-----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, FVbByo1+CWqoc5LUy/qBY46h7vl8u+Wb5RkS4vWNaUirryriSNnyI2e5VhA5OsXp yXU+KkdWmieKsf4Qqm0gWQ== 0000950152-99-006223.txt : 19990727 0000950152-99-006223.hdr.sgml : 19990727 ACCESSION NUMBER: 0000950152-99-006223 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990726 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CERES GROUP INC CENTRAL INDEX KEY: 0000215403 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 341017531 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-36346 FILM NUMBER: 99670216 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TURKEY VULTURE FUND XIII LTD CENTRAL INDEX KEY: 0000935886 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 7001 CENTER STREET CITY: MENTOR STATE: OH ZIP: 44060 BUSINESS PHONE: 2169511111 MAIL ADDRESS: STREET 2: 7001 CENTER ST CITY: MENTOR STATE: OH ZIP: 44060 SC 13D/A 1 CERES GROUP, INC./TURKEY VULTURE FUND SC 13D/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (AMENDMENT NO. 6 )* Ceres Group, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Shares of Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 156772-10-5 - -------------------------------------------------------------------------------- (CUSIP Number) Marc C. Krantz, Kohrman Jackson & Krantz P.L.L., 1375 East 9th Street, Cleveland, Ohio 44114, 216-736-7204 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 12, 1999 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(c), 13d-1(f) or 13(d)-1(g), check the following box [ ]. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Exchange Act but shall be subject to all other provisions of the Exchange Act (however, see the Notes). Page 1 of 6 Pages 2 SCHEDULE 13D CUSIP NO. 156772-10-5 PAGE 2 OF 6 PAGES - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON TURKEY VULTURE FUND XIII, LTD. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION OHIO - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 1,646,3881 ----------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY ----------------------------------------- 9 SOLE DISPOSITIVE POWER EACH 1,646,3881 REPORTING ----------------------------------------- 10 SHARED DISPOSITIVE POWER PERSON WITH - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,646,388(1) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X](2) - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 11.5%(1) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* O - -------------------------------------------------------------------------------- (1) Assumes the exercise of warrants to purchase 360,455 shares of common stock at $5.50 per share ("Equity Warrant") and warrants to purchase 300,000 shares of common stock at $6.00 per share ("Guaranty Warrant"). (2) See Item 5 herein. 3 CUSIP NO. 156772-10-5 This Amendment No. 6 to Schedule 13D Statement is filed on behalf of Turkey Vulture Fund XIII, Ltd., an Ohio limited liability company (the "Fund"), for the purpose of reporting the sale of 134,977 shares of common stock, $0.001 par value ("Shares"), of Ceres Group, Inc., a Delaware corporation ("Ceres"). Item 3. Source and Amount of Funds or Other Consideration. ------------------------------------------------- Item 3 of Schedule 13D is hereby amended and supplemented as follows: In connection with a purchase of 720,910 Shares and Equity Warrants by the Fund in July 1998 as reported in Amendment No. 5 to Schedule 13D Statement filed with the Securities and Exchange Commission on July 29, 1998 ("Amendment No. 5"), the Fund disclosed that the Equity Warrants and Shares were purchased with a combination of working capital of the Fund and $2.0 million contributed to the Fund by Richard M. Osborne, sole Manager of the Fund, who had borrowed the $2.0 million from Fifth Third Bank ("FTB") on July 5, 1998. Mr. Osborne executed a Promissory Note in favor of FTB, dated July 5, 1998 (the "Note"), which matured June 30, 1999. The Note was attached to Amendment No. 5 as Exhibit 7.3. Since the filing of Amendment No. 5, Mr. Osborne paid off the Note with FTB in full and executed a $6 million demand line of credit in favor of National City Bank ("NCB"), dated August 1998 (the "Demand Line of Credit"). The Demand Line of Credit, attached hereto as Exhibit 7.11, bears interest at the prime rate announced by NCB from time to time (except that Mr. Osborne may elect an interest rate of 2.15% plus LIBOR) and is secured by 720,910 Shares owned by the Fund, as evidenced by a Hypothecation Agreement attached hereto as Exhibit 7.12. Item 5. Interest in Securities of the Issuer. ------------------------------------ Item 5 of Schedule 13D is hereby amended and supplemented as follows: (a) According to the most recently available filing with the Securities and Exchange Commission by Ceres and information known to the Fund, there are 13,615,770 Shares outstanding. If the Equity Warrants and the Guaranty Warrant owned by the Fund and Mr. Osborne were fully exercised, there would be 14,276,225 Shares outstanding (the "Outstanding Shares"). The Fund beneficially owns 1,646,388 Shares, assuming full exercise of the Equity Warrants and the Guaranty Warrant owned by the Fund and Mr. Osborne, or approximately 11.5% of the Outstanding Shares. As sole Manager of the Fund, Mr. Osborne may be deemed to beneficially own all such Shares. Because of the Voting Agreement and Stockholders Agreement (as described in Items 4, 5 and 6 of Amendment No. 5), the Fund and the other parties to the agreements may be deemed to be a group within the meaning of Section 13(d)(3) of the Exchange Act. If such parties are deemed to be a group within the meaning of Section 13(d)(3) of the Exchange Act, the Fund may be deemed to beneficially own 14,753,391 Shares, or approximately 79.3% of the Shares that would be outstanding if each party had exercised their respective outstanding rights to purchase Shares. The Fund disclaims beneficial ownership of the Shares held by the other parties. Page 3 of 6 Pages 4 CUSIP No. 156772-10-5 (b) Except as set forth in the Voting Agreement and the Stockholders Agreement, Mr. Osborne, as sole Manager of the Fund, has sole power to vote, or to direct the voting of, and the sole power to dispose or to direct the disposition of, the Shares owned by the Fund. (c) Since the filing of Amendment No. 5, the Fund sold 134,977 Shares in open market transactions as follows: Number of Shares Date Price Per Share - ---------------- ---- --------------- 4,500 June 17, 1999 $10.00 5,500 July 2, 1999 $ 9.3125 124,977 July 12, 1999 $ 9.05 (d) Not Applicable. (e) Not Applicable. Item 7. Material to be Filed as Exhibits. -------------------------------- Item 7 of Schedule 13D is hereby amended and supplemented as follows: Exhibit 7.11 -- Demand Line of Credit, dated August 1998, executed by Richard M. Osborne in favor of National City Bank Exhibit 7.12 -- Hypothecation Agreement, dated August 1998, executed by Richard M. Osborne in favor of National City Bank Page 4 of 6 Pages 5 CUSIP No. 156772-10-5 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: July 26, 1999 TURKEY VULTURE FUND XIII, LTD. By: /s/ RICHARD M. OSBORNE ----------------------------- Richard M. Osborne, Manager Page 5 of 6 Pages 6 CUSIP No. 156772-10-5 EXHIBIT INDEX Exhibit 7.11 -- Demand Line of Credit, dated August 1998, executed by Richard M. Osborne in favor of National City Bank Exhibit 7.12 -- Hypothecation Agreement, dated August 1998, executed by Richard M.Osborne in favor of National City Bank Page 6 of 6 Pages EX-7.11 2 EXHIBIT 7.11 1 EXHIBIT 7.11 COMMERCIAL NOTE: DEMAND LINE OF CREDIT/PRIME/LIBOR (OHIO) - -------------------------------------------------------------------------------------------------------- Amount City, State Date FOR BANK USE ONLY ------------------------------------ $6,000,000.00 Cleveland, Ohio August , 1998 Obligor #6630193445 - -------------------------------------------------------------------------------------------------------- Tax I.D. #27440187 ------------------------------------ Obligation # ------------------------------------ Office NORTH COAST MIDDLE MARKET - --------------------------------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, RICHARD M. 0SBORNE ("Borrower"), a(n) INDIVIDUAL whose mailing address is ROUTE 2 BOX 579 CUMMRLND KEY FL 33042-0000 hereby promises to pay to the order NATIONAL CITY BANK ("Bank"), a national banking association having its banking office at 1900 E9 ST, CLEVELAND, OHIO 44144-3484, at Bank's banking office (or at such other place as Bank may from time to time designate by written notice) in lawful money of the United States of America, the principal sum of SIX MILLION AND 00/100 THS DOLLARS -------------------------- or such lesser amount as may appear on this Note, or as may be entered in a loan account on Bank's books and records, or both, together with interest, all as provided below. Notwithstanding any provision or inference to the contrary, this Note may be enforced without presentment, protest, or notice of dishonor, all of which are waived by all makers and indorsers of this Note, now or hereafter existing. Any reference to any Contract Period or to any rate of interest or late charge to be applicable after any notice of demand or the commencement of any Proceeding is made solely for the purpose of determining the rate of interest and late charges applicable under this Note, and shall not diminish or impair Bank's right to enforce this Note at any time. 1. NO COMMITMENT. This Note evidences an arrangement whereby, for Borrower's convenience, Borrower may, without having to execute and deliver a separate note each time, obtain such loans (each a "Subject Loan") as Borrower may from time to time request and as Bank in its sole discretion may from time to time be willing to make, subject in any case to the condition that (a) each Subject Loan shall be in an amount that is an integral multiple of FIVE THOUSAND AND 00/100THS DOLLARS ($5 ,000.00) and (b) the aggregate unpaid principal balance of the Subject Loans shall not at any time exceed the face amount of this Note. NOTWITHSTANDING ANY PROVISION OR INFERENCE TO THE CONTRARY, BANK SHALL HAVE NO OBLIGATION TO EXTEND ANY CREDIT TO OR FOR THE ACCOUNT OF BORROWER BY REASON OF THIS NOTE. 2. DISBURSEMENT. Bank is hereby irrevocably authorized to make an appropriate entry on this Note, in a loan account on Bank's books and records, or both, whenever Borrower obtains a Subject Loan. Each such entry shall be prima facie evidence of the data entered, but the making of such an entry shall not be a condition to Borrower's obligation to pay. Bank is hereby directed, absent notice from Borrower to the contrary, to disburse the proceeds of each Subject Loan of Borrower's general checking account with Bank. Bank shall have no duty to follow, nor any liability for, the application of any proceeds of any Subject Loan. 3. INTEREST. The unpaid principal balance of each Subject Loan shall at all times bear interest at the Contract Rate, PROVIDED, that so long as (a) any principal of any Subject Loan remains unpaid after Bank shall have given Borrower notice of demand for any such principal or after the commencement of any proceeding with respect to Borrower, or (b) any accrued interest on any Subject Loan remains unpaid after the due date of that interest, then, and in each such case, all unpaid principal of this Note and all overdue interest on that principal (but not interest on overdue interest) shall bear interest at a fluctuating rate equal to two percent (2%) per annum above the rate that would otherwise be applicable, but in no case less than two percent (2%) per annum above the Prime Rate; provided further, that in no event shall any principal of or interest on any Subject Loan bear interest at any time after the giving of any such notice or the commencement of any such Proceeding, whichever shall first occur, at a lesser rate than the rate applicable thereto immediately after the giving of that notice of the commencement of that Proceeding, as the case may be. The "CONTRACT RATE" shall at all times be a fluctuating rate equal to ZERO percent (0%) per annum plus the Prime Rate, provided, that Borrower shall have the right from time to time to irrevocably elect TWO HUNDRED FIFTEEN/100THS percent (2.15%) per annum plus LIBOR as the Contract Rate applicable during a Contract Period to a Unit in the amount of $500,000.00 (or any greater amount that is an integral multiple of $25,000.00) by specifying the term and amount, respectively, of the Contract Period and Unit in a notice given to Bank orally or in writing not later than 2:00 p.m., Banking-Office Time, of the third (3rd) Eurodollar Banking Day preceding the first day of that Contract Period. Interest on each Subject Loan shall be payable in arrears on OCTOBER 1, 1998, and on the 1 day of each MONTH thereafter and on demand, except that interest on each LIBOR Unit shall be payable in arrears on the last day of the Contract Period for that Unit, on demand, and in the case of any Contract Period having a term longer than ninety (90) days, shall also be payable every three (3) months after the first day of the Contract Period. The principal comprising each LIBOR Unit shall, at the end of the Contract Period for that Unit, become part of the Prime Rate Unit unless and to the extent that Borrower shall have elected otherwise as hereinbefore provided. Bank shall be entitled 2 to fund and maintain its funding of all or any part of any LIBOR Unit in any manner Bank may from time to time deem advisable, Borrower hereby acknowledging that all determinations relating to LIBOR Units shall be made as if Bank had actually funded and maintained each such Unit by the purchase of deposits in an amount similar to the amount of that Unit, with a maturity similar to the Contract Period for that Unit, and bearing interest at LIBOR with respect to that Unit. 4. INEFFECTIVE ELECTIONS. Notwithstanding any provision or inference to the contrary, Bank shall have the right in its discretion, without notice to Borrower, to deem ineffective Borrower's election of a Contract Rate if (a) on or before the first day of the Contract Period specified in Borrower's notice of that election, Bank shall have given Borrower any notice of demand for payment of this Note or any Proceeding shall have been commenced with respect to Borrower, (b) after giving effect to that election, more than one Contract Rate would be applicable to all or any part of any Unit, (c) after giving effect to that election, the aggregate unpaid principal balance of the Subject Loans would, on the first day of the Contract Period specified in Borrower's notice of that election, be less than the then aggregate amount of all LIBOR Units, or (d) Bank shall determine that any governmental authority has asserted that it is unlawful for Bank to fund, make, or maintain loans bearing interest based on LIBOR. Moreover, Borrower shall not be entitled to elect a Contract Rate if Bank shall determine that (i) dollar deposits of the appropriate amount and maturity are not available in the market selected by Bank for the purpose of funding the relevant Unit at LIBOR, (ii) circumstances affecting the market selected by Bank for the purpose of funding the relevant Unit make it impracticable for Bank to determine LIBOR, (iii) LIBOR is unlikely to adequately compensate Bank for the cost of making, funding or maintaining the relevant Unit for the Contract Period specified in Borrower's notice of that election, or (iv) any governmental authority has asserted that it is unlawful for Bank to fund, make, or maintain loans bearing interest based on LIBOR. Bank's books and records shall be conclusive (absent manifest error) as to whether Bank shall have deemed any election of a Contract Rate ineffective. Except as hereinbefore provided, there is no limit to the number of Contract Rates that may be applicable to the unpaid principal balance of this Note at any one time. 5. PREMIUM: INEFFECTIVE ELECTIONS; GOVERNMENTAL ACTS. If Bank shall deem ineffective Borrower's election of any Contract Rate, then, and in each such case, that election shall be ineffective and Borrower shall pay to Bank, on Bank's demand, a premium based on the amount of the Unit specified in Borrower's notice of that election and computed for the Contract Period specified in that notice at a rate per annum equal to the excess, if any, of the Contract Rate so elected over the Reinvestment Rate. If Bank shall determine that any governmental authority has asserted that it is unlawful for Bank to fund, make, or maintain loans bearing interest based on LIBOR, then, and in each such case, notwithstanding any provision or inference to the contrary, the principal comprising each then outstanding LIBOR Unit shall, upon Bank's giving Borrower notice of that determination, be added to and become part of the Prime Rate Unit, and Borrower shall concurrently with the addition of that principal to the Prime Rate Unit, pay to Bank (a) the accrued interest on the principal so added and (b) a premium based on the amount of the principal so added and computed for the remainder of the Contract Period therefor, at a rate equal to the excess, if any, of the Contract Rate theretofore applicable over the Reinvestment Rate. 6. PREMIUM: PAYMENT PRIOR TO END OF CONTRACT PERIOD. If any LIBOR Unit is paid in whole or in part before the last day of the Contract Period for that Unit, then, and in each such case, Borrower shall, concurrently with the payment, pay to Bank (a) the accrued interest on the principal being so paid and (b) a premium based on the principal amount paid and computed for the period from the date of payment to the last day of the Contract Period for that Unit at a rate per annum equal to the excess, if any, of the Contract Rate theretofore applicable over the Reinvestment Rate, provided that no such premium shall be payable under this clause (b) in respect of that Unit if Bank shall have given Borrower a written notice of demand for payment of this Note after the first day of that Contract Period for that Unit but before the date of the payment. 7. DEFINITIONS. As used in this Note, except where the context clearly requires otherwise, "AFFILIATE" means, when used with reference to any Person (the "subject"), a Person that is in control of, or under the control of, or under common control with, the subject, the term "control" meaning the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; "BANK DEBT" means, collectively, all Debt to Bank, whether incurred directly to Bank or acquired by it by purchase, pledge, or otherwise, and whether participated to or from Bank in whole or in part; "BANKING DAY" means any day (other than any Saturday, Sunday or legal holiday) on which Bank's banking office is open to the public for carrying on substantially all of its banking functions; "BANKING-OFFICE TIME" means, when used with reference to any time, that time determined at the location of Bank's banking office; "CONTRACT PERIOD" means, relative to a Unit, a period selected by Borrower, provided, that each Contract Period shall commence on a Eurodollar Banking Day and end one (1) month, two (2) months, or three (3) months thereafter, or, subject in each case to Bank's assent thereto, four (4) months or six (6) months thereafter, provided, that (a) if any Contract Period otherwise would end on a day that is not a Eurodollar Banking Day, it shall and instead on the next following Eurodollar Banking Day unless that day falls in another calendar month, in which latter case the Contract Period shall end instead on the next preceding Eurodollar Banking Day and (b) if any Contract Period commences on a day for which there is no numerical equivalent in the calendar month in which that Contract Period is to and, it shall end on the last Eurodollar Banking Day of that calendar month; "DEBT" means, collectively, all obligations of the Person or Persons in question, including, without limitation, every such obligation whether owing by one such Person alone or with one or more other Persons in a joint, several, or joint and several capacity, whether now owing or hereafter arising, whether owing absolutely or contingently, whether created by lease, loan, overdraft, guaranty of payment, or other contract, or by quasi-contract, tort, statute, other operation of law, or otherwise; "EURODOLLAR BANKING DAY" means any Banking Day on which banks in the London - 2 - 3 Interbank Market deal in United States dollar deposits and on which banking institutions are generally open for domestic and international business at the place where Bank's banking office is located and in New York City; "LIBOR" means, with respect to a Unit, the rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank by dividing (a) the rate per annum determined by Bank to equal the average rate per annum at which deposits (denominated in United States dollars) in an amount similar to that Unit and with a maturity similar to the Contract Period for that Unit are offered to Bank at 11:00 A.M. London time (or as soon thereafter as practicable) two (2) Eurodollar Banking Days prior to the first day of that Contract Period by banking institutions in any Eurodollar market selected by Bank by (b) the difference of one (1) less the Reserve Percentage; "LIBOR UNIT" means a Unit for which the Contract Rate is based on LIBOR; "NOTE" means this promissory note (including, without limitation, each addendum, allonge, or amendment, if any, hereto); "OBLIGOR" means any Person who, or any of whose property, shall at the time in question be obligated in respect of all or any part of the Bank Debt of Borrower and (in addition to Borrower) includes, without limitation, co-makers, indorsers, guarantors, pledgors, hypothecator, mortgagors, and any other Person who agrees, conditionally or otherwise, to make any loan to, purchase from, or investment in, any other Obligor or otherwise assure such other Obligors creditors or any of them against loss; "PERSON" means an individual or entity of any kind, including, without limitation, any association, company, cooperative, corporation, partnership, trust, governmental body, or any other form or kind of entity; "PRIME RATE" means the fluctuating rate per annum which is publicly announced from time to time by Bank as being its so-called "prime rate" or "base rate" thereafter in effect, with each change in the Prime Rate automatically, immediately, and without notice changing the Prime Rate thereafter applicable hereunder, it being acknowledged that the Prime Rate is not necessarily the lowest rate of interest then available from Bank on fluctuating-rate loans; "PRIME RATE UNIT" means, at any time, the then aggregate unpaid principal balance of the Subject Loans for which the Contract Rate is based on the Prime Rate; "PROCEEDING" means any assignment for the benefit of creditors, any case in bankruptcy, any marshaling of any Obligor's assets for the benefit of creditors, any moratorium on the payment of debts, or any proceeding under any law relating to conservatorship, insolvency, liquidation, receivership, trusteeship, or any similar event, condition, or other thing; "REINVESTMENT RATE" means, when used with respect to any period, a per annum rate of interest equal to the "bond equivalent yield" for the most actively traded issues of U. S. Treasury Bills, U. S. Treasury Notes, or U. S. Treasury Bonds for a term similar to the period in question; "RELATED WRITING" means this Note and any indenture, note, guaranty, assignment, mortgage, security agreement, subordination agreement, notice, financial statement, legal opinion, certificate, or other writing of any kind pursuant to which all or any part of the Bank Debt of Borrower is issued, which evidences or secures all or any part of the Bank Debt of Borrower, which governs the relative rights and priorities of Bank and one or more other Persons to payments made by, or the property of, any Obligor, which is delivered to Bank pursuant to another such writing, or which is otherwise delivered to Bank by or on behalf of any Person (or any employee, officer, auditor, counsel, or agent of any Person) in respect of or in connection with all or any part of the Bank Debt of Borrower; "RESERVE PERCENTAGE" means the percentage (expressed as a decimal) which Bank determines to be the maximum (but in any case less than 1.00) reserve requirement (including, without limitation, any emergency, marginal, special, or supplemental reserve requirement) prescribed for so-called "Eurocurrency liabilities" (or any other category of liabilities that includes deposits by reference to which the interest rate applicable to LIBOR Units is determined) under Regulation D (as amended from time to time) of the Board of Governors of the Federal Reserve System or under any successor regulation which Bank determines to be applicable, with each change in such maximum reserve requirement automatically, immediately, and without notice changing the interest rate thereafter applicable to each LIBOR Unit, it being agreed that LIBOR Units shall be deemed Eurocurrency liabilities subject to such reserve requirements without the benefit of any credit for proration, exceptions, or offsets; "UNIT" means the aggregate unpaid principal balance or this Note or any part of that balance; and the foregoing definitions shall be applicable to the respective plurals of the foregoing defined terms. 8. LATE CHARGES. If any principal of any Subject Loan is not paid within ten (10) days after Bank shall have given Borrower notice of demand therefor or within ten (10) days after the commencement of any Proceeding with respect to Borrower, or if any interest on this Note is not paid within (10) days after the due date of that interest, then, and in each such case, Bank shall have the right to assess a late charge, payable by Borrower on demand, in an amount equal to the greater of twenty dollars ($20.00) or five percent (5%) of the amount not timely paid. 9. NO SETOFF. Borrower hereby waives any and all now existing or hereafter arising rights to recoup or offset any obligation of Borrower under or in connection with this Note or any Related Writing against any claim or right of Borrower against Bank. 10. INDEMNITY: GOVERNMENTAL COSTS. If (a) there shall be enacted any law (including, without limitation, any change in any law or in its interpretation or administration and any request by any governmental authority) relating to any interest rate or any assessment, reserve, or special deposit requirement (except if and to the extent utilized in computation of the Reserve Percentage) against assets held by, deposits in, or loans by Bank or to any tax (other than any tax on Bank's overall not Income) and (b) in Bank's sole opinion any such event increases the cost of funding or maintaining any LIBOR Unit or reduces the amount of any payment to be made to Bank in respect thereof, then, and in each such case, upon Bank's demand, Borrower shall pay Bank an amount equal to each such cost increase or reduced payment, as the case may be. In determining any such amount, Bank may use reasonable averaging and attribution methods. Each determination by Bank shall be conclusive absent manifest error. 11. INDEMNITY, ADMINISTRATION AND ENFORCEMENT. Borrower will reimburse Bank, on Bank's demand from time to time, for any and all fees, costs, and expenses (including, without limitation, the less, and disbursements of legal counsel) incurred by Bank in administering - 3 - 4 this Note or in protecting, enforcing, or attempting to protect or enforce its rights under this Note. If any amount (other than any principal of any Subject Loan and any interest and late charges) owing under this Note is not paid when due, then, and in each such case, Borrower shall pay, on Banks demand, interest on that amount from the due date thereof until paid in full at a fluctuating rate equal to four percent (4%) per annum plus the Prime Rate. 12. WAIVERS; REMEDIES; APPLICATION OF PAYMENTS. Bank may from time to time in its discretion grant waivers and consents in respect of this Note or any other Related Writing or assent to amendments thereof, but no such waiver, consent, or amendment shall be binding upon Bank unless set forth in a writing (which writing shall be narrowly construed) signed by Bank. No course of dealing in respect of, nor any omission or delay in the exercise of, any right, power, or privilege by Bank shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further or other exercise thereof or of any other, as each such right, power, or privilege may be exercised either independently or concurrently with others and as often and in such order as Bank may deem expedient. Without limiting the generality of the foregoing, neither Bank's acceptance of one or more late payments or charges nor Bank's acceptance of interest on overdue amounts at the respective rates applicable thereto shall constitute a waiver of any right of Bank. Each right, power, or privilege specified or referred to in this Note is in addition to and not in limitation of any other rights, powers, and privileges that Bank may otherwise have or acquire by operation of law, by other contract, or otherwise. Bank shall be entitled to equitable remedies with respect to each breach or anticipatory repudiation of any provision of this Note, and Borrower hereby waives any defense which might be asserted to bar any such equitable remedy. Bank shall have the right to apply payments in respect of the indebtedness evidenced by this Note with such allocation to the respective parts thereof and the respective due dates thereof as Bank in its sole discretion may from time to time deem advisable. 13. OTHER PROVISIONS. The provisions of this Note shall bind Borrower and Borrower's successors and assigns and benefit Bank and its successors and assigns, including each subsequent holder, if any, of this Note. Except for Borrower and Bank and their respective successors and assigns, there are no intended beneficiaries of this Note, any Subject Loan, or the arrangement evidenced by this Note. The provisions of sections 8 through 17, both inclusive, shall survive the payment in full of the principal of and interest on this Note. The captions to the sections and subsections of this Note are inserted for convenience only and shall be ignored in interpreting the provisions thereof. If any provision in this Note shall be or become illegal or unenforceable in any case, then that provision shall be deemed modified in that case so as to be legal and enforceable to the maximum extent permitted by law while most nearly preserving its original intent, and in any case the illegality or unenforceability of that provision shall affect neither that provision in any other case nor any other provision. All fees, interest, and premiums for any given period shall accrue on the first day thereof but not on the last day thereof (unless the last day is the first day) and in each case shall be computed on the basis of a 360-day year and the actual number of days in the period. In no event shall interest accrue at a higher rate than the maximum rate, if any, permitted by law. Bank shall have the right to furnish to its Affiliates, and to such other Persons as Bank shall deem advisable for the conduct of its business, information concerning the business, financial condition, and property of Borrower, the amount of the Bank Debt of Borrower, and the terms, conditions, and other provisions applicable to the respective parts thereof. This Note shall be governed by the law (excluding conflict of laws rules) of the jurisdiction in which Bank's banking office is located. 14. INTEGRATION. This Note and, to the extent consistent with this Note, the other Related Writings, set forth the entire agreement of Borrower and Bank as to the subject matter of this Note, and may not be contradicted by evidence of any agreement or statement unless made in a writing (which writing shall be narrowly construed) signed by Bank contemporaneously with or after the execution and delivery of this Note. Without limiting the generality of the foregoing, Borrower hereby acknowledges that Bank has not based, conditioned, or offered to bass or condition the credit hereby evidenced or any charges, fees, Interest rates, or premiums applicable thereto upon Borrowers agreement to obtain any other credit, property, or service other than any loan, discount, deposit, or trust service from Bank. 15. NOTICES AND OTHER COMMUNICATIONS. Each notice, demand, or other communication, whether or not received, shall be deemed to have been given to Borrower whenever Bank shall have mailed a writing to that effect by certified or registered mail to Borrower at Borrower's mailing address (or any other address of which Borrower shall have given Bank notice after the execution and delivery of this Note); however, no other method of giving actual notice to Borrower is hereby precluded. Borrower hereby irrevocably accepts Borrowers appointment as each Obligor's agent for the purpose of receiving any notice, demand, or other communication to be given by Bank to each such Obligor pursuant to any Related Writing. Bank shall be entitled to assume that any knowledge possessed by any Obligor other than Borrower is possessed by Borrower. Each communication to be given to Bank shall be in writing unless this Note expressly permits that communication to be made orally, and in any case shall be given to Bank's North Coast Middle Market at Bank's banking office (or any other address of which Bank shall have given notice to Borrower after the execution and delivery this Note). Borrower hereby assumes all risk, arising out of or in connection with each oral communication given by Borrower and each communication given or attempted by Borrower in contravention of this section, Bank shall be entitled to rely on each communication believed in good faith by Bank to be genuine. 16. WARRANT OF ATTORNEY. Borrower hereby authorizes any attorney at law at any time or times to appear in any state or federal court of record in the United States of America after all or any part of the obligations evidenced by this Note shall have become due, whether by lapse of time or otherwise, and in each case to waive the issuance and service of process, to present to the court this Note and any other - 4 - 5 writing (if any) evidencing the obligation or obligations in question, to admit the due date thereof and the nonpayment thereof when due, to confess judgment against Borrower in favor of Bank for the full amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and waive all rights of appeal and any stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment against Borrower be vacated for any reason, Bank may nevertheless utilize the foregoing warrant of attorney in thereafter obtaining one or more additional judgments against Borrower. 17. JURISDICTION AND VENUE; WAIVER OF JURY TRIAL. Any action, claim, counterclaim, crossclaim, proceeding, or suit, whether at law or in equity, whether sounding in tort, contract, or otherwise at any time arising under or in connection with this Note or any other Related Writing, the administration, enforcement, or negotiation of this Note or any other Related Writing, or the performance of any obligation in respect of this Note or any other Related Writing (each such action, claim, counterclaim, crossclaim, proceeding, or suit, an "ACTION") may be brought in any federal or state court located in the city in which Bank's ) banking office is located. Borrower hereby unconditionally submits to the jurisdiction of any such court with respect to each such Action and hereby waives any objection Borrower may now or hereafter have to the venue of any such Action brought in any such court. Borrower HEREBY, AND EACH HOLDER OF THIS Note, BY TAKING POSSESSION THEREOF, KNOWINGLY AND VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY Action. Borrower: Richard M. Osborne -------------------------------------------- By: /s/ Richard M. Osborne ---------------------------------------- Printed Name: Richard M. Osborne ----------------------------- Title: Individual ----------------------------- (complete only if required): And By: ----------------------------- Printed Name: ----------------------------- Title: ----------------------------- WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - 5 - EX-7.12 3 EXHIBIT 7.12 1 EXHIBIT 7.12 HYPOTHECATION AGREEMENT CLEVELAND, OHIO AUGUST ____, 1998 ================================================================================ The undersigned ("Pledgor") grants to NATIONAL CITY BANK ("Bank"), Cleveland, Ohio, as security for all Liabilities of Richard M. Osborne ("Borrower") - -------------------------------------------------------------------------------- to Bank, a security interest in the following property: 720,910 shares of Central Reserve Life Corporation stock - -------------------------------------------------------------------------------- owned by Turkey Vulture Fund XIII Ltd. - -------------------------------------------------------------------------------- and in any and all additions thereto and substitutions therefor in whole or in part and in all proceeds of the foregoing (all of which property, additions, substitutions and proceeds are hereinafter called "Pledgor's Collateral"). "Liabilities" means all indebtedness of Borrower to Bank including without limitation each Commitment by Bank and every other liability whether now existing or hereafter arising, whether owing by Borrower alone (and, if "Borrower" includes more than one person or entity, whether owing by one, more or all of them) or with one or more others in a joint, several or joint and several capacity, whether owing absolutely or contingently, whether created by loan, overdraft, guaranty of payment or other contract or by quasi-contract, tort, statute or operation of law, whether incurred directly to Bank or acquired by Bank by purchase, pledge or otherwise and whether participated to or from Bank in whole or in part. "Obligor" means any person or entity who, or any of whose property, is or shall be obligated on the Liabilities in any manner and in addition to Pledgor and Borrower includes without limitation co-makers, endorsers, guarantors, subordinating creditors, pledgors and mortgagors, if any. "Collateral" means, collectively, all property, if any, securing the Liabilities, whether owned by Pledgor, Borrower or any other Obligor. "Commitment" means any commitment (either conditional or unconditional) to extend credit to Borrower pursuant to a credit agreement or to extend credit for Borrower's account pursuant to a letter of credit or any similar commitment; PROVIDED that Bank shall have received a consideration of some kind for the commitment. Bank shall have the right (but not the duty) to transfer to or register in its name or in the name of its nominee all or any part of Pledgor's Collateral; provided that neither Bank nor Bank's nominee shall have the right to vote any securities included in Pledgor's Collateral unless Bank shall have given Pledgor not less than ten (10) days' prior written notice that any or all of the Liabilities are then in default in any manner and that Bank may thereafter vote the securities. Pledgor agrees that Bank shall have no duty to collect or protect any Collateral or any income therefrom, nor to preserve rights against prior parties nor to exercise any warrant or option or preserve any right pertaining thereto beyond maintaining the safe custody of any Collateral. If for any reason Pledgor shall at any time obtain possession of any of Pledgor's Collateral, whether by reason of stock splits, stock dividends or liquidating dividends, paid directly to Pledgor or otherwise (other than cash payments of accrued interest or current dividends paid out of earnings), Pledgor shall in each case receive the same in trust for the benefit of Bank and shall immediately deposit the same with Bank (together with executed transfer powers, indorsements, assignments and other documents that Bank may request). Upon non-payment of the Liabilities or any thereof when due, whether by lapse of time or by acceleration or otherwise, Bank in its sole discretion, upon such terms and conditions and in such manner as Bank deems advisable, may sell, assign, transfer and deliver Pledgor's Collateral at any time or from time to time any thereof. No prior notice need be given to Pledgor or to Borrower or anyone else in the case of any sale of Collateral which Bank in good faith determines to be declining rapidly in value or which is customarily sold at any securities exchange or in the over-the-counter market or in any other recognized market; but in any other case Bank shall give Pledgor not less than ten (10) days' prior notice of either the date after which any intended private sale is to be made or the time and place of any intended public sale. Pledgor hereby waives advertisement of any sale and except only to the extent notice is specifically required by the previous sentence, waives notice of any kind in respect of any sale. At any public sale Bank may purchase all or any part of Pledgor's Collateral free from any right of redemption, which right Pledgor hereby waives. After deducting all expenses of every kind, Bank may hold all or any part of the net proceeds of any sale as security for or may apply the net proceeds on the Liabilities in such order of preference as Bank may determine. Pledgor's obligations and liabilities under this Agreement shall remain in full effect until payment in full of the Liabilities regardless of the lapse of time, regardless of any act, omission or course of dealing whatever on Bank's part and regardless of any other event, condition or thing. Without limiting the generality of the foregoing, Pledgor's obligations under this Agreement shall not be impaired or diminished by (a) any failure or refusal of Bank to grant any financial accommodation to Borrower even if Bank thereby breaches any duty or commitment to Borrower or anyone else, (b) any extension, renewal or refinancing of the Liabilities or any thereof in whole or in part, even if Borrower might then be in default in any respect, (c) any 2 waiver of any default or any consent or indulgence granted to any Obligor, (d) any acceptance of Collateral for or any Obligor on the Liabilities, (e) any release of any Collateral or Obligor, even if Bank receives no consideration for the release, (f) Bank's failure to make any presentment, protest or demand for payment, to assert or perfect any claim or demand or to enforce any right or remedy, or any delay or neglect by Bank in respect of the foregoing, (g) any failure to give Pledgor notice of the granting of any financial accommodation to Borrower or the terms and other provisions applicable thereto, or of any default by Borrower or any other Obligor or of any other event, condition or thing other than any specifically required by this Agreement or (h) any illegality, invalidity or unenforceability of the Liabilities. This Agreement shall remain in full force and effect until Bank's Commercial and Collateral Loan Department receives written notice either that Pledgor desires to terminate this Agreement as to any Liabilities incurred after the giving of any such notice or that Pledgor has become deceased or legally incapacitated or has been adjudicated a bankrupt or insolvent; provided that after any such termination Pledgor's Collateral shall continue to secure (i) the payment in full of the Liabilities arising prior to the giving of notice of termination, (ii) all Liabilities incurred pursuant to a Commitment provided that Bank shall have made the Commitment prior to receipt of notice of termination and (iii) all subsequent renewals and extensions, if any, of any or all of the Liabilities referred to in (i) or (ii) in whole or in part even if the renewal or extension is effected after Bank's receipt of notice of termination. All notices to Pledgor shall deemed given when mailed to Pledgor's address listed below (or such other address as Pledgor may hereafter specify in writing to Bank for the purpose) whether or not received; however no method of giving actual notice is hereby precluded. Any and all waivers, consents and agreements by Bank must be in writing. This Agreement shall bind Pledgor and Pledgor's heirs, executors, administrators, successors and assigns and shall benefit Bank and Bank's successors and assigns. The rights and remedies conferred upon Bank by this Agreement are in addition to those Bank may have by other contract or by statute or operation of law. If more than one person or entity signs below, the term "Pledgor" shall mean each of them, their obligations hereunder shall be joint and several and each shall be the agent of the other for all purposes related to this Agreement. This Agreement shall be governed by Ohio law. By: /s/ RICHARD M. OSBORNE - ------------------------------------- --------------------------------------- MAILING ADDRESS SIGNATURE By: Richard M. Osborne - ------------------------------------- --------------------------------------- MAILING ADDRESS SIGNATURE 47003-9 (Rev. 9/86) DUP. -----END PRIVACY-ENHANCED MESSAGE-----