayed or withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (i) such settlement or compromise contains a full and unconditional release of the indemnified party or (ii) the indemnified party otherwise consents in writing. An indemnifying Person who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying Person with respect to such claim, unless in the reasonable judgment of any indemnified Person a conflict of interest may exist between such indemnified Person and any other of such indemnified parties with respect to such claim in which event the costs of such additional counsel shall be borne by the indemnifying Person. -12- 13 7.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 7.1 or 7.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, liabilities, claims, damages, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, liabilities, claims, damages, or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation (even if the holders or any underwriters or all of them were treated as one Person for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 7.4, The amount paid or payable by an indemnified party as a result of the losses, liabilities, claims, damages, or expenses (or actions in respect thereof referred to above) shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 7.3, defending any such action or claim. Notwithstanding the provisions of this Section 7.4, no holder shall be required to contribute an amount greater than the dollar amount by which the net proceeds received by such holder with respect to the sale of any Registrable Shares exceeds the amount of damages which such holder has otherwise been required to pay by reason of any and all untrue or alleged untrue statements of material fact or omissions or alleged omissions of material fact made in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, related to such sale of Registrable Shares. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The holders' obligations in this Section 7.4 to contribute shall be several in proportion to the amount of Registrable Shares registered by them and not joint. If indemnification is available under this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 7.1 and 7.2 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration provided for in this Section 7.4 subject, in the case of the holders, to the limited dollar amounts get forth in Section 7.2. 7.5 SURVIVAL. The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and will survive the transfer of securities. The Corporation also agrees to make such provisions as are reasonably requested by any indemnified Person for contribution to such Person in the event the Corporation's indemnification is unavailable for any reason. -13- 14 8. COMPLIANCE WITH RULE 144 AND RULE 144A. At the request of any holder of Registrable Shares who proposes to sell securities in compliance with Rule 144 of the Commission, the Corporation will (i) forthwith furnish to such holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, as such rule may be amended from time to time and (ii) make available to the public and such holders such information as will enable the holders of Registrable Shares to make sales pursuant to Rule 144. Unless the Corporation is subject to Section 13 or 15(d) of the Exchange Act, the Corporation will provide to the holder of Registrable Shares and to any prospective purchaser of Registrable Shares under Rule 144A of the Commission, the information described in Rule 144A(d)(4) of the Commission. 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by such Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided, that no holder of Registrable Shares shall be required to make any representations or warranties in connection with any registration other than as to (i) such holder's ownership of his or its Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such holder's power and authority to effect such transfer, and (iii) such matters pertaining to the compliance with securities laws as may be reasonably requested; provided, further, that the obligation of such holder to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such holders selling Registrable Shares, and the liability of each such holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such holder from the sale of his or its Registrable Shares pursuant to such registration. 10. MISCELLANEOUS. 10.1 NO INCONSISTENT AGREEMENTS. The Corporation will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Shares in this Agreement. 10.2 ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Corporation will not take any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Shares to include such Registrable Shares in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Shares in any such registration, including, but not limited to, effecting a stock split or combination of shares. 10.3 OTHER REGISTRATION RIGHTS. Except as provided in this Agreement and in the United Registration Rights Agreement, the Corporation will not hereafter grant to any Person or Persons the right to request the Corporation to register any equity securities of the Corporation, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of at least a majority of the Registrable Shares. -14- 15 10.4 REMEDIES. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law, in equity, or otherwise. 10.5 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Corporation and the holders of at least a majority of the Registrable Shares; PROVIDED, HOWEVER, that the provisions of this Agreement may not be amended or waived without the consent of the holders of all the Registrable Shares adversely affected by such amendment or waiver if such amendment or waiver adversely affects a portion of the Registrable Shares but does not so adversely affect all of the Registrable Shares. Any waiver, permit, consent or approval of any kind or character on the part of any such holders of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of Registrable Securities and the Corporation. 10.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Investors or holders of Registrable Shares are also for the benefit of, and enforceable by, any subsequent holders of such Registrable Shares. 10.7 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 10.8 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 10.9 NOTICES. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as any Person designates by written notice to the Corporation, and shall be deemed to have been given upon delivery, if delivered personally, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: -15- 16 If to the Corporation, to: Ceres Group, Inc. 17800 Royalton Road Cleveland, Ohio 44136 with a copy to: Kohrman Jackson & Krantz P.L.L. 1375 E. Ninth Street, 20th Floor One Cleveland Center Cleveland, Ohio 44114 Attn: Marc C. Krantz If to the Investors, to the addresses set forth on Exhibit A hereto. If to holders of the Registrable Shares other than the Investors, to the addresses set forth on the stock record books of the Corporation. 10.10 GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Ohio applicable to contracts made and wholly to be performed in that state. 10.11 FINAL AGREEMENT. This Agreement, together with the Stock Purchase Agreement and all other agreements entered into by the parties hereto pursuant to the Stock Purchase Agreement, constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 10.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 10.13 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any Person. [Remainder of page intentionally left blank. Signature pages follow.] -16- 17 The parties hereto have executed this Agreement on the date first above written. THE CORPORATION: ---------------- CERES GROUP, INC. By: /s/ Charles E. Miller, Jr. ---------------------------- Name: Charles E. Miller, Jr. Title: CFO -17- 18 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CONSENT OF HOLDERS OF A MAJORITY OF REGISTRABLE SHARES INTERNATIONAL MANAGED CARE, LLC By: Insurance Partners, L.P., its managing member 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/ Robert A. Spass -------------------------------- By: Robert A. Spass Its: Managing Partner INTERNATIONAL MANAGED CARE (BERMUDA), L.P. By: Insurance Partners Offshore (Bermuda), L.P., its general partner By: Insurance GenPar (Bermuda), L.P., its General Partner By: Insurance GenPar (Bermuda) MGP, L.P., its General Partner -18- 19 By: Insurance GenPar (Bermuda) MGP, Ltd., its General Partner /s/ Robert A. Spass ----------------------------------- By: Robert A. Spass Its: Managing Partner /s/ Peter W. Nauert ------------------------------------------------ PETER W. NAUERT -19- 20 EXHIBIT A International Managed Care, LLC International Managed Care (Bermuda), L.P. Peter W. Nauert Michael A. Cavataio Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590033 Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590034 Karon Hill Val Rajic Turkey Vulture Fund XIII, Ltd. Marc C. Krantz Krantz Family Limited Partnership Medical Mutual of Ohio Howard R. Conant Joseph Cusimano IRA, LEG Partners SBIC, L.P. Glen A. Laffoon Charles E. Miller, Jr. Lunn-Ceres, LLC John Cochrane Bruce Henry Andrew A. Boemi Sally J. Krogh Michael A. Cavataio IRA Kenneth A. Mannino IRA Ralph Alexander Ronald L. Kotowski Richard Kusnic, George A. Gehringer Anthony J. Pino Billy B. Hill, Jr. John Kertis Castle Creek Capital Partners Fund IIa, LP Castle Creek Capital Partners Fund IIb, LP Lunn-Ceres II, LLC EX-4.2 7 ex4-2.txt EXHIBIT 4.2 1 EXHIBIT 4.2 AMENDED AND RESTATED VOTING AGREEMENT This AMENDED AND RESTATED VOTING AGREEMENT (the "AGREEMENT") is entered into as of July 25, 2000, by and among Ceres Group, Inc., a Delaware corporation (including its successors, the "COMPANY") and the security holders listed on Exhibit A of this Agreement (or who may hereafter become a party hereto pursuant to the terms hereof). WHEREAS, the Company and International Managed Care, LLC, International Managed Care (Bermuda), L.P., Peter W. Nauert, Michael A. Cavataio, Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590033, Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590034, Karon Hill, Val Rajic, Turkey Vulture Fund XIII, Ltd., Marc C. Krantz, Krantz Family Limited Partnership, Medical Mutual of Ohio, Howard R. Conant, Joseph Cusimano IRA, and LEG Partners SBIC, L.P., Glen A. Laffoon, Charles E. Miller, Jr., Lunn- Ceres, LLC, John Cochrane, Bruce Henry, Andrew A. Boemi, Sally J. Krogh, Michael A. Cavataio IRA, Kenneth A. Mannino IRA, Ralph Alexander, Ronald L. Kotowski, Richard Kusnic, George A. Gehringer, Anthony J. Pino, Billy B. Hill, Jr. and John Kertis are parties to a Voting Agreement, dated July 1, 1998, as amended (the "Original Voting Agreement"), pursuant to which the parties regulated certain aspects of their relationship as holders of common stock, par value $0.001 per share, of the Company; WHEREAS, the Company has offered up to 3,333,334 shares of common stock of the Company (the "Pyramid Offering Shares") in a private placement offering; WHEREAS, the parties wish to include certain purchasers of the Pyramid Offering Shares in the Original Voting Agreement and modify certain other provisions of the Original Voting Agreement which are no longer effective; and WHEREAS, the Company and the parties listed on the signature page attached hereto representing a majority of the Required Holders (as defined below) have agreed to amend and restate the Original Voting Agreement to include the purchasers of the Pyramid Offering Shares and to make certain other modifications. NOW THEREFORE, in consideration of the agreements and covenants herein contained and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: -1- 2 "Affiliate" shall mean, with respect to any Person, any Person who, directly or indirectly, controls, is controlled by, or is under common control with that Person. For purposes of this definition, "control," and "controlled by" and when used with respect to any Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise. "Castle Creek" shall mean, collectively, Castle Creek Capital Partners Fund IIa, LP, a Delaware limited partnership, and Castle Creek Capital Partners Fund IIb, LP, a Delaware limited partnership. "Castle Creek Group" shall mean Castle Creek, its Affiliates, and their respective officers, directors, and employees (and members of their respective families and trusts for the primary benefit of such family members). "Castle Creek Group Closing Date Shares" shall mean the 1,666,667 Pyramid Offering Shares purchased by Castle Creek. "Common Stock" shall mean shares of the Common Stock, $0.001 par value per share, of the Company, and any capital stock into which such Common Stock thereafter may be changed. "Common Stock Equivalents" shall mean, without duplication with any other Common Stock or Common Stock Equivalents, any rights, warrants, options, convertible securities or indebtedness, exchangeable securities or indebtedness, or other rights, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock and securities convertible or exchangeable into Common Stock, whether at the time of issuance or upon the passage of time or the occurrence of some future event. "Closing Date" shall mean the closing of the transactions contemplated by the Stock Purchase Agreement. "Designee" shall mean an individual designated for election to the Board of Directors by IP Delaware, SAP, Osborne or Castle Creek pursuant to Section 2.1 of this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Holder" shall mean (i) a securityholder listed on EXHIBIT A hereto and (ii) any direct or indirect transferee of any such securityholder who shall become a party to this Agreement by executing a joinder agreement in the form of EXHIBIT B hereto. -2- 3 "IMC" shall mean, collectively, IMC Delaware and IMC Bermuda. "IMC Bermuda" shall mean International Managed Care (Bermuda), L.P., a Bermuda limited partnership. "IMC Delaware" shall mean International Managed Care LLC, a Delaware limited liability company. "IMC Group" shall mean IMC Delaware, IMC Bermuda, their respective Affiliates, the respective officers, directors, and employees (and members of their respective families and trusts for the primary benefit of such family members) of the foregoing, and the respective limited partners of IMC Delaware and IMC Bermuda. "IMC Group Closing Date Shares" shall mean the number of shares of Common Stock owned by the IMC Group as of the date of the Original Voting Agreement as set forth on EXHIBIT C hereto. "Independent Director" shall mean a director meeting the standards of an "independent director" as defined in Rule 4200(a) of the rules of the NASD as of the Closing Date. "Osborne" shall mean Turkey Vulture Fund, III, Ltd. an Ohio limited liability company. "Osborne Group" shall mean Osborne, its Affiliates, and their respective officers, directors, and employees (and members of their respective families and trusts for the primary benefit of such family members). "Osborne Group Closing Date Shares" shall mean the number of shares of Common Stock owned by the Osborne Group as of the date of the Original Voting Agreement as set forth on EXHIBIT C hereto. "Person" or "person" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, or government or other agency or political subdivision thereof. "Required Holders" shall mean Holders who then own beneficially more than 66-2/3% of the aggregate number of shares of Common Stock subject to this Agreement. "SAP" shall mean Strategic Acquisition Partners, LLC, a Nevada limited liability company. "SAP Group" shall mean SAP, its Affiliates, and their respective officers, -3- 4 directors, and employees, Peter W. Nauert, Michael A. Cavataio, Karon Hill and Val Rajic (and members of their respective families and trusts for the primary benefit of such family members). "SAP Group Closing Date Shares" shall mean the number of shares of Common Stock owned by the SAP Group as of the date of the Original Voting Agreement as set forth on EXHIBIT C hereto. "Stockholders Agreement" shall mean that certain Stockholders Agreement, dated as of July 1, 1998, among the Company and the various stockholders party thereto from time to time. "Stock Purchase Agreement" shall mean the Amended and Restated Stock Purchase Agreement dated as of March 30, 1998, by and among the Company and certain purchasers pursuant to which the Company issued 7,300,000 shares of Common Stock and warrants (the "WARRANTS") to purchase up to 3,650,000 shares of Common Stock (the "WARRANT SHARES"). ARTICLE II ELECTION OF DIRECTORS SECTION 2.1 BOARD OF DIRECTORS. (a) The Holders shall cause the Board of Directors of the Company to consist of nine directors, some or all, as applicable, of whom shall consist of the following individuals: (i) IMC DESIGNEES. Four individuals designated by IMC, so long as the IMC Group shall own a number of shares of Common Stock equal to at least 75% of the IMC Group Closing Date Shares; three individuals designated by IMC, so long as the IMC Group shall own a number of shares of Common Stock equal to at least 50%, but less than 75%, of the IMC Group Closing Date Shares; two individuals designated by IMC, so long as the IMC Group shall own a number of shares of Common Stock equal to at least 25%, but less than 50%, of the IMC Group Closing Date Shares; and one individual designated by IP, so long as the IMC Group shall own a number of shares of Common Stock equal to at least 10%, but less than 25%, of the IMC Group Closing Date Shares; (ii) SAP DESIGNEES. Two individuals designated by SAP, so long as the SAP Group shall own a number of shares of Common Stock equal to at least 50% of the SAP Closing Date Shares; and one individual designated by SAP, so long as the SAP Group shall own a number of shares of Common Stock equal to at least 10%, but less than 50%, of the SAP Group Closing Date Shares; (iii) OSBORNE DESIGNEE. One individual designated by Osborne, so long as the -4- 5 Osborne Group shall own a number of shares of Common Stock equal to at least 25% of the Osborne Group Closing Date Shares; and (iv) CASTLE CREEK DESIGNEE. One individual designated by Castle Creek, so long as the Castle Creek Group shall own a number of shares of Common Stock equal to at least 25% of the Castle Creek Group Closing Date Shares. PROVIDED, HOWEVER, that until the first date as of which the Company does not have a class of equity securities either registered under Section 12(b) or 12(g) of the Exchange Act, at least two of the individuals elected to the Board of Directors shall constitute Independent Directors; and PROVIDED FURTHER, that (i) none of IMC, SAP, Osborne or Castle Creek shall be required to designate an individual that constitutes an Independent Director so long as two individuals who constitute Independent Directors are nominated to serve as directors and SAP, IMC, Osborne and Castle Creek vote for their election; PROVIDED, that if the Company has cumulative voting with respect to the election of its directors, the SAP Group, IMC Group, Osborne Group and Castle Creek Group shall be permitted to vote in favor of the SAP Designees, IMC Designees, Osborne Designee and Castle Creek Designee as provided in this Section 2.1(a) to the extent necessary to ensure the election of such Designees prior to casting any votes in favor of such Independent Directors; (ii) in the event one or two of the individuals to be designated pursuant to the foregoing provisions must constitute an Independent Director in order to meet the requirements of the immediately preceding proviso, then, first, IMC shall designate as one of its designees an individual that constitutes an Independent Director, and, second, SAP shall designate as one of its designees an individual that constitutes an Independent Director. (b) For purposes of the foregoing provisions and SECTION 2.2, in determining whether any person or group owns a specified number of shares of Common Stock for purposes of comparison to the number of shares owned by a person or group on the Closing Date, appropriate adjustment shall be made in each case to give effect to any stock splits, dividends or combinations. (c) If, prior to his election to the Board of Directors of the Company pursuant to SECTION 2.1, any designee shall be unable or unwilling to serve as a director of the Company, the Holder or Holders who designated such Designee shall be entitled to nominate a replacement who shall then be a Designee for purposes of this SECTION 2.1. If, following an election to the Board of Directors of the Company pursuant to SECTION 2.1, any Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his term as a director of the Company, the Holder or Holders who designated such Designee shall, within thirty (30) days of such event, notify the Board of Directors of the Company in writing of a replacement Designee, and either (i) the Holders shall vote their shares of Common Stock, at any regular or special meeting called for the purpose of filling positions on the Board of Directors of the Company or in any written consent executed in lieu of such a meeting of stockholders, and shall take all such other actions necessary to ensure the election to the Board of Directors of the Company of such replacement Designee to fill the unexpired term of the Designee who such new -5- 6 Designee is replacing or (ii) the Board of Directors shall elect such replacement Designee to fill the unexpired term of the Designee who such new Designee is replacing. If any Holder requests that any Designee designated by such Holder be removed as a Director (with or without cause) by written notice thereof to the Company, then the Company shall take all actions necessary to effect, and each of the Holders shall vote all of its capital stock in favor of, such removal upon such request. (d) Each Holder shall vote its shares of Common Stock at any regular or special meeting of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders and shall take all other actions necessary to give effect to the agreements contained in this Agreement (including, without limitation, the election of Designees as directors as described herein) and to ensure that the certificate of incorporation and bylaws as in effect immediately following the date hereof do not, at any time thereafter, conflict in any respect with the provisions of this Agreement. In order to effectuate the provisions of this SECTION 2.1, each Holder hereby agrees that when any action or vote is required to be taken by such Holder pursuant to this Agreement, such Holder shall use its best efforts to call, or cause the appropriate officers and directors of the Company to call, a special or annual meeting of stockholders of the Company, as the case may be, or execute or cause to be executed a consent in writing in lieu of any such meetings pursuant to applicable law. SECTION 2.2 CONTINUED LISTING. Until the three year anniversary of the Closing Date, each Holder shall vote its shares of Common Stock in such manner that the Company shall not be voluntarily delisted from the Nasdaq National Market, except (y) in connection with (1) a transaction that would constitute a "Rule 13e-3 transaction" (as that term is defined under Rule 13e-3 under the Exchange Act as in effect on the date hereof) with respect to the Common Stock or (2) any other transaction that, if it were effected by the Company or an affiliate thereof, would constitute a "Rule 13e-3 transaction" (as so defined) with respect to the Common Stock, or (z) if the Company becomes listed on a national securities exchange. SECTION 2.3 PROXY. Each Holder hereby grants to each of IMC Delaware, SAP, Osborne and Castle Creek, with full powers of substitution, an irrevocable proxy coupled with an interest as may be necessary to permit each of IMC Delaware, SAP, Osborne and Castle Creek, to vote the shares of the Holder granting such proxy in accordance with the requirements of SECTION 2.1 (by written consent or otherwise) in event the Holder fails to vote its shares of Common Stock as required under SECTION 2.1 within ten (10) days after notice from the party holding such proxy requesting such a vote. SECTION 2.4 PROXY STATEMENT. In connection with any annual meeting of the stockholders or special meeting of the stockholders of the Company called for the election of directors, the Company shall prepare and file, if required, with the Securities and Exchange Commission (the "COMMISSION") a proxy statement relating to such meeting (together with any amendments thereof or supplements thereto, the "PROXY STATEMENT") which shall include the recommendation of the Board in favor of electing the directors specified in SECTION 2.1. Except in the event of termination of this Agreement, no modification or withdrawal of such -6- 7 recommendation shall release the Company of its obligation to submit the election of directors specified in SECTION 2.1 to its stockholders for their vote in accordance with applicable law. The Company shall use reasonable efforts to assure the election of the directors specified in SECTION 2.1. ARTICLE III RESTRICTIONS ON TRANSFER SECTION 3.1 RESTRICTIONS UPON TRANSFER. No Holder may effect, cause to be effected or permit any voluntary or involuntary sale, assignment or transfer of any shares of Common Stock or Common Stock Equivalents or any interest therein (a "TRANSFER"), except for Transfers pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act, unless the transferee agrees to be bound by the provisions of this Agreement and the Stockholders Agreement and such Transfer is, where applicable, made in compliance with the terms of the Stockholders Agreement; PROVIDED, that the Warrants and the Warrant Shares shall not be subject to this Agreement upon the Transfer to a beneficial owner other than IP, SAP, or Osborne and their respective affiliates; PROVIDED FURTHER, that nothing contained herein shall restrict the sale, assignment or transfer of any warrants issued by the Company pursuant to the Credit Agreement dated December 16, 1997 by and between the Company and SAP. Any Transfer not complying with the provisions of this Agreement shall be void AB INITIO, shall not be effective for any purpose and any purported transferee of such a Transfer shall not acquire any right or interest in such Common Stock or the Company. -7- 8 SECTION 3.2 RESTRICTIVE LEGENDS. (a) For the term of this Agreement, each certificate representing the shares of Common Stock or Common Stock Equivalents subject hereto, and each instrument or certificate issued upon exchange or transfer thereof, shall be stamped or otherwise imprinted with the following legend: "THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO TRANSFER RESTRICTIONS, VOTING LIMITATIONS, AND OTHER TERMS AND CONDITIONS CONTAINED IN A VOTING AGREEMENT DATED JULY 1, 1998, AS AMENDED AND RESTATED ______, 2000, BY AND AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY." (b) In addition, each certificate representing shares of Common Stock or Common Stock Equivalents subject hereto and each instrument or certificate issued upon exchange or Transfer thereof shall be stamped or otherwise imprinted with any and all legends required by applicable state and federal securities laws. ARTICLE IV MISCELLANEOUS SECTION 4.1 TERM. The term of this Agreement shall begin on the Closing Date and shall remain in effect until the five (5) year anniversary of the Closing Date. SECTION 4.2 AMENDMENT. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and the Required Holders; PROVIDED, that, no such amendment or waiver: (i) that is adverse to any Holder that owns more than 5% of the outstanding Common Stock shall be effective as to that Holder prior to the three (3) year anniversary of the Closing Date without the consent of such Holder or (ii) shall amend SECTION 2.1(a)(iv), SECTION 2.1(a)(v), the first proviso of SECTION 2.1(a) or SECTION 2.2 unless approved by a majority of the Independent Directors. SECTION 4.3 SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto including any and all subsequent Holders from time to time. -8- 9 SECTION 4.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, as applicable to contracts executed and to be performed entirely in such state. SECTION 4.5 ENTIRE AGREEMENT. Except as provided below, this Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except in writing. SECTION 4.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 4.7 ENFORCEMENT. (a) The Holders each acknowledge and agree that irreparable damage will occur if any of the provisions of this Agreement are not complied with in accordance with their specific terms. Accordingly, the Company will be entitled to an injunction to prevent breached of this Agreement and to enforce specifically its provisions in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which the Company may be entitled at law or in equity. (b) No failure or delay on the part of any party in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. SECTION 4.8 SEVERABILITY. In case any provision of this Agreement shall be held invalid, illegal or unenforceable in any respect for any reason, the validity, legality, and enforceability of any such provision in every other respect and the remaining provisions shall not in any way be affected or impaired thereby. SECTION 4.9 NOTICES. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier, or registered or certified mail, postage prepaid return receipt requested, addressed as follows (or at such other address as may be substituted by notice given as herein provided): -9- 10 IF TO THE COMPANY: ------------------ Ceres Group, Inc. 17800 Royalton Road Cleveland, Ohio 44136 Facsimile No.: (440) 572-4500 Attention: Billy B. Hill, Jr. If to any Holder, at its address listed on the signature pages hereof or in any joinder agreement. Any notice or communication hereunder shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. * * * -10- 11 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed on its behalf by its duly authorized officers, all as of the day and year first above written. CERES GROUP, INC. By: /S/ Charles E. Miller, Jr. -------------------------- Name: Charles E. Miller, Jr. Title: CFO -11- 12 AMENDED AND RESTATED VOTING AGREEMENT CONSENT OF HOLDERS OF THE REQUIRED HOLDERS INTERNATIONAL MANAGED CARE, LLC By: Insurance Partners, L.P., its managing member 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/ Robert A. Spass ------------------------------------- By: Robert A. Spass Its: Managing Partner INTERNATIONAL MANAGED CARE (BERMUDA), L.P. By: Insurance Partners Offshore (Bermuda), L.P., its general partner 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/ Robert A. Spass ----------------------------------------- By: Robert A. Spass Its: Managing Partner -12- 13 AMENDED AND RESTATED VOTING AGREEMENT CONSENT OF HOLDERS OF THE REQUIRED HOLDERS /s/ Peter W. Nauert ---------------------------------------------------- PETER W. NAUERT TURKEY VULTURE FUND XIII, LTD. /s/ Richard M. Osborne ---------------------------------------------------- By: Richard M. Osborne Its: Manager -13- 14 EXHIBIT A --------- International Managed Care, LLC International Managed Care (Bermuda), L.P. Peter W. Nauert Michael A. Cavataio Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590033 Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Director Plan FBO Michael Cavataio #08590034 Karon Hill Val Rajic Turkey Vulture Fund XIII, Ltd. Marc C. Krantz Krantz Family Limited Partnership Medical Mutual of Ohio Howard R. Conant Joseph Cusimano IRA, LEG Partners SBIC, L.P. Glen A. Laffoon Charles E. Miller, Jr. Lunn-Ceres, LLC John Cochrane Bruce Henry Andrew A. Boemi Sally J. Krogh Michael A. Cavataio IRA Kenneth A. Mannino IRA Ralph Alexander Ronald L. Kotowski Richard Kusnic, George A. Gehringer Anthony J. Pino Billy B. Hill, Jr. John Kertis Castle Creek Capital Partners Fund IIa, LP Castle Creek Capital Partners Fund IIb, LP 15 EXHIBIT B --------- JOINDER AGREEMENT Reference is made to (i) that certain Voting Agreement, dated as of _________, 1998, among Central Reserve Life Corporation, an Ohio corporation (the "COMPANY"), and the persons signatory thereto (as amended and in effect from time to time, the "AMENDED AND RESTATED VOTING AGREEMENT"), a copy of which is attached hereto, and (ii) that certain Stockholders Agreement, dated as of ___________, 1998, among the Company and the persons signatory thereto (as amended and in effect from time to time, the "STOCKHOLDERS AGREEMENT"), copy of which is attached hereto. The undersigned, _________________________ [print name], in order to become the owner or holder of __________ shares of common stock of the Company, hereby agrees that by the undersigned's execution hereof, the undersigned is a party to the Voting Agreement and the Stockholders Agreement subject to all of the restrictions, conditions and obligations applicable to stockholders set forth in such agreements. This Joinder Agreement shall take effect and shall become a part of each such agreement immediately upon execution. Executed as of the date set forth below. Signature: ------------------------------ Address: ------------------------------- Date: ----------------------------------- ACCEPTED: CERES GROUP, INC. By: ------------------------------- Name: ------------------------------ Title: ----------------------------- Date: ------------------------------ -15- 16 EXHIBIT C ================================================================================ INVESTOR CLOSING DATE SHARES - -------------------------------------------------------------------------------- International Managed Care, LLC 2,769,164 - -------------------------------------------------------------------------------- International Managed Care (Bermuda), L.P. 1,576,292 - -------------------------------------------------------------------------------- Peter W. Nauert 933,636 - -------------------------------------------------------------------------------- Michael A. Cavataio 130,316 - -------------------------------------------------------------------------------- Mercantile Bank of Northern Illinois, Trustee of the Conseco Stock Option Plan FBO Michael Cavataio #08590033 37,764 #08590034 13,738 - -------------------------------------------------------------------------------- Karon Hill 100,000 - -------------------------------------------------------------------------------- Val Rajic 100,000 - -------------------------------------------------------------------------------- Strategic Acquisition Partners, LLC -0- - -------------------------------------------------------------------------------- Turkey Vulture Fund XIII, Ltd. 720,910 - -------------------------------------------------------------------------------- Medical Mutual of Ohio 363,636 - -------------------------------------------------------------------------------- United Payors and United Providers, Inc. 181,818 - -------------------------------------------------------------------------------- Howard R. Conant 90,909 - -------------------------------------------------------------------------------- Joseph Cusimano IRA 90,909 - -------------------------------------------------------------------------------- LEG Partners SBIC, L.P. 181,818 - -------------------------------------------------------------------------------- Marc C. Krantz 4,546 - -------------------------------------------------------------------------------- Krantz Family Limited Partnership 4,544 ================================================================================ EX-4.4 8 ex4-4.txt EXHIBIT 4.4 1 EXHIBIT 4.4 ----------- UNITED REGISTRATION RIGHTS AGREEMENT ------------------------------------ This United Registration Rights Agreement (this "Agreement"), dated as of July 26, 2000, is between CERES GROUP, INC., a Delaware corporation (the "Company"), and UNITED INSURANCE COMPANY OF AMERICA, an Illinois insurance corporation ("United"). R E C I T A L S --------------- United has agreed to purchase Convertible Voting Preferred Stock, par value $0.001 per share, of the Company (the "Preferred Shares") which is convertible into shares of common stock, par value $0.001 per share, of the Company (the "Common Shares") pursuant to that certain Certificate of Amendment to the Company's Certificate of Incorporation and that certain Subscription Agreement of even date herewith provided that the parties hereto enter into this Agreement. The Company deems it desirable to enter into this Agreement in order to induce United to purchase the Preferred Shares pursuant to the Subscription Agreement. AGREEMENTS ---------- In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. As used in this Agreement. "Certificate of Amendment" means the Certificate of Amendment of the Company's Certificate of Incorporation, dated July 25, 2000. "Commission" means the Securities and Exchange Commission. "Common Shares" means the Common Stock, par value $0.001, of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Other Registrable Shares" has the meaning set forth in Section 2.1. 2 "Person" means a natural person, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a governmental entity or any department, agency or political subdivision thereof. "Preferred Shares" means the convertible voting preferred stock, par value $0.001 per share, which is convertible into Common Shares of the Company as described in the Certificate of Amendment. "Public Offering" means any offering by the Company of its equity securities to the public pursuant to an effective registration statement under the Securities Act or any comparable statement under any comparable federal statute then in effect. "Registration Rights Agreement" means the Amended and Restated Registration Rights Agreement between the Company and the persons and entities set forth on the signature pages thereto, as amended from time to time. "Securities Act" means the Securities Act of 1933, as amended. "Stock Purchase Agreement" means the Amended and Restated Stock Purchase Agreement, dated as of March 30, 1998, by and among the Company, Strategic Acquisition Partners, L.L.C., Insurance Partners, L.P. and Insurance Partners Offshore (Bermuda), L.P. "Subscription Agreement" means the Subscription Agreement, dated as of April 19, 2000, by and among the Company and United. "United Registrable Shares" means at any time (i) any Common Shares then outstanding which were issuable upon the conversion of the Preferred Shares; (ii) 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); and (iii) 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); PROVIDED, HOWEVER, that United 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 United Registrable Shares whenever such Person has the then-existing right to acquire such United Registrable Shares, whether or not such acquisition actually has been effected. -2- 3 2. DEMAND REGISTRATION. 2.1 REQUESTS FOR REGISTRATION. Subject to the terms of this Agreement, beginning three years from the date of this Agreement, the holders of all, but not less than all, the Common Shares then outstanding which were issued upon the conversion of the Preferred Shares, may request registration under the Securities Act of all, but not less than all, the Common Shares then outstanding which were issued upon the conversion of the Preferred Shares on Form S-1 or any similar long-form registration ("Long-Form Registrations") or, if available, then at the option of the Company, on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations"). Within ten (10) days after receipt of any request pursuant to this Section 2.1, the Company will give written notice of such request to all other holders of securities registrable under the Registration Rights Agreement ("Other Registrable Shares"), subject to Section 2.4, and will include in such registration all Other Registrable Shares with respect to which the Company has received written requests for inclusion within thirty (30) days after delivery of the Company's notice. All registrations requested pursuant to this Section 2 are referred to herein as "Demand Registrations." 2.2 PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Company will pay all Registration Expenses (as defined in Section 6 below) for one Demand Registration initiated by the holders of all, but not less than all, the Common Shares then outstanding which were issued upon the conversion of the Preferred Shares (including those under Section 2.3) (whether a Long-Form Registration or a Short-Form Registration). A registration will not count as one of the Company- paid Demand Registrations until it has become effective and the holders of all, but not less than all, the Common Shares then outstanding which were issued upon the conversion of the Preferred Shares are able to register and sell at least 90% of such Common Shares requested to be included in such registration (or in the case of a shelf registration, it remains effective for not less than 180 days); PROVIDED, HOWEVER, that in any event the Company will pay all Registration Expenses in connection with any registration initiated as a Demand Registration even though such registration shall not count as a Company-paid Demand Registration. In a Demand Registration other than the Demand Registration referred to in the first sentence of this Section (including those under Section 2.3), the Registration Expenses of such registration shall be borne by the holders of United Registrable Shares and Other Registrable Shares to be registered thereunder PRO RATA based on the number of United Registrable Shares and Other Registrable Shares and other securities requested or permitted to be included in such registration pursuant to the terms of this Agreement and the Registration Rights Agreement. 2.3 SHORT-FORM REGISTRATIONS. Demand Registrations will be Short-Form Registrations whenever the Company is permitted to use any applicable short form. The Company will use its best efforts to make Short-Form Registrations available for the sale of United Registrable Shares. If a Short-Form Registration is to be an underwritten public offering, and if the underwriters for marketing or other reasons request the inclusion in the registration statement of information which is not required under the Securities Act to be included in a registration statement on the applicable form for the Short-Form Registration, the Company will provide such information as may be reasonably requested for inclusion by the underwriters in the Short-Form Registration. -3- 4 2.4 PRIORITY. If a Demand Registration is an underwritten public offering and the managing underwriters advise the Company in writing that in their opinion the inclusion of the number of United Registrable Shares and other securities requested to be included (by the Company or others) creates a substantial risk that the price per Common Share will be reduced, the Company will include in such registration, prior to the inclusion of any securities which are not United or Other Registrable Shares, the number of United Registrable Shares or Other Registrable Shares requested to be included which in the opinion of such underwriters can be sold without creating such a risk, PRO RATA among the respective holders of United Registrable Shares and Other Registrable Shares on the basis of the number of United Registrable Shares or Other Registrable Shares owned by such holders, with further successive PRO RATA allocations among the holders of United Registrable Shares or Other Registrable Shares if any such holder of United Registrable Shares or Other Registrable Shares has requested the registration of less than all such United Registrable Shares or Other Registrable Shares it is entitled to register. 2.5 RESTRICTIONS. The Company will not be obligated to effect any Demand Registration within 180 days after the effective date of a previous "Demand Registration" made pursuant to the Registration Rights Agreement. The Company may postpone for up to ninety (90) days the filing or the effectiveness (but not the preparation) of a registration statement for a Demand Registration if the Board of Directors of the Company reasonably and in good faith determines that such filing would require a disclosure of a material fact that would have a material adverse effect on the Company or any plan by the Company to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other significant transaction. In order to postpone the filing of a registration statement pursuant to this Section 2.5, the Company shall promptly (but in any event within ten (10) days), upon determining to seek such postponement, deliver to each holder who has requested the registration of all or any part of its United Registrable Shares, a certificate signed by an executive officer of the Company stating that the Company is postponing such filing pursuant to this Section 2.5 and a general statement of the reason for such postponement and an approximation of the anticipated delay. Within twenty (20) days after receiving such certificate, the holders of a majority of the United Registrable Shares held who have requested the registration of all or any part of their respective United Registrable Shares and for which registration was previously requested may withdraw such demand request by giving written notice to the Company; if withdrawn, the demand request shall be deemed not to have been made for all purposes of this Agreement. The Company may postpone the filing of a particular registration statement pursuant to this Section 2.5 only once. 2.6 SELECTION OF UNDERWRITERS. The holders of at least a majority of the United Registrable Shares included in a Demand Registration pursuant to Section 2.1 of this Agreement shall have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Company's approval which will not be unreasonably withheld or delayed, and any existing contract rights of Advest, Inc. -4- 5 3. PIGGYBACK REGISTRATION. 3.1 RIGHT TO PIGGYBACK. Beginning one year from the date of this Agreement, whenever the Company proposes to register any of its equity securities under the Securities Act (other than pursuant to a Demand Registration hereunder or on Form S-8 or S-4 or any successor form thereto) and the registration form to be used may be used for the registration of any United Registrable Shares (a "Piggyback Registration"), the Company will give prompt written notice (which shall be given not less than thirty (30) days prior to the effective date of the registration statement) to all holders of the United Registrable Shares of its intention to effect such a registration and will include in such registration all United Registrable Shares (in accordance with the priorities set forth in Sections 3.2 and 3.3 below) with respect to which the Company has received written requests for inclusion within fifteen (15) days after the delivery of the Company's notice. 3.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an underwritten primary registration on behalf of the Company and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in the registration creates a substantial risk that the price per Common Share will be reduced, the Company will include in such registration FIRST, the securities that the Company proposes to sell, SECOND, the United Registrable Shares and Other Registrable Shares requested to be included in such registration, PRO RATA among the holders of such United Registrable Shares and Other Registrable Shares on the basis of the number of shares which are owned by such holders, and THIRD, other securities requested to be included in such registration. 3.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in the registration creates a substantial risk that the price per Common Share will be reduced, the Company will include in such registration FIRST, the securities requested to be included therein by the holders requesting such registration and the United Registrable Shares and Other Registrable Shares requested to be included in such registration, PRO RATA among the holders of such securities on the basis of the number of Common Shares or United Registrable Shares and Other Registrable Shares which are owned by such holders, and SECOND, other securities requested to be included in such registration. 3.4 OTHER REGISTRATIONS. If the Company has previously filed a registration statement with respect to United Registrable Shares pursuant to Section 2 or pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. -5- 6 3.5 SELECTION OF UNDERWRITERS. In connection with any Piggyback Registration, the holders of at least a majority of the United Registrable Shares and Other Registrable Shares requested to be registered shall have the right to select the managing underwriters (subject to the approval of the Company which shall not be unreasonably withheld or delayed) to administer any offering of the Company's securities in which the Company does not participate, and the Company will have such right in any offering in which it participates. 4. HOLDBACK AGREEMENTS. 4.1 HOLDERS' AGREEMENTS. Each holder of United Registrable Shares agrees not to effect any public sale or distribution of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities or make any demand for registration under Sections 2 or 3 hereof, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which United Registrable Shares are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. Nothing herein shall prevent a holder of United Registrable Shares that is a partnership from making a distribution of United Registrable Shares to its partners, a holder of United Registrable Shares that is a trust from making a distribution of United Registrable Shares to its beneficiaries or a holder of United Registrable Shares that is a corporation from making a distribution of United Registrable Shares to its stockholders, provided that the transferees of such United Registrable Shares agree to be bound by the provisions of this Agreement to the extent the transferor would be so bound. 4.2 COMPANY'S AGREEMENTS. The Company agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, (ii) to use all reasonable efforts to cause each holder of at least five percent (5%) (on a fully diluted basis) of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities to agree not to effect any public sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree, subject to the registration obligations of the Company under the Common Share Purchase Warrants (as defined in the Stock Purchase Agreement), and (iii) if requested by the underwriters managing the registered public offering, to use all reasonable efforts to cause each other holder of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, purchased from the Company at any time (other than in a registered public offering) to agree not to effect any public sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered -6- 7 public offering otherwise agree, subject to the registration obligations of the Company under the Common Share Purchase Warrants (as defined in the Stock Purchase Agreement). 5. REGISTRATION PROCEDURES. Whenever the holders of United Registrable Shares have requested that any United Registrable Shares be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and sale of such United Registrable Shares in accordance with the intended method of disposition thereof and, pursuant thereto, the Company will as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such United Registrable Shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish copies of all such documents proposed to be filed to the counsel or counsels for the sellers of the United Registrable Shares covered by such registration statement); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus(es) used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than nine months and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of United Registrable Shares and the underwriters such number of copies of such registration statement, each amendment and supplement thereto, the prospectus(es) included in such registration statement (including each preliminary prospectus) and such other documents as such seller or underwriter may reasonably request in order to facilitate the disposition of the United Registrable Shares; (d) use its best efforts to register or qualify such United Registrable Shares under such other securities or blue sky laws of such jurisdictions as any seller or underwriter reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller or underwriter to consummate the disposition in such jurisdictions of the United Registrable Shares (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (ii) consent to general service of process in any such jurisdiction); (e) promptly notify each seller of such United Registrable Shares, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement -7- 8 or amendment to such prospectus or registration statement so that, as thereafter delivered to the purchasers of such United Registrable Shares, such prospectus or registration statement will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such United Registrable Shares to be (i) listed on each securities exchange on which similar securities issued by the Company are then listed, (ii) authorized to be quoted and/or listed (to the extent applicable) on the NASD Automated Quotation System or The Nasdaq National Market if the United Registrable Shares so qualify, or (iii) if no similar securities issued by the Company are then listed on a securities exchange, a securities exchange selected by the holders of at least a majority of the United Registrable Shares included in such registration; (g) provide a transfer agent and registrar for all such United Registrable Shares not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of at least a majority of the United Registrable Shares being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such United Registrable Shares (including, but not limited to, effecting a stock split or a combination of shares); (i) make available for inspection by any seller of United Registrable Shares, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) advise each seller of such United Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state securities or other regulatory authority suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) at least two business days prior to the filing of any registration statement or prospectus, or any amendment or supplement to such registration statement or prospectus, furnish a copy thereof to each seller of such United Registrable Shares and refrain from filing any such registration statement, prospectus, amendment or supplement to which counsel selected by the holders of at least a majority of the United Registrable Shares being registered shall -8- 9 have reasonably objected on the grounds that such document does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, unless, in the case of an amendment or supplement, in the opinion of counsel for the Company the filing of such amendment or supplement is reasonably necessary to protect the Company from any liabilities under any applicable federal or state law and such filing will not violate applicable laws; (l) at the request of any seller of such United Registrable Shares in connection with an underwritten offering, furnish on the date or dates provided for in the underwriting agreement: (i) an opinion of counsel, addressed to the underwriters and the sellers of United Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, including such matters as are customarily furnished in connection with an underwritten offering and (ii) a letter or letters from the independent certified public accountants of the Company addressed to the underwriters and the sellers of United Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, in which letter(s) such accountants shall state, without limiting the generality of the foregoing, that they are independent certified public accountants within the meaning of the Securities Act and that in their opinion the financial statements and other financial data of the Company included in the registration statement, the prospectus(es), or any amendment or supplement thereto, comply in all material respects with the applicable accounting requirements of the Securities Act; (m) make generally available to the Company's securityholders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than thirty (30) days after the end of the twelve (12) month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover such twelve (12) month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K, and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; (n) if requested by the managing underwriter or any seller promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any seller reasonably requests to be included therein, including, without limitation, with respect to the United Registrable Shares being sold by such seller, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the United Registrable Shares to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (o) cooperate with each seller and each underwriter participating in the disposition of such United Registrable Shares and their respective counsel in connection with any filings required to be made with the NASD; (p) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act; and -9- 10 (q) notify each seller of United Registrable Shares promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information. 6. REGISTRATION EXPENSES. 6.1 COMPANY'S EXPENSES. Except as provided in Section 2.2 hereof, all expenses incident to the Company's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), will be borne by the Company. In addition, the Company will pay its internal expenses (including, but not limited to, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance obtained by the Company; the expenses and fees for listing the securities to be registered on each securities exchange, expenses incurred in obtaining any comfort letters, and all fees and expenses associated with filings required to be made with the NASD. 6.2 HOLDER'S EXPENSES. Except as provided in Section 2.2 hereof, in connection with any registration statement in which United Registrable Shares are included, the Company will reimburse the holders of United Registrable Shares covered by such registration for the reasonable cost and expenses incurred by such holders in connection with such registration, including, but not limited to, reasonable fees and disbursements of one counsel chosen by the holders of at least a majority of such United Registrable Shares. 7. INDEMNIFICATION. 7.1 BY THE COMPANY. The Company agrees to indemnify and reimburse, to the fullest extent permitted by law, each holder of United Registrable Shares, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including, but not limited to, attorney's fees) caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact, required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are directly caused by statements or omissions made in reliance on and in strict conformity with the information furnished in writing to the Company by such holder regarding such holder expressly for use therein or by such holder's failure to deliver a copy of the prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their -10- 11 officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the extent customary. The payments required by this Section 7.1 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred, subject to an obligation of repayment in the event such indemnity is determined not to be owed. 7.2 BY EACH HOLDER. In connection with any registration statement in which a holder of United Registrable Shares is participating, each such holder will furnish to the Company in writing such information regarding such holder as the Company reasonably requests for use in connection with any such registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto and, to the extent permitted by law, will indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished in writing by such holder specifically for inclusion in the registration statement or prospectus; provided, that the obligation to indemnify will be several, and not joint and several, among such sellers of United Registrable Shares, and the liability of each such seller of United Registrable Shares will be limited to, the net amount received by such seller from the sale of United Registrable Shares pursuant to such registration statement; further provided, however, that such seller of United Registrable Shares shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such seller has furnished in writing to the Company information expressly for use in such registration statement or prospectus or any amendment thereof or supplement thereto that corrected or made not misleading information previously furnished to the Company. 7.3 PROCEDURE. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying Person of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person except to the extent such failure to provide notice materially prejudices the indemnifying Person) and (ii) unless in such indemnified Person's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person; provided, however, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (x) the indemnifying party has agreed to pay such fees or expenses, or (y) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without -11- 12 its consent (but such consent will not be unreasonably delayed or withheld). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (i) such settlement or compromise contains a full and unconditional release of the indemnified party or (ii) the indemnified party otherwise consents in writing. An indemnifying Person who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying Person with respect to such claim, unless in the reasonable judgment of any indemnified Person a conflict of interest may exist between such indemnified Person and any other of such indemnified parties with respect to such claim in which event the costs of such additional counsel shall be borne by the indemnifying Person. 7.4 Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 7.1 or 7.2 are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages, or expenses (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, liabilities, claims, damages, or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions which resulted in the losses, liabilities, claims, damages, or expenses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation (even if the holders or any underwriters or all of them were treated as one Person for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 7.4, The amount paid or payable by an indemnified party as a result of the losses, liabilities, claims, damages, or expenses (or actions in respect thereof referred to above) shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 7.3, defending any such action or claim. Notwithstanding the provisions of this Section 7.4, no holder shall be required to contribute an amount greater than the dollar amount by which the net proceeds received by such holder with respect to the sale of any United Registrable Shares exceeds the amount of damages which such holder has otherwise been required to pay by reason of any and all untrue or alleged untrue statements of material fact or omissions or alleged omissions of material fact made in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, related to such sale of United Registrable Shares. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The holders' obligations in this Section 7.4 to contribute shall be several in proportion to the amount of United Registrable Shares registered by them and not joint. If indemnification is available under this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent -12- 13 provided in Sections 7.1 and 7.2 without regard to the relative fault of such indemnifying party or indemnified party or any other equitable consideration provided for in this Section 7.4 subject, in the case of the holders, to the limited dollar amounts get forth in Section 7.2. 7.5 SURVIVAL. The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and will survive the transfer of securities. The Company also agrees to make such provisions as are reasonably requested by any indemnified Person for contribution to such Person in the event the Company's indemnification is unavailable for any reason. 8. COMPLIANCE WITH RULE 144 AND RULE 144A. At the request of any holder of United Registrable Shares who proposes to sell securities in compliance with Rule 144 of the Commission, the Company will (i) forthwith furnish to such holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, as such rule may be amended from time to time and (ii) make available to the public and such holders such information as will enable the holders of United Registrable Shares to make sales pursuant to Rule 144. Unless the Company is subject to Section 13 or 15(d) of the Exchange Act, the Company will provide to the holder of United Registrable Shares and to any prospective purchaser of United Registrable Shares under Rule 144A of the Commission, the information described in Rule 144A(d)(4) of the Commission. 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by such Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided, that no holder of United Registrable Shares shall be required to make any representations or warranties in connection with any registration other than as to (i) such holder's ownership of his or its United Registrable Shares to be sold or transferred free and clear of all liens, claims, and encumbrances, (ii) such holder's power and authority to effect such transfer, and (iii) such matters pertaining to the compliance with securities laws as may be reasonably requested; provided, further, that the obligation of such holder to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such holders selling United Registrable Shares, and the liability of each such holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such holder from the sale of his or its United Registrable Shares pursuant to such registration. 10. MISCELLANEOUS. 10.1 NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of United Registrable Shares in this Agreement. -13- 14 10.2 OTHER REGISTRATION RIGHTS. Except as provided in this Agreement, the Company will not hereafter grant to any Person or Persons any right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, which are senior to or preferential to the registration rights granted herein, without the prior written consent of the holders of at least a majority of the United Registrable Shares. In addition, the Company represents that all consents necessary to enable the Company to enter into this Agreement have been obtained and the Company has all requisite power and authority to execute and carry out this Agreement. 10.3 REMEDIES. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law, in equity, or otherwise. 10.4 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Company and the holders of at least a majority of the United Registrable Shares; PROVIDED, HOWEVER, that the provisions of this Agreement may not be amended or waived without the consent of the holders of all the United Registrable Shares adversely affected by such amendment or waiver if such amendment or waiver adversely affects a portion of the United Registrable Shares but does not so adversely affect all of the United Registrable Shares. Any waiver, permit, consent or approval of any kind or character on the part of any such holders of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of United Registrable Shares and the Company. 10.5 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the parties to this Agreement or holders of United Registrable Shares are also for the benefit of, and enforceable by, any subsequent holders of such United Registrable Shares. 10.6 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. -14- 15 10.7 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 10.8 NOTICES. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as any Person designates by written notice to the Company, and shall be deemed to have been given upon delivery, if delivered personally, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: If to the Company, to: Ceres Group, Inc. 17800 Royalton Road Strongsville, Ohio 44136 with a copy to: Kohrman Jackson & Krantz P.L.L. 1375 E. Ninth Street, 20th Floor One Cleveland Center Cleveland, Ohio 44114 Attention: Marc C. Krantz If to United: c/o Unitrin, Inc. One East Wacker Drive Chicago, Illinois 60601 Attn: General Counsel If to holders of the Registrable Shares other United, to the addresses set forth on the stock record books of the Company. -15- 16 10.9 GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Ohio applicable to contracts made and wholly to be performed in that state. 10.10 FINAL AGREEMENT. This Agreement, together with the Subscription Agreement and all other agreements entered into by the parties hereto pursuant to the Subscription Agreement, constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 10.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 10.12 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any Person. [Remainder of page intentionally left blank. Signature pages follow.] -16- 17 The parties hereto have executed this Agreement on the date first above written. CERES GROUP, INC. /s/ Larry E. Wharton ------------------------------------------- By: Larry E. Wharton Its: Vice President and Treasurer UNITED INSURANCE COMPANY OF AMERICA /s/ Scott Renwick ------------------------------------------- By: Scott Renwick Its: Vice President and Assistant Secretary -17- EX-10.2 9 ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 ------------ FIRST AMENDMENT TO THE CREDIT AGREEMENT --------------------------------------- FIRST AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment"), dated as of May 3, 1999, among CERES GROUP, INC., a Delaware corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and collectively, the "Banks"), and THE CHASE MANHATTAN BANK, as Administrative Agent (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: -------------------- WHEREAS, the Borrower, the Banks and the Administrative Agent are parties to a Credit Agreement, dated as of February 17, 1999, (the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. AMENDMENTS 1. Section 7.04 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (g) thereof, (ii) deleting the period appearing at the end of clause (h) thereof and inserting "; and" in lieu thereof, and (iii) inserting the following new clause (i) at the end thereof: "(i) Guaranties by the Borrower of loans made to employees and certain producers (including without limitation, agents, brokers and consultants) of the Borrower and its Subsidiaries the proceeds of which are used to purchase shares of the Borrower's common stock, PROVIDED that the aggregate outstanding amount of such guaranties shall not at any time exceed $5,000,000 (less the amount of any payments made by the Borrower under any such guaranties)." II. MISCELLANEOUS 1. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 2. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 2 3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. The Amendment shall become effective on the date (the "First Amendment Effective Date") when the Borrower and Required Banks shall have signed a counterpart hereof and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office. 5. From and after the First Amendment Effective Date, all references in the Credit Agreement and each of the Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. 6. In order to induce the Banks to enter into this Amendment, the Borrower represents and warrants that (i) all of the representations and warranties contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects on and as of the First Amendment Effective Date, both before and after giving effect to this Amendment unless such representation and warranty expressly indicates that it is being made as of any other specific date in which case such representation and warranty shall be true and correct in all material respects as of such other specified date, and (ii) there exists no Default or Event of Default on the First Amendment Effective Date, both before and after giving effect to this Amendment. * * * 2 3 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. CERES GROUP, INC. By: /s/ Val Rajic --------------------------------------------- Name: Val Rajic Title: Executive Vice President and Treasurer THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By: /s/ Peter Platten --------------------------------------------- Name: Peter Platten Title: Vice President DRESDNER BANK AG NEW YORK BRANCH AND GRAND CAYMAN BRANCH, Individually and as Administrative Agent By: /s/ Lisa Kim-Cantello --------------------------------------------- Name: Lisa Kim-Cantello Title: Vice President By: /s/ George T. Ferguson, Iv --------------------------------------------- Name: George T. Ferguson, IV Title: Assistant Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Lawrence A. Mack --------------------------------------------- Name: Lawrence A. Mack Title: Senior Vice President 4 FIRSTAR BANK MILWAUKEE, N.A. By: --------------------------------------------- Name: Title: BANKBOSTON, N.A. By: /s/ ELISE H. BRENNEMAN --------------------------------------------- Name: Elise H. Brenneman Title: Managing Director EX-10.3 10 ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 ------------ SECOND AMENDMENT ---------------- SECOND AMENDMENT (this "Amendment"), dated as of July 25, 2000, among Ceres Group, Inc., a Delaware corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks") and The Chase Manhattan Bank, as Administrative Agent (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H: -------------------- WHEREAS, the Borrower, the Banks and the Administrative Agent are party to a Credit Agreement, dated as of February 17, 1999 (as amended, modified and supplemented prior to the date hereof, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Banks provide the amendments provided for herein and the Banks have agreed to provide such amendments on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. On the Second Amendment Effective Date (as hereinafter defined), the Revolving Loan Commitment of each Bank shall be modified to be the amount set forth opposite the name of such Bank on Annex I hereto, directly below the column entitled Revolving Loan Commitment. In connection with the foregoing, on the Second Amendment Effective Date, the Borrower shall, in coordination with the Administrative Agent and the Banks, repay outstanding Revolving Loans of certain Banks and incur additional Revolving Loans from other Banks, in each case if necessary so that the Banks participate in each Borrowing of Revolving Loans PRO RATA on the basis of their Revolving Loan Commitments (after giving effect to this Section 1). It is hereby agreed that the breakage costs incurred by the Banks in connection with the repayment of Revolving Loans contemplated by this Section 1, if any, shall be for the account of the Borrower. On the Second Amendment Effective Date, Annex I to the Credit Agreement shall be deemed amended to read as set forth in Annex I attached hereto to give effect to the foregoing. 2. Section 5.05(b) of the Credit Agreement is hereby amended by inserting the following text at the end thereof: "(it being understood and agreed that, in any event, the use of such proceeds to finance the Pyramid Acquisition shall be permitted)". 3. Notwithstanding anything to the contrary contained in Section 7.02(h)(iii) of the Credit Agreement, the Borrower may consummate the Pyramid Acquisition so long as all of the conditions set forth in Section 7.02(h) (other than clause (iii) thereof) are satisfied with respect to 2 such acquisition. 4. Section 7.05 of the Credit Agreement is hereby amended by (i) deleting the period appearing at the end of said Section and (ii) inserting the following text in lieu thereof: "; provided further that any portion of the Pyramid Acquisition that would constitute a Capital Expenditure will be excluded for purposes of the calculation required pursuant to this Section 7.05." 5. Section 7.08(a) of the Credit Agreement is hereby amended by deleting the phrase "except that any Subsidiary of the Borrower may pay cash dividends to its parent if such parent is the Borrower or a Wholly-Owned Subsidiary of the Borrower," appearing at the end thereof and by inserting in lieu thereof the following new phrase: "except that the following shall be permitted: (i) any Subsidiary of the Borrower may pay cash dividends to its parent if such parent is the Borrower or a Wholly-Owned Subsidiary of the Borrower; and (ii) the Borrower may pay regularly scheduled dividends on the Pyramid Seller Preferred Stock through the issuance of additional shares of Pyramid Seller Preferred Stock, or through accrual or accretion, but not in cash." 6. Section 7.10 of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and by inserting in lieu thereof the following new table: "Period Ratio ------- ----- Initial Borrowing Date through December 31, 1999 0.50:1.00 Thereafter through December 31, 2000 0.40:1.00 Thereafter through December 31, 2001 0.35:1.00 Thereafter 0.30: 1.00 " 7. Section 7.13 of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and by inserting in lieu thereof the following new table: 2 3 "Year Amount ----- ------ Initial Borrowing Date through December 31, 1999 $ 35,000,000 Thereafter through December 31, 2000 $ 80,000,000 Thereafter through December 31, 2001 $110,000,000 Thereafter through December 31, 2002 $160,000,000 Thereafter $200,000,000" 8. Section 7.14(a) of the Credit Agreement is hereby amended by inserting the sentence at the end thereof: "Notwithstanding anything to the contrary contained in this Section 7.14(a), the Borrower may issue Pyramid Seller Preferred Stock having an aggregate liquidation preference of not more that $7,500,000 in connection with the Pyramid Acquisition (and additional shares as payment of dividends thereon pursuant to Section 7.08(a)(ii))." 9. Section 7 of the Credit Agreement is hereby amended by adding at the end thereof the following now Section 7.17: "7.17 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the Fixed Charge Coverage Ratio for any Test Period ending during a period set forth below to be less than the ratio set forth opposite such period below: Period Ratio ------ ------ June 30, 2000 through June 30, 2001 1.05:1.00 Thereafter through June 30, 2002 1.10:1.00 Thereafter through June 30, 2003 1.20:1.00 3 4 Thereafter 1.30:1.00 10. Section 9 of the Credit Agreement is hereby amended by (a) deleting the definitions of "Consolidated Indebtedness" and "Test Period" appearing therein, and (b) inserting the following definitions in the appropriate alphabetical order: "Borrower Cash Flow" shall mean, for any period, the sum of (i) dividends paid by Regulated Insurance Companies during such period, (ii) the net income (before dividend payments, interest expense, depreciation and amortization) or the Borrower for such period (determined on a stand-alone basis, without giving effect to the income of or dividends received from its Subsidiaries) and (iii) the net income (before interest expense, dividend payments, depreciation, and amortization) of each Non-Regulated Company for such period (determined on a stand-alone basis, without giving effect to the income of or dividends received from its Subsidiaries). "Consolidated Indebtedness" shall mean, at any time and as to any Person, all indebtedness for borrowed money of such Person and its Subsidiaries at such time determined on a consolidated basis in accordance with GAAP but, in the case of the Borrower, excluding the mortgage indebtedness listed on Annex III. "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of Borrower Cash Flow for such period to the sum for such period of (i) Consolidated Interest Expense and (ii) Scheduled Repayments required to be made during such period. "Pyramid Acquisition" shall mean the acquisition by the Borrower of 100% of the capital stock of Pyramid Life Insurance Company, from Unitrin, Inc., to be financed through (i) the proceeds of a common equity issuance by the Borrower, (ii) the issuance of Pyramid Seller Preferred Stock to Unitrin, Inc. and/or (iii) proceeds from the incurrence of Revolving Loans. "Pyramid Seller Preferred Stock" shall mean preferred stock issued by the Borrower as partial consideration for the Pyramid Acquisition (or issued pursuant to Section 7.08(a)(ii)), the terms and conditions of which are satisfactory to the Administrative Agent. "Test Period" shall mean (a) for purposes of Section 7. 11, (i) for any determination made on and prior to December 31, 1999, the period from April 1,1999 to the last day of the fiscal quarter of the Borrower then last ended, PROVIDED that for this purpose the first Test Period shall end on June 30, 1999, and (ii) for any determination made thereafter, the four consecutive fiscal quarters of the Borrower ended on the last day of the most recently ended fiscal quarter of the Borrower (taken as one accounting period) and (b) for purposes or Section 7.17, (i) for any determination made on or prior to December 31, 2000, the period from April 1, 2000 to the last day of the fiscal quarter of the Borrower then last ended, PROVIDED that for this purpose the first Test Period shall end on June 30, 2000, and (ii) for any 4 5 determination made thereafter, the four consecutive fiscal quarters of the Borrower ended on the last day of the most recently ended fiscal quarter of the Borrower (taken as one accounting period). 11. In order to induce the Banks to enter into this Amendment, the Borrower represents and warrants that (i) all of the representations and warranties contained in the Credit Agreement or in the other Credit Documents are true and correct in all material respects on and as of the Second Amendment Effective Date, both before and after giving effect to this Amendment unless such representation and warranty expressly indicates that it is being made as of any other specific date in which case such representation and warranty shall be true and correct in all material respects as of such other specified date, and (ii) there exists no Default or Event of Default on the Second Amendment Effective Date, both before and after giving effect to this Amendment. 12. This Amendment shall become effective as of the date hereof (the "Second Amendment Effective Date") when: (a) the Borrower and each Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at its Notice Office; (b) the Borrower shall have delivered to the Administrative Agent a new Revolving Note for each Bank whose Revolving Loan Commitment is increasing as a result of this Amendment, reflecting its increased Revolving Loan Commitment, which Revolving Note shall be issued in exchange for the Revolving Note currently held by such Bank; and (c) the Borrower shall have delivered to the Agent a certified copy of resolutions duly adopted by the Borrower authorizing the increase in the Total Revolving Loan Commitment contemplated by this Amendment. 13. From and after the Second Amendment Effective Date, all references in the Credit Agreement and each of the Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. 14. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 15. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 16. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. * * * 5 6 ANNEX I ------- LIST OF BANKS AND COMMITMENTS -----------------------------
Bank Term Loan Commitment Revolving Loan Commitment - ---- -------------------- ------------------------- Chase Manhattan Bank $12,000,000 $4,500,000 KeyBank $4,000,000 $1,500,000 Dresdner Bank AG, $12,000,000 $4,500,000 New York Branch and Grand Cayman Branch Firstar Bank Milwaukee, N.A. $4,000,000 $1,500,000 Fleet National Bank $8,000,000 $3,000,000 Total $40,000.000 $15,000,000 =========== ===========
2 7 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date hereof: CERES GROUP, INC /s/ Larry E. Wharton ------------------------------------- By: Larry E. Wharton Its: Vice President and Treasurer THE CHASE MANHATTAN BANK /s/ Helen L. Newcomb ------------------------------------- By: Helen L. Newcomb Its: Vice President DRESDNER BANK AG NEW YORK BRANCH AND GRAND CAYMAN BRANCH /s/ George T. Ferguson, Iv ------------------------------------- By: George T. Ferguson, IV Its: Assistant Vice President /s/ James J. Smith ------------------------------------- By: James J. Smith Its: Vice President KEYBANK NATIONAL ASSOCIATION /s/ Sherrie F. Manson ------------------------------------- By: Sherrie F. Manson Its: Vice President FIRSTAR BANK MILWAUKEE, N.A. /s/ ------------------------------------- By: Its: Vice President FLEET NATIONAL BANK /s/ ------------------------------------- By: Its: Vice President 7 -----END PRIVACY-ENHANCED MESSAGE-----