Exhibit 10.49



 






EXHIBIT 10.49




FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT




      This FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT, dated as of May 2, 2005 (this
“Amendment”), by and among CERES GROUP, INC., a Delaware corporation (the “Borrower”), CERES
ADMINISTRATORS, LLC, a Delaware limited liability company, CERES HEALTH CARE, INC., a Delaware
corporation, CONTINENTAL GENERAL CORPORATION, a Nebraska corporation, and WESTERN RESERVE
ADMINISTRATIVE SERVICES, INC., an Ohio corporation (collectively, the “Subsidiary Guarantors”),
NATIONAL CITY BANK, in its capacity as successor in interest to The CIT Group/Equipment Financing,
Inc. (“CIT Group”) as a lender, in its capacity on its own behalf as a lender, and in its capacity
as agent under the Credit Agreement (defined below) (in all such capacities, the “Lender”).



W I T N E S S E T H :




      WHEREAS, the Borrower, the Subsidiary Guarantors, the National City Bank and CIT Group entered
into that certain Credit and Security Agreement, dated December 23, 2003 (the “Credit Agreement”),
pursuant to which the Borrower has issued (1) to Lender that certain Term Loan A Note, in the
principal amount of $4,000,000 and (2) to CIT Group that certain Term Loan B Note in the principal
amount of $9,000,000 (the “CIT Note”); and



      WHEREAS, CIT Group has assigned to Lender all of the rights of CIT Group under, and Lender has
assumed all of obligations of CIT Group under, the Credit Agreement and Loan Documents (as defined
in the Credit Agreement), including without limitation, the CIT Note; and



      WHEREAS, Section 7.3(f)(D) of the Credit Agreement currently prohibits certain redemptions of
capital stock of the Borrower and the Subsidiaries in excess of $2,000,000 in any calendar year;
and



      WHEREAS, the Borrower has requested the Lender to permit the Borrower to redeem up to
$10,000,000 of its currently outstanding capital stock;



      WHEREAS, the Lender has agreed to permit such redemption on the terms and conditions set forth
herein; and



      WHEREAS, the Borrower, the Subsidiary Guarantors and the Lender desire to modify the Credit
Agreement as provided herein.



      NOW, THEREFORE, in consideration of the foregoing and the mutual promises set forth herein,
the parties agree as follows:



Section 1. AMENDMENTS.




      1.1 The definition in Annex I to the Credit Agreement of the term “Term Loan Maturity Date” is
hereby deleted in its entirety and the following inserted in lieu thereof:



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	   	“Term Loan Maturity Date” means March 1, 2007, in the case of Term Loan A, and March 1,
2008, in the case of Term Loan B.





      1.2 Section 2.1(c)(ii) of the Credit Agreement regarding repayment of Term Loan B is hereby
deleted in its entirety and the following inserted in lieu thereof:




	   	"(ii) From the date hereof, Term Loan B shall be repaid in seventeen (17) quarterly
installments, commencing March 1, 2004, and continuing on the first Business Day of each
succeeding June, September, December and March thereafter. From March 1, 2004 through
December 1, 2004, each payment shall be in the principal amount of Three Hundred Twelve
Thousand Five Hundred Dollars ($312,500). On March 1, 2005, the payment shall be in the
principal amount of Three Hundred Seventy Five Thousand Dollars ($375,000). From June 1,
2005 through March 1, 2006, each payment shall be in the principal amount of Six Hundred
Eighty Seven Thousand Five Hundred Dollars ($687,500). From June 1, 2006 through December
1, 2006, each payment shall be in the principal amount of Three Hundred Seventy Five
Thousand Dollars ($375,000). From March 1, 2007 through December 1, 2007, each payment
shall be in the principal amount of Five Hundred Sixty Two Thousand Five Hundred Dollars
($562,500), with any remaining principal balance payable in full on March 1, 2008.”





      1.3 Section 7.3(f) of the Credit Agreement entitled “Dividends; Management Fee” is
hereby amended by inserting the following sentence at the end of such section:




	   	      “Notwithstanding anything to the contrary set forth in Section 7.3(f)(D), on and after
May 2, 2005, the Borrower shall be permitted to pay consideration of up to an aggregate
amount of $10,000,000 to redeem or otherwise purchase shares of its outstanding Capital
Stock; provided that, if at any time after May 2, 2005 the Borrower has paid consideration
in an aggregate amount of $10,000,000 for the redemption or other purchase of shares of its
Capital Stock, then all future redemptions and other purchases of its Capital Stock shall be
subject to the provisions set forth in Section 7.3(f)(D); provided further, that if during
any calendar year the Borrower has paid consideration pursuant to the provisions of this
sentence in an aggregate amount which is less than $2,000,000, then the amount of
consideration paid during such calendar year shall be included when calculating the
permitted redemptions under Section 7.3(f)(D) for the current calendar year; provided
further, that if during any calendar year the Borrower has paid consideration pursuant to
the provisions of this sentence in an aggregate amount which is equal to or greater than
$2,000,000, then neither the Borrower nor any of its Subsidiaries shall be permitted to make
any further redemptions during such calendar year.”





      1.4 Section 7.4(a) of the Credit Agreement entitled “Minimum Consolidated Fixed Charge
Coverage Ratio” is hereby deleted in its entirety and the following inserted in lieu thereof:



      "(a) Minimum Consolidated Fixed Charge Coverage Ratio.



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	   	      The Borrower shall not permit the Consolidated Fixed Charge Coverage Ratio as of the
end of any fiscal quarter to be less than 1.50 to 1.00, in each case, for the Testing Period
ending as of such fiscal quarter end.”





Section 2. REPRESENTATIONS AND WARRANTIES.



      To induce the Lender to enter into this Amendment, each of the Borrower and the Subsidiary
Guarantors hereby represents and warrants to the Lender that, on the date hereof and after giving
effect to this Amendment: (a) the Borrower and the Subsidiary Guarantors have the power and
authority, and the legal right, to make, deliver and perform under this Amendment, and have taken
all necessary action to authorize the execution, delivery and performance of this Amendment; (b)
this Amendment has been duly executed and delivered on behalf of the Borrower and the Subsidiary
Guarantors; (c) no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery, performance,
validity or enforceability of this Amendment; (d) this Amendment constitutes a legal, valid and
binding obligation of the Borrower and the Subsidiary Guarantors enforceable against them in
accordance with its terms, subject to the qualification that the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors’ rights generally and by general equity principles (whether
such enforcement is sought by proceedings in law or equity); (e) no Event of Default or Default has
occurred and is continuing on the date hereof; and (f) the representations and warranties set forth
in the Loan Documents are true, correct and complete in all material respects on the date of this
Amendment to the same extent as though made on and as of such date, except for any representation
or warranty limited by its terms to a specific date and taking into account any amendments to the
Disclosure Schedule made after the Closing Date and prior to the date of this Amendment. This
Amendment shall constitute a “Loan Document” for purposes of the Credit Agreement.



Section 3. CONDITIONS PRECEDENT.




      The effectiveness of this Amendment is subject to the conditions precedent that the Lender
shall have received: (a) a fully executed copy of this Amendment; (b) from the Borrower, a fee in
the amount of Forty Thousand and No/100 Dollars ($40,000); and (c) from the Borrower and each
Subsidiary Guarantor, an officer certificate in a form reasonably satisfactory to the Lender.



Section 4. MISCELLANEOUS.




      4.1 All capitalized terms not otherwise defined herein shall have the meanings set forth in
the Credit Agreement.



      4.2 Except as expressly amended by this Amendment, all terms and conditions of the Credit
Agreement shall remain in full force and effect.



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      4.3 This Amendment may be executed in any number of counterparts each of which shall be
regarded as an original and all of which taken together shall constitute but one and the same
instrument.



      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed
effective as of the day and year first above written.


	 	 	 	 	 
	 	CERES GROUP, INC.

 	 
	 	By:  	/s/ David I. Vickers
 	 
	 	 	Title: EVP and CFO 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	NATIONAL CITY BANK,

as Agent and as Lender and successor in interest to

The CIT Group/Equipment Financing, Inc.

 	 
	 	By:  	/s/ Michael Kelley
 	 
	 	 	Title:  SVP 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	CERES ADMINISTRATORS, LLC

 	 
	 	By:  	/s/ David I. Vickers
 	 
	 	 	Title:  CFO 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	CERES HEALTH CARE, INC.

 	 
	 	By:  	/s/ David I. Vickers
 	 
	 	 	Title:  CFO 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	CONTINENTAL GENERAL CORPORATION

 	 
	 	By:  	/s/ David I. Vickers
 	 
	 	 	Title:  CFO 	 
	 	 	 	 
	 




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	 	WESTERN RESERVE ADMINISTRATIVE SERVICES, INC.

 	 
	 	By:  	/s/ David I. Vickers
 	 
	 	 	Title:  CFO 	 
	 	 	 	 
	 



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