<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 AMENDMENT NO. 3
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
KEMPER CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $5.00 per share ("Common Stock"), of the
Registrant
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
42,387,026 (which includes shares of Common Stock issuable upon
exercise of options and conversion of convertible
preferred stock issued by the Registrant)
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$49.80 in cash for each share of Common Stock
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $2,110,873,895.00
- --------------------------------------------------------------------------------
(5) Total fee paid: $422,174.78
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $422,174.78
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party: Kemper Corporation
- --------------------------------------------------------------------------------
(4) Date Filed: October 12, 1995, September 21, 1995 and July 12, 1995
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
KEMPER CORPORATION
One Kemper Drive
Long Grove, Illinois 60049
(708) 320-4700
October 17, 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of Kemper Corporation (the "Company"), which will be held at 3:30 p.m. on
November 15, 1995 in Meeting Room 3-A at the Company's corporate headquarters,
One Kemper Drive, Building 3, Long Grove, Illinois.
At the Special Meeting, holders of the Company's common stock will be asked
to consider and vote on a proposal to approve and adopt the Agreement and Plan
of Merger dated as of May 15, 1995 and amended as of September 6, 1995 (the
"Amended Merger Agreement") among Zurich Insurance Company, Insurance Partners,
L.P., Insurance Partners Offshore (Bermuda), L.P., ZIP Acquisition Corp., a
subsidiary of Zurich and Insurance Partners (the "Purchaser"), and the Company.
A copy of the Amended Merger Agreement is included as Annex 1 to the attached
Proxy Statement. On the terms and subject to the conditions of the Amended
Merger Agreement, the Purchaser will be merged with and into the Company (the
"Merger").
Upon consummation of the Merger, (i) each outstanding share of the
Company's common stock will be converted into the right to receive $49.80 in
cash and (ii) each outstanding share of the Company's preferred stock will
remain outstanding as one duly authorized, validly issued, fully paid and
nonassessable share of preferred stock of the surviving corporation.
Approval and adoption of the Amended Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of common stock of the
Company. Detailed information concerning the Merger is set forth in the Proxy
Statement, which we urge you read carefully.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE AMENDED MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE AMENDED MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of common stock you own, please complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope.
Sincerely,
DAVID B. MATHIS
Chairman of the Board and
Chief Executive Officer
THE TRANSACTION TO BE CONSIDERED AT THE SPECIAL MEETING INVOLVES A MATTER
OF GREAT IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY,
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED
IN THE ATTACHED PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID ENVELOPE PROMPTLY.
<PAGE> 3
KEMPER CORPORATION LOGO
One Kemper Drive
Long Grove, Illinois 60049
(708) 320-4700
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1995
------------------------------
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Kemper
Corporation, a Delaware corporation (the "Company"), will be held at 3:30 p.m.
on November 15, 1995 in Meeting Room 3-A at the Company's corporate
headquarters, One Kemper Drive, Building 3, Long Grove, Illinois. The meeting is
called for the purpose of considering and voting upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger
dated as of May 15, 1995 and amended as of September 6, 1995 (the
"Amended Merger Agreement") among Zurich Insurance Company, Insurance
Partners, L.P., Insurance Partners Offshore (Bermuda), L.P., ZIP
Acquisition Corp., and the Company. A copy of the Amended Merger
Agreement is included as Annex 1 to the attached Proxy Statement.
2. The transaction of such other business as may properly come before
the meeting or any adjournments or postponements thereof.
The proposed merger and other related matters are more fully described in
the attached Proxy Statement and the Annexes thereto.
The close of business on September 22, 1995 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting and any adjournments or postponements thereof. Only holders of
record of the Company's common stock on the record date are entitled to vote at
the meeting.
In connection with the proposed merger, appraisal rights will be available
to those stockholders of the Company who meet and comply with the requirements
of Section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex 3 to the Proxy Statement. Reference is made to the
section entitled "The Merger -- Dissenters' Rights" in the Proxy Statement for a
discussion of the procedures to be followed in asserting appraisal rights in
connection with the proposed merger under Section 262 of the DGCL.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of common stock you own, please complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope. You may revoke your proxy at any time before the authority
granted by it is exercised. If you attend the Special Meeting, you may vote in
person even if you have previously returned an executed proxy.
By Order of the Board of Directors
KATHLEEN A. GALLICHIO
Corporate Secretary
<PAGE> 4
-- IMPORTANT --
If your shares are held in "street name," only your bank or broker can vote your
shares. Please contact the person responsible for your account and instruct him
or her to vote the proxy card as soon as possible.
If you have any questions or need further assistance in voting your shares,
please call Kemper Corporation's proxy solicitor,
GEORGESON & COMPANY INC.
(toll free) at 1-800-223-2064.
<PAGE> 5
LOGO
KEMPER CORPORATION
One Kemper Drive
Long Grove, Illinois 60049
(708) 320-4700
------------------------------
PROXY STATEMENT
------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1995
This proxy statement (the "Proxy Statement") is being furnished to the
stockholders of Kemper Corporation, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors" or the "Board") for use at a Special Meeting
of Stockholders to be held at 3:30 p.m. on November 15, 1995 in Meeting Room 3-A
at the Company's corporate headquarters, One Kemper Drive, Building 3, Long
Grove, Illinois, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, the holders of common stock, par value $5.00 per
share, of the Company will consider and vote upon the approval and adoption of
the Agreement and Plan of Merger dated as of May 15, 1995 (the "Merger
Agreement") among Zurich Insurance Company ("Zurich"), Insurance Partners, L.P.
("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IP Bermuda" and, together
with IP, "Insurance Partners"), ZIP Acquisition Corp. (the "Purchaser"), a
special purpose acquisition corporation owned approximately 80% by Zurich and
20% by Insurance Partners, and the Company, as amended by that certain Amendment
Agreement dated as of September 6, 1995, among Zurich, Insurance Partners, the
Purchaser and the Company (the "Amendment Agreement"; the Merger Agreement as
amended by the Amendment Agreement is, as the context requires, hereinafter
referred to as the "Amended Merger Agreement"). On the terms and subject to the
conditions of the Amended Merger Agreement, the Purchaser will be merged with
and into the Company (the "Merger"), and the Company will be the surviving
corporation (the "Surviving Corporation").
Upon the consummation of the Merger, (i) each outstanding share of common
stock, par value $5.00 per share, of the Company (the "Common Stock") will be
converted into the right to receive $49.80 in cash, and (ii) each share of (a)
Series A Cumulative Convertible Preferred Stock of the Company (the "Series A
Preferred Stock"), (b) Series C Cumulative Preferred Stock of the Company
("Series C Preferred Stock"), (c) Series D Index Exchangeable Preferred Stock of
the Company ("Series D Preferred Stock") and (d) Series E Cumulative Convertible
Preferred Stock of the Company ("Series E Preferred Stock") issued and
outstanding shall remain outstanding as one duly authorized, validly issued,
fully paid and nonassessable share of Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
respectively, of the Surviving Corporation. As a result of the Merger, all
common stockholders of the Company will cease to have an equity interest in, or
possess any rights as common stockholders of, the Surviving Corporation. See
"The Merger -- General." Pursuant to the terms of the Amended Merger Agreement,
notwithstanding the satisfaction or waiver of the conditions to the obligations
of the Purchaser, Zurich and Insurance Partners to effect the Merger, Zurich and
Insurance Partners may delay the consummation of the Merger to a date not later
than January 4, 1996, provided that certain conditions to the closing of the
Merger will lapse at an earlier date. Zurich and Insurance Partners have
informed the Company that they currently expect to delay the consummation of the
Merger until January 4, 1996. See "The
<PAGE> 6
Merger -- Conditions to Consummation of the Merger; Representations and
Warranties; Certain Covenants -- Satisfaction of Closing Conditions."
A copy of the Merger Agreement and the Amendment Agreement is attached
hereto as Annex 1. The summaries of the portions of the Amended Merger Agreement
set forth in this Proxy Statement do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the text of the Amended
Merger Agreement.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE AMENDED MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE AMENDED MERGER AGREEMENT. In
reaching its determination, the Board of Directors considered, among other
things, the opinion of Goldman, Sachs & Co. ("Goldman Sachs"), the Company's
financial advisor, as to the fairness of the consideration to be received by the
holders of Common Stock pursuant to the Merger. The opinion of Goldman Sachs is
included as Annex 2 hereto and is incorporated herein by reference. Stockholders
are urged to read the opinion in its entirety for further information respecting
the assumptions made, matters considered and limits of the review undertaken by
Goldman Sachs. See "The Merger -- Reasons for the Merger; Recommendation of the
Board of Directors; Opinion of Financial Advisor."
In connection with the Merger, appraisal rights will be available to those
stockholders of the Company who meet and comply with the requirements of Section
262 of the Delaware General Corporation Law (the "DGCL"), a copy of which is
attached as Annex 3 hereto. For a discussion of the procedures to be followed in
asserting appraisal rights under Section 262 of the DGCL in connection with the
Merger, see "The Merger -- Dissenters' Rights."
------------------------------
This Proxy Statement is first being mailed to the Company's
stockholders on or about October 17, 1995.
------------------------------
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.............................................................................. 1
VOTING AND PROXIES................................................................... 9
Record Date; Solicitation of Proxies............................................... 9
Vote Required...................................................................... 9
THE MERGER........................................................................... 11
General............................................................................ 11
Related Transactions............................................................... 12
Background of the Merger........................................................... 12
Other Relationships Between the Company and Zurich, Insurance Partners and the
Purchaser....................................................................... 16
Reasons for the Merger; Recommendation of the Board of Directors; Opinion of
Financial Advisor............................................................... 16
No Solicitation.................................................................... 22
Fiduciary Duties................................................................... 23
Interests of Certain Persons in the Merger......................................... 23
Effective Time of the Merger....................................................... 25
Payment for Shares of Common Stock................................................. 25
Certain Other Effects of the Merger................................................ 26
Government and Regulatory Approvals and Filings.................................... 26
Benefit Plans...................................................................... 26
Anticipated Accounting Treatment................................................... 27
Terms of the Merger................................................................ 27
Conditions to Consummation of the Merger........................................... 28
Representations and Warranties..................................................... 31
Certain Covenants.................................................................. 32
Termination; Fees and Expenses..................................................... 35
Plans of the Company in the Event the Merger is not Consummated.................... 36
Certain Tax Consequences of the Merger............................................. 36
Dissenters' Rights................................................................. 36
SELECTED FINANCIAL INFORMATION CONCERNING THE COMPANY................................ 39
MARKET PRICES........................................................................ 40
CERTAIN PROJECTIONS.................................................................. 40
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.......................... 41
CERTAIN PENDING LITIGATION........................................................... 43
ADDITIONAL INFORMATION............................................................... 44
Independent Accountants............................................................ 44
Incorporation by Reference......................................................... 44
OTHER MATTERS........................................................................ 45
STOCKHOLDER PROPOSALS................................................................ 45
ANNEX 1 Agreement and Plan of Merger dated as of May 15, 1995 among Zurich Insurance
Company, Insurance Partners, L.P., Insurance Partners Offshore (Bermuda),
L.P., ZIP Acquisition Corp. and Kemper Corporation............................ A1-1
Amendment Agreement dated as of September 6, 1995 among Zurich Insurance
Company, Insurance Partners, L.P., Insurance Partners Offshore (Bermuda),
L.P., ZIP Acquisition Corp. and Kemper Corporation........................... A1-55
ANNEX 2 Fairness Opinion of Goldman, Sachs & Co. .................................... A2-1
ANNEX 3 Section 262 of the Delaware General Corporation Law.......................... A3-1
</TABLE>
(i)
<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement, in the attached Annexes and in the documents incorporated herein by
reference. Stockholders are urged to read carefully this Proxy Statement in its
entirety.
THE SPECIAL MEETING
PURPOSE OF THE MEETING; DATE, TIME AND PLACE
The Special Meeting of Stockholders of the Company will be held at 3:30
p.m. on November 15, 1995 in Meeting Room 3-A at the Company's corporate
headquarters, One Kemper Drive, Building 3, Long Grove, Illinois. At the Special
Meeting, the holders of Common Stock will consider and vote upon the approval
and adoption of the Amended Merger Agreement.
In the Merger, (i) each share of Common Stock issued and outstanding at the
Effective Time (defined herein), other than shares owned by the Company (except
for shares held in trust accounts, custodial accounts and the like, shares that
are beneficially owned by third parties and shares held in the ordinary course
of business by subsidiaries of the Company that are insurance companies or
broker-dealers (collectively, "Company Fiduciary Shares")), Zurich, Insurance
Partners, the Purchaser or any of their respective subsidiaries and shares held
by common stockholders who perfect their statutory dissenters' rights (see "The
Merger -- Dissenters' Rights"), will be cancelled and extinguished and converted
automatically into the right to receive $49.80 in cash (the "Merger
Consideration"); and (ii) each share issued and outstanding at the Effective
Time, other than those held by preferred stockholders who perfect their
statutory dissenters' rights (see "The Merger -- Dissenters' Rights"), of (a)
Series A Preferred Stock, (b) Series C Preferred Stock, (c) Series D Preferred
Stock and (d) Series E Preferred Stock (collectively, the "Preferred Stock")
shall remain outstanding as one duly authorized, validly issued, fully paid and
nonassessable share of Series A Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, respectively, of the
Surviving Corporation.
VOTE REQUIRED; VOTING PROCEDURES; RECORD DATE
The close of business on September 22, 1995 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Special Meeting. All
holders of record of Common Stock and Preferred Stock at the close of business
on the Record Date will be entitled to notice of the Special Meeting, but only
holders of record of Common Stock on the Record Date will be entitled to vote at
the meeting.
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Special
Meeting. Approval and adoption of the Amended Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock as of the Record Date. At the Record Date, 34,898,767 shares of
Common Stock were issued and outstanding and entitled to vote at the Special
Meeting. See "Voting and Proxies -- Record Date; Solicitation of Proxies."
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval and adoption
of the Amended Merger Agreement, and in the discretion of the persons named in
the proxy as proxy appointees, as to any other matter which may properly come
before the Special Meeting and of which the Company is not presently aware.
Under the rules of the New York Stock Exchange, Inc. (the "NYSE"), while brokers
who hold shares in street name have the authority to vote on certain items when
they have not received instructions from beneficial owners, brokers will not be
entitled to vote on the Amended Merger Agreement absent instructions. Brokers
who do not receive instructions but who are present, in person or by proxy, at
the Special
1
<PAGE> 9
Meeting will be counted as present for quorum purposes. Under applicable
Delaware law, a broker non-vote will have the effect of a negative vote on the
approval of the Amended Merger Agreement.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy to
vote in accordance with their best judgment on matters incident to the conduct
of the Special Meeting.
Any stockholder may revoke a proxy at any time before it is voted by filing
with the Corporate Secretary of the Company an instrument revoking the proxy or
by returning a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Any such filing should be made to the
attention of Kathleen A. Gallichio, Corporate Secretary, Kemper Corporation, One
Kemper Drive, C-3, Long Grove, Illinois 60049. Attendance at the Special Meeting
will not by itself constitute revocation of a proxy.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or custody, or
in the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor, including the cost of printing and mailing this
Proxy Statement and related materials.
The current directors and executive officers of the Company and their
respective affiliates presently beneficially own a total of 2,622,943 shares of
Common Stock, constituting approximately 7.5% of the outstanding shares of
Common Stock entitled to vote at the Special Meeting (including 1,007,130 shares
underlying presently exercisable stock options). See "Stock Ownership of
Management and Certain Beneficial Owners." Such directors and executive officers
of the Company have indicated that they intend to vote the 123,715 shares as to
which they presently have sole voting power (approximately 0.4% of the
outstanding shares of Common Stock entitled to vote at the Special Meeting) FOR
the approval and adoption of the Amended Merger Agreement.
THE MERGER
PARTIES TO THE AMENDED MERGER AGREEMENT
The following entities are parties to the Amended Merger Agreement:
Kemper Corporation. The Company is a financial services holding company
with continuing operations in three business segments: asset management, life
insurance and real estate. At June 30, 1995, the Company's consolidated assets
totalled more than $11 billion, its asset management subsidiaries managed more
than $63 billion of assets, and its life insurance subsidiaries had more than
$98 billion of life insurance in force and $10 billion of assets. The Company's
executive offices are located at One Kemper Drive, Long Grove, Illinois 60049,
and its telephone number is (708) 320-4700.
Zurich Insurance Company. Zurich is an internationally recognized market
leader in life and non-life insurance and reinsurance and is increasingly
involved in the financial services industry. Headquartered in Zurich,
Switzerland, Zurich has branch offices and subsidiaries in more than 40
countries throughout the world. Zurich had worldwide premium writings of
approximately $19.3 billion in 1994 and over $7.3 billion in capital and surplus
at year-end 1994.
Insurance Partners. Insurance Partners are parallel investment
partnerships formed in February 1994 to sponsor acquisitions and other
structured transactions in the property-casualty and life insurance industries
in the U.S. and abroad. The committed capital of Insurance Partners and related
partnerships is $540 million.
2
<PAGE> 10
ZIP Acquisition Corp. The Purchaser is a special-purpose Delaware
corporation owned approximately 80% by Zurich and 20% by Insurance Partners. The
principal executive offices of the Purchaser are located at Zurich Towers, 1400
American Lane, Schaumburg, Illinois 60196, and its telephone number is (708)
605-6000.
BACKGROUND OF THE MERGER
In November 1994, following the termination of a merger agreement among the
Company, Conseco, Inc., an Indiana corporation ("Conseco"), and a wholly owned
subsidiary of Conseco, pursuant to which the Company would have been acquired by
Conseco (the "Conseco Merger Agreement"), the Board of Directors of the Company
directed management and the Company's advisors to take all appropriate actions
to maximize value for the Company's stockholders. Thereafter, the Company and
its advisors began to investigate the possible sale of the Company and to
explore other alternatives for maximizing stockholder value, including various
restructuring alternatives involving the divestiture of the Company's various
business segments. During the months of January and February 1995, a number of
parties, including Insurance Partners, which had manifested a serious interest
in bidding for the entire Company or certain of its business segments were
invited to conduct an extensive due diligence review of the Company in
preparation for the submission of bids.
On March 15, 1995, Company management and Goldman Sachs reviewed bids
submitted by various parties with respect to the Company or its various business
segments, including a proposed non-binding letter of intent submitted by Zurich
and Insurance Partners that contemplated an acquisition of the entire Company in
a merger transaction for a price of $49.50 per share, consisting of $46.50 of
cash and $3.00 of adjustable preferred stock. The Board of Directors of the
Company, at a special meeting held on March 15 and 16, 1995, in consultation
with its legal and financial advisors, authorized management of the Company to
pursue negotiation of a letter of intent with Zurich and Insurance Partners.
In late March and early April, representatives of the Company, Zurich and
Insurance Partners, together with their legal and financial advisors, negotiated
the provisions of a letter of intent. On April 10, 1995, the Board approved the
letter of intent at a special meeting, and the letter of intent was executed by
the Company, Zurich and Insurance Partners later that evening.
Through May 15, 1995, representatives of the Company and its advisors
negotiated the terms of the Merger Agreement and related agreements with
representatives of Zurich and Insurance Partners and their respective advisors.
During this period, Zurich and Insurance Partners continued to conduct business
and legal due diligence with respect to the Company. On May 15, 1995, the Board
of Directors, at a special meeting at which it received presentations from its
legal and financial advisors, recommended and approved the Merger Agreement and
the Merger, and the Merger Agreement was executed by the Company, Zurich,
Insurance Partners and the Purchaser.
On September 6, 1995, the Company, Zurich, Insurance Partners and the
Purchaser entered into the Amendment Agreement which, among other things,
increased the merger consideration $.30 per share, to $49.80 per share from
$49.50 per share. The parties entered into the Amendment Agreement because of
increased benefits that would inure to Zurich and Insurance Partners as a result
of certain modifications that had been made to the transactions planned to
effect the divestiture of the Company's securities brokerage segment. See "The
Merger -- Related Transactions; Background of the Merger."
RELATED TRANSACTIONS
In connection with the Merger and, at the election of the Purchaser, as a
condition precedent to the consummation of the Merger, the Company's asset
management operations, consisting of Kemper Financial Services, Inc. ("KFS"), an
indirectly owned subsidiary of the Company, and KFS's various subsidiaries, are
to be acquired by KFS Acquisition Corp., a wholly-owned subsidiary of Zurich
("KFS Acquisition"), through a merger of KFS with KFS Acquisition (the "KFS
Merger") pursuant to an Agreement and Plan of Merger dated as of May 15, 1995
among Zurich, KFS Acquisition, KFS, Kemper Financial Companies, Inc. ("KFC") and
the Company (the "KFS Agreement"). KFC owns all of the 1,000 issued and
outstanding shares of KFS common stock. Pursuant to the KFS Agreement, each
issued and outstanding share of
3
<PAGE> 11
common stock of KFS in the KFS Merger shall be cancelled and converted into the
right to receive $900,000 per share, without interest, subject to increase at
Zurich's election. The KFS Agreement contains substantially the same
representations, warranties, covenants and conditions as the Merger Agreement
with respect to the asset management subsidiaries of the Company. The KFS Merger
will not be consummated in the event the Merger is not consummated. Also, the
Purchaser may elect to delay the KFS Merger until after the Merger has been
consummated.
In addition, satisfying a condition precedent to the Merger, on September
13, 1995, the Company sold its common equity interest in its securities
brokerage segment, EVEREN Capital Corporation ("EVEREN"), to an employee stock
ownership plan (the "ESOP") for $71.4 million in cash and distributed
approximately $30.1 million aggregate liquidation preference of Series A
Exchangeable Preferred Stock of EVEREN (the "EVEREN Preferred Stock") to the
holders of Common Stock (with a liquidation preference per share of EVEREN
Preferred Stock distributed of $0.80 per share of Common Stock) as a taxable
distribution (such transactions are collectively referred to herein as the "ESOP
Sale and related EVEREN Distribution"). Although consummation of the ESOP Sale
and related EVEREN Distribution was a condition precedent to the consummation of
the Merger, it is separate from the Merger, and the EVEREN Preferred Stock
received by the holders of Common Stock does not constitute a part of the Merger
Consideration.
On May 15, 1995, the Company entered into a letter agreement (the
"Lumbermens Agreement") with KFS, the Purchaser, Zurich, Insurance Partners and
Lumbermens Mutual Casualty Company ("Lumbermens") pursuant to which Lumbermens
consented to certain matters relating to the Merger and the Company and
Lumbermens confirmed and clarified the scope of certain contractual
relationships existing between the parties as more fully described herein under
"The Merger -- Conditions to Consummation of the Merger; Representations and
Warranties; Certain Covenants -- Additional Covenants." Virtually all material
provisions of the Lumbermens Agreement become effective or operative at the
Effective Time or when all material conditions to the Merger have been satisfied
or waived. If for any reason (including failure of the Company's common
stockholders to approve and adopt the Amended Merger Agreement), either the
Amended Merger Agreement terminates without the Merger having been consummated
or the Merger is not consummated by June 30, 1996, then the Lumbermens Agreement
shall terminate and be of no further force and effect.
See "The Merger -- Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants," "The Merger -- Related
Transactions," and "The Merger -- Plans of the Company in the Event the Merger
is not Consummated."
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Board of Directors of the Company, at special meetings held on May 15,
1995 and August 31, 1995, unanimously approved and adopted the Merger Agreement
and the Amendment Agreement, respectively, and directed that the Amended Merger
Agreement be submitted to the common stockholders of the Company for their
approval and adoption. The Board of Directors has determined that the Merger is
fair to, and in the best interests of, the Company and its stockholders and
recommends that the common stockholders vote FOR approval and adoption of the
Amended Merger Agreement. In reaching its decision to approve the Merger
Agreement, the Company's Board of Directors considered a number of factors. For
a discussion of the factors considered by the Board in reaching its
determination, see "The Merger -- Reasons for the Merger; Recommendation of the
Board of Directors; Opinion of Financial Advisor."
OPINION OF FINANCIAL ADVISOR
Goldman Sachs has delivered its written opinion to the Board of Directors
of the Company that, as of the date hereof, the $49.80 per share in cash to be
received by the holders of Common Stock in the Merger is fair to such holders.
The full text of the written opinion of Goldman Sachs, which sets forth
information respecting assumptions made, matters considered and limitations of
the review undertaken by Goldman Sachs in connection with the opinion, is
attached hereto as Annex 2. Stockholders are urged to, and should, read such
opinion in its entirety. See "The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors; Opinion of Financial Advisor."
4
<PAGE> 12
NO SOLICITATION; FIDUCIARY DUTIES
Under the Amended Merger Agreement, the Company may not, nor may it
authorize or permit any of its affiliates, subsidiaries or advisors to, solicit
other Transaction Proposals (as defined herein), or withdraw or modify, in a
manner adverse to the Purchaser, its recommendation of the Merger or approve or
recommend any Transaction Proposal unless such action is necessary in order for
the Board of Directors of the Company to comply with its fiduciary obligations
to stockholders under applicable law. See "The Merger -- No Solicitation" and
"-- Fiduciary Duties."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In addition to (i) shares of Common Stock held by directors and executive
officers of the Company, for which they will receive the same consideration as
other stockholders of the Company, and (ii) options to acquire and phantom stock
rights with respect to shares of Common Stock granted pursuant to certain
Company incentive compensation plans, which will be treated as described below
under "The Merger -- Benefit Plans," certain executive officers of the Company
are parties to termination protection agreements with the Company or are the
beneficiaries of a severance program of the Company pursuant to which
significant payments and other benefits may be provided to such persons.
The Amended Merger Agreement contains certain provisions with respect to
various employee benefit plans of the Company. See "The Merger -- Benefit
Plans."
In addition, Zurich and Insurance Partners have agreed that the rights of
present and former directors, officers and employees of the Company and its
subsidiaries to indemnification under provisions set forth in their respective
certificates of incorporation and bylaws will be maintained for a period of not
less than six years after the Effective Time and that, subject to certain
limitations, the Company's current directors' and officers' insurance policy
will be continued for a period of not less than six years after the Effective
Time. See "The Merger -- Interests of Certain Persons in the Merger."
EFFECTIVE TIME OF THE MERGER; PAYMENT FOR COMMON STOCK
The Company shall file with the Secretary of State of the State of Delaware
(the "Delaware Secretary of State") on the closing date of the Merger (the
"Closing Date") (or on such other date as the Company and ZIP may agree) a
certificate of merger (the "Certificate of Merger") or other appropriate
documents, executed in accordance with the relevant provisions of the DGCL, and
make all other filings or recordings required under the DGCL in connection with
the Merger. The Merger shall become effective upon the filing of the Certificate
of Merger with the Delaware Secretary of State, or at such later time as is
specified in the Certificate of Merger (the "Effective Time"). See "The Merger
- -- Conditions to Consummation of the Merger; Representations and Warranties;
Certain Covenants."
Detailed instructions with regard to the surrender of certificates, to be
accompanied by a letter of transmittal, will be forwarded to holders of
certificates formerly evidencing shares of Common Stock as promptly as
practicable following the Effective Time by Citibank, N.A. (the "Paying Agent").
Payment will be made to such former holders of shares of Common Stock as
promptly as practicable following receipt by the Paying Agent of certificates
for their shares of Common Stock and other required documents. No interest will
be paid or accrued on the cash payable upon the surrender of certificates. See
"The Merger -- Payment for Shares of Common Stock."
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
CONDITIONS TO THE MERGER
The obligations of Zurich, Insurance Partners and the Company to consummate
the Merger are subject to waiver or satisfaction of certain conditions,
including obtaining requisite stockholder and regulatory approvals, certain
approvals with respect to the registered investment companies for which the
Company's
5
<PAGE> 13
subsidiaries act as investment adviser or sub-adviser and certain consents from
the noninvestment company advisory clients of the asset management subsidiaries
of the Company. The obligations of Zurich and Insurance Partners to consummate
the Merger are subject to waiver or satisfaction of certain additional
conditions, including appraisal rights not being asserted by more than certain
specified percentages of holders of the Company's capital stock, consummation of
the KFS Merger (assuming the Purchaser does not elect to have the KFS Merger
consummated after the Effective Time), consummation of the ESOP Sale and related
EVEREN Distribution, the absence of new material litigation affecting the
Company, the absence of a material adverse change affecting the Company, no
event of default having occurred, or event or condition existing that, with the
giving of notice or lapse of time, would become an event of default, under the
Company's public debt indentures and the Lumbermens Agreement remaining in full
force and effect. See "The Merger -- Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants" and "The Merger -- Related
Transactions."
TERMINATION; FEES AND EXPENSES
The Amended Merger Agreement may be terminated at any time prior to the
Effective Time: (1) by mutual consent of the parties; (2) by either party if the
Merger is not approved by the stockholders of the Company; (3) by either party
if the Merger has not been consummated on or before February 29, 1996; (4) by
either party if a governmental authority issues a final permanent order or
injunction prohibiting the Merger; (5) by either party if the Company exercises
its rights described herein under "The Merger -- Fiduciary Duties"; (6) by the
Purchaser if (a) any tender or exchange offer is made which would result in
ownership by any person or group of more than 20% of the outstanding shares of
Common Stock and the Company's Board recommends or states that it is neutral
with respect to such offer, (b) any person or group shall acquire beneficial
ownership of more than 20% of the outstanding shares of Common Stock or (c) the
Company's Board takes certain actions with respect to the Rights Agreement
(defined herein) which are adverse to Zurich and Insurance Partners; (7) by
either party upon a material breach of a representation, warranty or covenant by
the other party and the lapse of a cure period; or (8) by Zurich and Insurance
Partners if (a) requisite regulatory approvals, (b) certain approvals with
respect to the registered investment companies for which certain of the
Company's subsidiaries act as investment adviser or sub-adviser or (c) certain
advisory client consents, have been sought and refused.
In the event of termination of the Amended Merger Agreement, the Company
will pay to Zurich and Insurance Partners a fee of (a) $80 million if the
Amended Merger Agreement is terminated pursuant to clauses (5) or (6) above; (b)
(i) $40 million if the Amended Merger Agreement is terminated pursuant to clause
(2) above or by the Purchaser pursuant to clause (7) above and (ii) an
additional fee of $40 million if the Company enters into certain other
transactions within 12 months of such termination; or (c) $40 million if the
Amended Merger Agreement is terminated pursuant to clauses (3) or (8) above and
the Company enters into certain other transactions within 12 months of such
termination, subject with respect to clause (c) to certain exceptions specified
herein under "The Merger -- Termination; Fees and Expenses." Pursuant to the
Amended Merger Agreement, the Company will pay, whether or not the Merger is
consummated or the Amended Merger Agreement is terminated, all documented
expenses up to $35 million of Zurich and Insurance Partners unless (i) the
Amended Merger Agreement is terminated by the Company pursuant to clause (7)
above, or (ii) Zurich and Insurance Partners fail to close the Merger after all
conditions thereto have been satisfied. See "The Merger -- Termination; Fees and
Expenses."
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. Stockholders are urged to
consult their own tax advisors as to the particular tax consequences of the
Merger, including the applicability and effect of state, local, foreign and
other taxes. See "The Merger -- Certain Tax Consequences of the Merger."
6
<PAGE> 14
DISSENTERS' RIGHTS
Subject to compliance with the procedures set forth in Section 262 of the
DGCL, the full text of which is included as Annex 3 to this Proxy Statement,
holders of Common Stock and Preferred Stock are entitled to appraisal rights in
connection with the Merger. Any demand for appraisal must be made prior to the
stockholder vote on the Amended Merger Agreement at the Special Meeting. Holders
of Common Stock or Preferred Stock who, prior to the stockholder vote on the
Amended Merger Agreement at the Special Meeting, properly demand appraisal of
their shares (such shares being referred to herein as "Dissenting Common Shares"
and "Dissenting Preferred Shares", respectively) and, in the case of holders of
Common Stock, who do not vote in favor of the approval and adoption of the
Amended Merger Agreement, will have the right to obtain a cash payment for the
"fair value" of their shares (excluding any element of value arising from the
accomplishment or expectation of the Merger), together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Such "fair value" would be determined in judicial proceedings, the result of
which cannot be predicted. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered
in the appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock or Preferred Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock or Preferred Stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares of Common
Stock or Preferred Stock entitled to appraisal. Failure to take any of the steps
required under Section 262 of the DGCL on a timely basis may result in the loss
of appraisal rights. Holders considering seeking appraisal should be aware that
the fair value of their shares of Common Stock or Preferred Stock as determined
under Section 262 could be more than, the same as or less than the value of the
Merger Consideration that they would otherwise receive, in the case of holders
of Common Stock, in the Merger, or the value of the preferred stock in the
Surviving Corporation that they would otherwise continue to hold, in the case of
holders of Preferred Stock, if they did not seek appraisal of their shares of
Common Stock or Preferred Stock. See "The Merger -- Dissenters' Rights."
GOVERNMENT AND REGULATORY APPROVALS AND FILINGS
The consummation of the Merger will be subject to, among other approvals,
the prior approval of the Department of Insurance of the State of Illinois and
to the expiration or early termination of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). A definitive application for approval was submitted by Zurich and
Insurance Partners to the Department of Insurance of the State of Illinois on
September 26, 1995. On August 28, 1995, the parties to the Merger Agreement were
informed by the Federal Trade Commission (the "FTC") that they had received
early termination of the relevant waiting period under the HSR Act with respect
to the Merger and certain real estate sales contemplated by the Merger
Agreement. See "The Merger -- Government and Regulatory Approvals and Filings."
BENEFIT PLANS
For the one-year period beginning on the Closing Date, the Surviving
Corporation shall, subject to certain exceptions, continue to maintain certain
benefit plans of the Company as described under "The Merger -- Benefit Plans."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting and financial
reporting purposes.
7
<PAGE> 15
MARKET PRICES
The Common Stock is listed and traded on the NYSE. As of April 10, 1995,
the date preceding public announcement of the signing of a letter of intent by
the parties regarding the proposed Merger, high and low sales prices of the
Common Stock on the NYSE Composite Transactions Tape were 41 1/2 per share and
40 7/8 per share, respectively. On October 16, 1995, the latest practicable
trading day before the printing of this Proxy Statement, the high and low sales
prices of the Common Stock on the NYSE Composite Transactions Tape were 48 1/2
per share and 48 3/8 per share, respectively.
SUMMARY FINANCIAL INFORMATION CONCERNING THE COMPANY
The summary historical consolidated financial data presented below for each
of the last five fiscal years and the six months ended June 30, 1995 and 1994
have been derived from the Company's historical financial statements, as
adjusted to reflect the divestiture of the Company's securities brokerage
segment in the ESOP Sale and related EVEREN Distribution. This data should be
read in conjunction with the consolidated financial statements and notes thereto
of the Company included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, which are incorporated by reference into this Proxy
Statement. See "Selected Financial Information Concerning the Company" and
"Additional Information -- Incorporation by Reference."
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30, (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA (CONTINUING
OPERATIONS)
Total revenue................. $ 569,819 $ 605,589 $1,104,850 $ 918,931 $ 882,815 $1,207,608 $1,257,273
Net income excluding realized
investment gain (loss)...... $ 73,913 $ 59,035 $ 141,089 $ 99,914 $ 69,076 $ 140,839 $ 125,691
Net income (loss)............. $ 40,435 $ 74,972 $ 87,951 $ (97,644) $ (176,242) $ 69,830 $ 11,799
Net income (loss) per share
Primary..................... $ .82 $ 1.86 $ 1.86 $ (2.72) $ (3.60) $ 1.45 $ 2.55
Fully diluted............... $ .82 $ 1.78 $ 1.86 $ (2.28) $ (3.60) $ 1.45 $ 2.55
FINANCIAL CONDITION DATA
Total assets.................. $11,718,877 $11,937,735 $11,761,158 $12,543,536 $11,312,819 $11,490,312 $9,888,829
Total long-term obligations
and redeemable securities... $ 372,926 $ 431,542 $ 389,783 $ 435,864 $ 260,745 $ 315,786 $ 245,328
Stockholders' equity.......... $1,575,225 $1,324,235 $1,257,357 $1,618,987 $1,766,114 $1,838,526 $1,625,909
</TABLE>
8
<PAGE> 16
VOTING AND PROXIES
RECORD DATE; SOLICITATION OF PROXIES
The Board of Directors of the Company has fixed the close of business on
September 22, 1995 as the Record Date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. All holders of record
of Common Stock and Preferred Stock at the close of business on the Record Date
will be entitled to notice of the Special Meeting, but only holders of Common
Stock of record on the books of the Company at the close of business on the
Record Date will be entitled to vote at the Special Meeting. At the Record Date,
there were 34,898,767 shares of Common Stock issued and outstanding and entitled
to vote at the Special Meeting. Holders of Common Stock are entitled to one vote
at the Special Meeting for each share of Common Stock held of record at the
Record Date.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees (who
will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or custody, or
in the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the proxy materials to those persons for whom they hold
such shares. The Company will bear the costs of the Special Meeting and of
soliciting proxies therefor, including the cost of printing and mailing this
Proxy Statement and related materials. The Company has retained Georgeson &
Company Inc. ("Georgeson") to assist in the solicitation of proxies. Pursuant to
the Company's agreement with Georgeson, Georgeson will provide various proxy
advisory and solicitation services for the Company in connection with the
Special Meeting at a cost of approximately $10,000, plus reasonable
out-of-pocket expenses. Any questions or requests for assistance regarding the
Company's proxies and related materials may be directed in writing to Georgeson
& Company Inc., Wall Street Plaza, New York, New York 10005, or by telephone
(toll free) at (800) 223-2064.
VOTE REQUIRED
A majority of the outstanding Common Stock entitled to vote as of the
Record Date, represented in person or by proxy, is required for a quorum at the
Special Meeting. The affirmative vote of a majority of the outstanding Common
Stock as of the Record Date is required for approval and adoption of the Amended
Merger Agreement. Abstentions may be specified with respect to the approval and
adoption of the Amended Merger Agreement and will be counted as present for the
purpose of determining the existence of a quorum but will have the effect of a
negative vote due to the requirement of affirmative votes described in the
preceding sentence.
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval and adoption
of the Amended Merger Agreement, and in the discretion of the persons named in
the proxy as proxy appointees, as to any other matter which may properly come
before the Special Meeting and of which the Company is not presently aware.
Under the rules of the NYSE, while brokers who hold shares in street name
have the authority to vote on certain items when they have not received
instructions from beneficial owners, brokers will not be entitled to vote on the
Amended Merger Agreement absent instructions. Brokers who do not receive
instructions but who are present, in person or by proxy, at the Special Meeting
will be counted as present for quorum purposes. Under applicable Delaware law, a
broker non-vote will have the effect of a negative vote on the approval of the
Amended Merger Agreement.
9
<PAGE> 17
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, the persons named as proxy appointees will vote
in accordance with their best judgment on such matters. The grant of a proxy
will also confer discretionary authority on the persons named as proxy
appointees to vote in accordance with their best judgment on matters incident to
the conduct of the Special Meeting.
Any common stockholder may revoke a proxy at any time before it is voted by
filing with the Corporate Secretary of the Company an instrument revoking the
proxy or by returning a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Any such filing should be
made to the attention of Kathleen A. Gallichio, Corporate Secretary, Kemper
Corporation, One Kemper Drive, C-3, Long Grove, Illinois 60049. Attendance at
the Special Meeting will not by itself constitute revocation of a proxy.
Stockholders have the right to demand appraisal rights in connection with
the Merger and, subject to certain conditions provided under the DGCL, to
receive payment for the fair value of their shares. See "The Merger --
Dissenters' Rights."
The current directors and executive officers of the Company and their
respective affiliates as a group presently beneficially own 2,622,943 shares
(approximately 7.5%) of the outstanding Common Stock, including 1,007,130 shares
that such directors and executive officers have the right to acquire through the
exercise of presently exercisable stock options but also including 1,492,098
shares as to which the directors and executive officers either disclaimed
beneficial ownership or did not have sole dispositive and voting power. See
"Stock Ownership of Management and Certain Beneficial Owners." Such directors
and executive officers of the Company have indicated that they intend to vote
the 123,715 shares as to which they presently have sole voting power
(approximately 0.4% of the outstanding shares of Common Stock entitled to vote
at the Special Meeting) FOR the approval and adoption of the Amended Merger
Agreement.
THE AMENDED MERGER AGREEMENT TO BE CONSIDERED AT THE SPECIAL MEETING
INVOLVES A MATTER OF GREAT IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY.
ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND COMMON STOCKHOLDERS ARE URGED
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING PREPAID ENVELOPE.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
10
<PAGE> 18
THE MERGER
GENERAL
The following information with respect to the Merger is qualified in its
entirety by reference to the complete text of the Amended Merger Agreement, a
copy of which is included in this Proxy Statement as Annex 1. The Amended Merger
Agreement sets forth the terms and conditions upon which the Merger is to be
effected. If the Amended Merger Agreement is approved and adopted by the holders
of a majority of the outstanding shares of Common Stock at the Special Meeting,
and all other conditions to the obligations of the parties thereto are satisfied
or waived, the Merger will be consummated and the Purchaser will merge with and
into the Company at the Effective Time. The Company will be the Surviving
Corporation in the Merger.
Pursuant to the Merger, each share of Common Stock issued and outstanding
at the Effective Time will be cancelled and extinguished and converted
automatically into the right to receive the Merger Consideration, other than
shares owned by the Company (except for Company Fiduciary Shares), Zurich,
Insurance Partners, the Purchaser or any of their respective subsidiaries (which
shares will be cancelled and extinguished without any payment therefor) and
shares held by common stockholders who perfect their statutory dissenters'
rights. Each share issued and outstanding at the Effective Time of Series A
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, other than the shares held by preferred stockholders who
perfect their statutory dissenters' rights, shall remain outstanding as one duly
authorized, validly issued, fully paid and non-assessable share of Series A
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, respectively, of the Surviving Corporation. Pursuant to the
Amended Merger Agreement, at the Effective Time, the purchase rights respecting
shares of the Company's Series B Junior Participating Preferred Stock (the
"Rights") issued pursuant to the Rights Agreement dated as of July 18, 1990
between the Company and Harris Trust and Savings Bank, as rights agent (as
amended, the "Rights Agreement"), which are currently attached to the shares of
Common Stock, will be cancelled and will have no further force and effect. As a
result of the Merger, common stockholders of the Company will cease to have an
equity interest in, or possess any rights as stockholders of, the Surviving
Corporation.
Pursuant to the Amended Merger Agreement, each exercisable Company Stock
Option (as defined below), and any rights thereunder, and each exercisable
Phantom Stock Right (as defined below), and any rights thereunder, outstanding
and unexercised immediately prior to the Effective Time shall be cancelled
immediately prior to the Effective Time in exchange for the right to receive an
amount in cash equal to the product of (A) the number of shares of Common Stock
underlying any unexercised portion of such Company Stock Option or such Phantom
Stock Right immediately prior to the Effective Time and (B) the excess, if any,
of (1) the Merger Consideration per share of Common Stock over (2) the per share
exercise price or appreciation base, as the case may be, of such Company Stock
Option or such Phantom Stock Right; provided, however, that in no event shall a
person who holds a Company Stock Option and a related Phantom Stock Right be
entitled to payment in respect of both such Company Stock Option and related
Phantom Stock Right. As used in the Amended Merger Agreement, a "Company Stock
Option" refers to an option to purchase shares of Common Stock issued under the
Kemper Corporation 1982 Incentive Stock Option Plan, the Kemper Corporation 1985
Amended Stock Option Plan, the Kemper Corporation 1990 Stock Option Plan and the
Kemper Corporation Non-Management Director Stock Option Plan. The Amended Merger
Agreement defines a "Phantom Stock Option" as an outstanding Option-Associated
Phantom Stock Award issued under the Kemper Corporation 1995 Executive Incentive
Plan. Each Phantom Stock Option, together with the unexercised portion of each
outstanding Phantom Stock Unit issued under the Kemper Corporation 1995
Executive Incentive Plan (each a "Phantom Stock Unit"), is defined in the
Amended Merger Agreement as a "Phantom Stock Right."
At the Record Date, Company Stock Options having a per share exercise price
under $49.80 were outstanding and exercisable for an aggregate of approximately
2.5 million shares of Common Stock, entitling the holders to an aggregate amount
of cash equal to approximately $27.5 million if no such Company Stock Options
are exercised or lapse in accordance with their terms prior to the Effective
Time. All of such Company Stock Options are presently exercisable in full, and
it is anticipated many will be exercised by the
11
<PAGE> 19
holders thereof prior to the Effective Time. At the Record Date, 162,840 Phantom
Stock Units and 215,900 Phantom Stock Options, all having an appreciation base
under $49.80 per share, were outstanding, entitling the holders to an aggregate
amount of cash equal to $9,118,765 if not exercised, settled or lapsed in
accordance with their terms prior to the Effective Time. Of this amount,
$1,009,333 is associated with the Phantom Stock Options which expire on October
19, 1995 and therefore are not expected to require a cash settlement in
connection with the Merger.
RELATED TRANSACTIONS
In connection with the Merger and, at the election of the Purchaser, as a
condition precedent to the consummation of the Merger, the Company's asset
management operations, consisting of KFS and KFS's various subsidiaries, are to
be acquired by KFS Acquisition pursuant to the KFS Agreement through the KFS
Merger. KFC owns all of the 1,000 issued and outstanding shares of KFS common
stock. Pursuant to the KFS Agreement, each issued and outstanding share of
common stock of KFS in the KFS Merger shall be cancelled and converted into the
right to receive $900,000 per share, without interest, subject to increase at
Zurich's election. Zurich has informed the Company that it presently expects to
increase the dollar amount per KFS share to approximately $930,000. The KFS
Agreement contains substantially the same representations, warranties, covenants
and conditions as the Amended Merger Agreement with respect to the asset
management subsidiaries of the Company. The KFS Merger will not be consummated
in the event the Merger is not consummated. Also, the Purchaser may elect to
delay the KFS Merger until after the Effective Time. Goldman Sachs was not asked
to and did not perform a separate analysis with respect to the KFS Merger for
purposes of rendering its opinion to the Board of Directors of the Company on
May 15, 1995.
In addition, satisfying a condition precedent to the Merger, on September
13, 1995, the Company sold its common equity interest in EVEREN to the ESOP for
$71.4 million in cash and distributed approximately $30.1 million aggregate
liquidation preference of the EVEREN Preferred Stock to the holders of Common
Stock (with a liquidation preference per share of EVEREN Preferred Stock
distributed of $0.80 per share of Common Stock) as a taxable distribution.
Although consummation of the ESOP Sale and related EVEREN Distribution was a
condition precedent to the consummation of the Merger, it is separate from the
Merger, and the EVEREN Preferred Stock received by the holders of Common Stock
does not constitute a part of the Merger Consideration. The ESOP Sale and
related EVEREN Distribution were not conditioned upon the consummation of the
Merger.
On May 15, 1995, the Company and Lumbermens entered into the Lumbermens
Agreement pursuant to which Lumbermens consented to certain matters relating to
the Merger and the Company and Lumbermens confirmed and clarified the scope of
certain contractual relationships existing between the parties, as more fully
described herein under "The Merger -- Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants -- Additional Covenants."
Virtually all material provisions of the Lumbermens Agreement become effective
or operative at the Effective Time or when all material conditions to the Merger
have been satisfied or waived. If for any reason (including failure of the
Company's common stockholders to approve and adopt the Amended Merger Agreement)
either the Amended Merger Agreement terminates without the Merger having been
consummated or the Merger is not consummated by June 30, 1996, then the
Lumbermens Agreement shall terminate and be of no further force and effect.
BACKGROUND OF THE MERGER
By letter dated March 2, 1994, General Electric Capital Corporation
("GECC") made an unsolicited proposal to acquire all the outstanding shares of
Common Stock at a price of $55 per share. At a meeting of the Company's Board of
Directors held March 17, 1994, the Board reviewed the Company's financial
performance and future prospects. At such meeting, Goldman Sachs, as financial
advisor to the Company, advised the Board, based on its review of financial and
other information at that time, that in its opinion the GECC offer of $55 per
share was inadequate and, after extensive discussions among the directors and
with the Company's legal and financial advisors, the Board of Directors
unanimously rejected GECC's proposal and determined that the Company was not for
sale at that time. Based on Company projections available at the time, the $55
per share offer represented a multiple of approximately 9.0 times forecasted
1995 operating
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earnings (net income excluding realized investment results) available to Common
Stock of approximately $233.9 million (which included $43.9 million of projected
earnings of the Company's now divested securities brokerage segment) and a
multiple of approximately 7.2 times such forecasted operating earnings available
to Common Stock for 1996 of approximately $295.3 million (which included $52.1
million of projected securities brokerage earnings). For a description of the
comparable multiples for the Merger based on Company projections developed
subsequent to the time of the unsolicited GECC proposal (using $49.50 as the per
share merger consideration), see "The Merger -- Opinion of Financial
Advisor -- Historical and Projected Earnings by Segment Analysis." For a
description of the changes in projections for periods subsequent to the time of
the unsolicited GECC proposal, see "Certain Projections."
In late March 1994, after the GECC proposal was rejected, GECC launched a
proxy contest to elect four former General Electric employees to the Company's
Board of Directors. On May 8, 1994, the Company and GECC entered into a letter
agreement by which, among other things, GECC increased its offer to acquire the
Company to $60 in cash per share, subject to the satisfactory completion of due
diligence and the satisfaction of certain other conditions. In light of the
increased GECC offer, the proxy contest was terminated and the Company advised
GECC in the letter agreement that the Company's Board of Directors had directed
its management and advisors to take all appropriate actions to maximize value
for the Company's stockholders.
On May 16, 1994, the Company engaged Goldman Sachs to investigate the
possible sale of the Company and to explore other alternatives for maximizing
value for the Company's stockholders. Following a comprehensive process to
maximize value, on June 23, 1994, Conseco announced its offer to acquire all
outstanding shares of Common Stock for $67 per share ($56 in cash and the
remainder as a fraction of a share of Conseco common stock valued at $11 at such
date). Conseco indicated in its announcement that its offer would expire Sunday,
June 26, 1994. Within hours of this announcement, GECC withdrew completely from
the Company's process to maximize value. GECC had not completed its due
diligence investigations and never submitted a firm $60 per share offer for the
Company. The Company and Conseco entered into the Conseco Merger Agreement on
June 26, 1994.
On November 2, 1994, Conseco proposed that the Conseco Merger Agreement be
modified to, among other things, reduce the merger consideration to be received
by Company stockholders. While Conseco's proposed changes to the Conseco Merger
Agreement were being considered by the Company's Board of Directors, it became
clear to both the Company and Conseco that the proposed merger, even under
Conseco's revised terms, could not be completed. Accordingly, on November 18,
1994, the Company and Conseco mutually terminated the Conseco Merger Agreement.
At the same time, the Board of Directors directed management and the Company's
advisors to take all appropriate actions to maximize value for the Company's
stockholders.
Thereafter, the Company and its advisors began to investigate a possible
sale of the Company and to explore other alternatives for maximizing stockholder
value, including various restructuring alternatives involving the divestiture of
the Company's various business segments. In late November 1994, the Company and
Goldman Sachs began contacting, on a confidential basis, a number of
organizations that they believed would be interested in acquiring the Company or
one or more of its businesses. Such organizations contacted by the Company and
Goldman Sachs included potential strategic and financial buyers, as well as
domestic and foreign entities. During this process, Goldman Sachs was authorized
by the Company to contact one or more representatives of Insurance Partners to
ascertain their interest respecting the Company or one or more of its business
segments.
Based on preliminary indications of interest, on or about December 8, 1994,
the Company and its advisors began to negotiate confidentiality agreements with,
and began to distribute confidential information about the Company to, entities
that had previously expressed an interest in acquiring all or part of the
Company as well as to new potential participants in the process. Approximately
80 parties received confidential information about the Company during this
process. Throughout December of 1994 and into 1995, the Company and its advisors
had conversations and subsequent meetings with various interested parties,
primarily to respond to due diligence inquiries and to attempt to ascertain such
parties' respective levels of interest in the Company or its business segments.
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<PAGE> 21
The Company delivered a confidentiality agreement to Insurance Partners on
December 8, 1994. After negotiations, the parties executed a confidentiality
agreement on December 23, 1994.
During the months of January and February of 1995, a number of parties,
including Insurance Partners, manifested a serious interest in bidding for the
entire Company or certain of its business segments. All of such parties were
invited to conduct an extensive due diligence review of the Company in
preparation for the submission of bids. Many of these parties then proceeded to
participate in due diligence processes, which included access to management,
data rooms and follow-up data and information regarding all or such portions of
the Company's business operations as any of such parties desired. The parties
also had access to the Company's legal and financial advisors. Insurance
Partners conducted a number of due diligence meetings with Company
representatives during this period.
From March 1 through March 7, 1995, representatives of Insurance Partners
performed further due diligence in data rooms located at the Company's offices
in Long Grove and Chicago, Illinois. On March 3, 1995, John H. Fitzpatrick,
Executive Vice President and Chief Financial Officer of the Company, met with
representatives of Insurance Partners for another corporate due diligence
session. On March 13, 1995, Rolf Hueppi, President and Chief Executive Officer
of Zurich, telephoned David B. Mathis, Chairman of the Board and Chief Executive
Officer of the Company, to first express Zurich's interest in pursuing a
potential acquisition of the Company with Insurance Partners.
On March 15, 1995, Goldman Sachs held a meeting at its offices in Chicago
with Company management to review bids submitted by various parties with respect
to the Company or its business segments. Zurich and Insurance Partners submitted
a bid in the form of a proposed non-binding letter of intent that contemplated
an acquisition of the entire Company in a merger transaction for a price of
$49.50 per share, consisting of $46.50 of cash and $3.00 of preferred stock
subject to adjustment, upwards or downwards, based on the proceeds to be
received from the sale of certain of the Company's real estate assets (the
"Adjustable Preferred Stock"). Written indications of interest relating to
certain business segments of the Company, proposing a leveraged recapitalization
of the Company and respecting a minority interest equity investment in the
Company were also received from certain parties.
On March 15 and 16, 1995, the Company held a special meeting of its Board
of Directors in Chicago to review the assorted bids and receive reports from its
legal and financial advisors as to the discussions and negotiations between the
Company and potential bidders since the last meeting of the Board. Goldman Sachs
reported on the various bids and indications of interest, including the proposed
Zurich/Insurance Partners letter of intent that had been received, and reviewed
with the Board certain restructuring alternatives in light of such bids and
indications of interest. The Board, in consultation with its legal and financial
advisors, authorized Company management to pursue negotiation of a letter of
intent with Zurich and Insurance Partners.
Beginning on March 17, 1995, the parties began a series of meetings to
discuss and negotiate a letter of intent and related matters in connection with
a potential transaction. On April 2, 1995, the Company held a special meeting of
its Board of Directors in Long Grove, Illinois, at which senior management and
representatives of the Company's legal and financial advisors reported on the
status of the negotiations with, and due diligence process of, Zurich and
Insurance Partners since the last Board meeting. At such special meeting, the
Board also approved the plan to divest the Company's securities brokerage
segment pursuant to the ESOP Sale and related EVEREN Distribution. From April 3
through April 6, 1995, representatives of the Company, Zurich and Insurance
Partners, together with their respective legal and financial advisors, continued
to negotiate the provisions of a letter of intent.
On April 6, 1995, the Company held a special meeting of its Board of
Directors in Long Grove, Illinois. At such meeting, the Board reviewed with the
Company's senior management and its legal and financial advisors the discussions
and negotiations between the Company and Zurich and Insurance Partners since the
last meeting of the Board a few days earlier. The Board also received a
presentation from Goldman Sachs of its analysis of the financial terms
contemplated by the latest negotiated draft letter of intent as well as
comparative financial analyses of various restructuring alternatives available
to the Company, including
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analyses of the values potentially available to the Company's stockholders over
time if the Company were to continue to operate as an independent entity after
divesting its securities brokerage segment.
From April 7 through April 10, 1995, representatives of the Company, Zurich
and Insurance Partners, together with their legal and financial advisors,
continued to negotiate the provisions of a letter of intent.
On April 10, 1995, the Company held a telephonic meeting of its Board of
Directors. At such meeting, the Board reviewed with the Company's senior
management and its legal and financial advisors the discussions and negotiations
between the Company and Zurich and Insurance Partners since the last meeting of
the Board. The Board also heard presentations by its legal advisors on the terms
and conditions of the proposed letter of intent and an update by Goldman Sachs
of its analysis of the financial terms contemplated by the proposed letter of
intent. In addition, Goldman Sachs reported on the absence of any competing
proposals for sale of the entire Company presenting near-term value
opportunities more favorable to the Company and its stockholders than the per
share consideration contemplated by the proposed letter of intent. After further
deliberations, the Board unanimously approved the execution and delivery of the
proposed letter of intent. Later that evening, the Company, Insurance Partners
and Zurich executed a letter of intent dated April 10, 1995 (the "Letter of
Intent"), which was announced the following morning.
The executed Letter of Intent differed from the initial letter of intent
submitted by Zurich and Insurance Partners on March 15, 1995 in a number of
material respects, including: (i) the cash portion of the proposed merger
consideration was increased to $47.50 per share, (ii) a financing contingency
was eliminated, (iii) the Company's obligation to reimburse Zurich and Insurance
Partners for transaction expenses was limited to $7.5 million and linked to
certain specific triggering events and (iv) the Adjustable Preferred Stock
portion of the proposed merger consideration was reduced to $2.00 per share and
the contingent downward feature of the Adjustable Preferred Stock was
eliminated. The Letter of Intent provided that it would terminate pursuant to
its terms on May 8, 1995 if definitive agreements relating to the proposed
transaction had not been executed by such date. Subsequent to the execution of
the Letter of Intent, Zurich and Insurance Partners continued to conduct
business and legal due diligence and their legal advisors together with the
Company's legal advisors began drafting definitive agreements.
Prior to May 8, 1995, representatives of Zurich and Insurance Partners
advised the Company's legal and financial advisors that Zurich and Insurance
Partners desired to extend the termination date under the Letter of Intent
primarily in order to obtain additional time to complete their due diligence of
the Company's real estate portfolio. On May 8, 1995, the parties entered into a
letter agreement extending the termination date under the Letter of Intent to
May 15, 1995.
Through May 15, 1995, representatives of the Company and its advisors
continued to negotiate the terms of the Merger Agreement and related ancillary
agreements with representatives of Insurance Partners and Zurich and their
respective advisors. The negotiations resulted in (i) the Adjustable Preferred
Stock component of the proposed merger consideration being eliminated such that
the merger consideration would consist of $49.50 in cash per share; (ii) Zurich
and Insurance Partners having the option to delay the closing of the Merger,
notwithstanding the satisfaction of the conditions thereto, until January 4,
1996, provided that certain conditions to the closing of the Merger would lapse
at an earlier date; and (iii) the Company retaining the ability to pay regular
quarterly dividends on its Common Stock, which Zurich and Insurance Partners had
sought to prevent. See "The Merger -- Conditions to Consummation of the Merger;
Representations and Warranties; Certain Covenants."
On May 15, 1995, the Company's Board of Directors held a special meeting.
At such meeting, the Company's Board received presentations by its legal
advisors on the terms and conditions of the proposed Merger Agreement, by
Goldman Sachs of its analysis of the merger consideration proposed to be paid by
Zurich and Insurance Partners and by senior executive officers of Zurich and
Insurance Partners as to the business and strategic rationales underlying their
pursuit of the transaction. Representatives of Goldman Sachs then delivered the
written opinion of Goldman Sachs to the Company's Board that, as of such date,
the $49.50 per share in cash to be received by the holders of Common Stock in
the Merger was fair to such holders. After further deliberations, the Company's
Board unanimously approved the execution and delivery of the Merger Agreement as
being fair to and in the best interests of the Company and its stockholders.
Later that day, the
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parties executed the Merger Agreement and related documents. For a description
of the factors considered by the Board of Directors in reaching its decision,
see "The Merger -- Reasons For the Merger; Recommendation of the Board of
Directors; Opinion of Financial Advisor" below.
On August 31, 1995, the Company held a telephonic meeting of its Board of
Directors to consider the Amendment Agreement. At such meeting, the Board
approved the execution and delivery of the Amendment Agreement subject to the
approval thereof by the respective boards of directors of Zurich, Insurance
Partners and the Purchaser at meetings scheduled to occur over subsequent days.
On September 6, 1995, the Company, Zurich, Insurance Partners and the
Purchaser entered into the Amendment Agreement that increased the merger
consideration $.30 per share, to $49.80 per share from $49.50 per share. The
parties entered into the Amendment Agreement because of increased benefits that
would inure to Zurich and Insurance Partners as a result of certain
modifications that had been made to the ESOP Sale and related EVEREN
Distribution.
OTHER RELATIONSHIPS BETWEEN THE COMPANY AND ZURICH, INSURANCE PARTNERS AND THE
PURCHASER
The Company currently holds 88,683 shares of preferred stock issued by
Centre Reinsurance Holdings Limited ("Centre Re"), a specialty reinsurance
holding company. The common stock of Centre Re is owned by Zurich. The preferred
stock was issued in 1988 at $100 per share and pays a 10% dividend. An affiliate
of the Company, Fidelity Life Association, owns another 50,000 shares of Centre
Re preferred stock, and a former affiliate, Kemper Reinsurance Company ("KRE"),
owns 51,297 shares. The KRE-owned shares are part of a pool of assets the value
of which the Company guaranteed in connection with its sale of KRE to Lumbermens
in August 1993.
In December 1993, the Company and KRE sold their minority common stock
interests in Centre Re to Zurich. For its Centre Re common stock, the Company
received $65.1 million in cash from Zurich. Also, effective as of the sale date,
Mr. Mathis resigned from the board of directors of Centre Re on which he had
served since Centre Re's formation in 1988. While it was a Company subsidiary
and, the Company is informed, since that time, KRE has maintained
property-casualty reinsurance relationships with Zurich and its affiliates in
the ordinary course of their respective businesses. Mr. Mathis was the Chief
Executive Officer of KRE from 1982 to 1990 and became the Chairman of the Board
of Lumbermens in June 1995.
Except as described above, neither the Company nor any of its affiliates
have engaged in any material contracts, arrangements, understandings,
relationships, negotiations or transactions with Zurich, Insurance Partners or
the Purchaser during the preceding three fiscal years.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS;
OPINION OF FINANCIAL ADVISOR
Reasons for the Merger; Recommendation of the Board of Directors
At its May 15, 1995 and August 31, 1995 meetings, the Company's Board of
Directors determined that the Merger is fair to, and in the best interests of,
the Company and its stockholders. Accordingly, at such meetings, the Board of
Directors unanimously approved the Merger Agreement and the Amendment Agreement,
respectively, and directed that the Amended Merger Agreement be submitted to the
Company's common stockholders for approval and adoption. THE BOARD OF DIRECTORS
OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE AMENDED MERGER AGREEMENT.
The determination of the Board of Directors to approve the Merger Agreement
and the Amended Merger Agreement was based upon consideration of a number of
factors. The following list includes all material factors considered by the
Board of Directors in its evaluation of the Merger:
1. The Board's familiarity with the business, operations, financial
condition, competitive position and prospects of the Company and the nature
of the industries in which the Company participates, both on a historical
and prospective basis;
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2. The Board's consideration of, among other things, information with
respect to the financial condition, results of operations and business of
the Company, on both an historical and a prospective basis, and the
influence of current industry, economic and market conditions;
3. The fact that the Company's Board had publicly announced that it
had authorized its management and advisors to take all appropriate actions
to maximize value for the Company's stockholders;
4. The fact that since the Conseco Merger Agreement was terminated on
November 18, 1994, the Company and its advisors had contacted more than 80
entities to determine whether they would be interested in acquiring the
Company or any of its business segments;
5. The fact that procedures to elicit proposals to acquire the Company
or any of its segments had been implemented; and that negotiations had been
conducted with several interested parties with respect to the entire
Company as well as certain of its business segments in the context of a
prolonged and comprehensive process to maximize value;
6. The fact that the Company's Board had determined, in consultation
with its advisors and based on an evaluation of the various bids received
respecting its business segments, that the most likely way to maximize
value was through the sale of the entire Company after the ESOP Sale and
related EVEREN Distribution of the securities brokerage segment as opposed
to various restructuring alternatives involving a sale of some or all of
the Company's other business segments;
7. The fact that the Company's Board had also determined, in
consultation with its advisors, that the most likely way to maximize value
was through the sale of the entire Company after the ESOP Sale and related
EVEREN Distribution when compared to the range of values available to the
Company's stockholders if the Company continued to operate as an
independent entity after divesting its securities brokerage segment, given
the time which would be required to attain equivalent values as well as the
uncertainties associated with achieving the growth rates needed to reach
such values;
8. The Board's review of the historical and prospective market prices
of the Common Stock compared to the merger consideration;
9. The Board's review of presentations by, and discussion of the terms
and conditions of the Merger with, senior executive officers of the
Company, representatives of its legal counsel, representatives of Goldman
Sachs, and senior executive officers of Zurich and Insurance Partners;
10. The Board's receipt of the written opinion of Goldman Sachs that,
as of May 15, 1995, the $49.50 per share in cash to be received by the
holders of shares of Common Stock pursuant to the Merger Agreement was fair
to such holders;
11. The Board's consideration of the absence of a financing condition
to the Amended Merger Agreement and Zurich's unconditional guarantee of the
obligations of Insurance Partners and the Purchaser to consummate the
Merger;
12. The risk that further prolonging the process to maximize value
could significantly disrupt the Company's businesses; and
13. The benefits to the Company's life and asset management segments
expected from association with an organization such as Zurich, with its
international skill and reputation as well as its financial strength.
In view of the wide variety of material factors considered in connection
with its evaluation of the Merger, the Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
The Board of Directors recognizes that the Merger will deprive stockholders
of the Company of the opportunity to continue their equity interests in the
Company as an independent entity or in any future growth of the Company.
However, the Board of Directors of the Company has determined, based upon
consideration of the material factors specified above, that the Merger is in the
best interests of stockholders and is consistent
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with maximizing stockholder value. See "The Merger -- Plans of the Company in
the Event the Merger is not Consummated."
Opinion of Financial Advisor
On May 15, 1995, Goldman Sachs delivered its opinion to the Board of
Directors of the Company that, as of the date of such opinion, the $49.50 per
share in cash to be received by the holders of Common Stock pursuant to the
Merger Agreement was fair to such holders. Goldman Sachs subsequently confirmed
its earlier opinion by delivery of its written opinion dated as of the date
hereof with respect to the $49.80 per share in cash to be received by the
holders of Common Stock pursuant to the Amended Merger Agreement. The parties to
the Amended Merger Agreement determined the amount of consideration to be paid
pursuant to the Amended Merger Agreement as the result of arms' length
negotiations, and Goldman Sachs was not asked to, and did not, propose the
specific amount to the Board of Directors of the Company.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED OCTOBER 17,
1995, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX 2. STOCKHOLDERS OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) this Proxy Statement; (iii) the Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the five years
ended December 31, 1994; (iv) certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company; (v) certain other communications
from the Company to its stockholders; and (vi) certain internal financial
analyses and forecasts for the Company prepared by its management. Goldman Sachs
also held discussions with members of the senior management of the Company
regarding the past and current business operations, financial condition, and
future prospects of the Company. In addition, Goldman Sachs reviewed the
reported price and trading activity for the Common Stock and compared certain
financial and stock market information for the Company with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the life
insurance and investment management industries specifically and in other
industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and Goldman Sachs has not been furnished with any such
evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Company's
Board of Directors on May 15, 1995. Goldman Sachs utilized substantially the
same type of financial analyses in connection with providing the written opinion
attached hereto as Annex 2.
(i) Historical and Projected Earnings by Segment Analysis. Goldman Sachs
reviewed the historical and projected 1995 segment operating earnings provided
in May 1995 by the Company. The segments included in such analysis included (i)
asset management, including INVEST Financial Corporation, an indirect subsidiary
of the Company, (ii) life insurance, (iii) real estate and (iv) other operations
and corporate. The analysis indicated that projected 1995 operating earnings
available to the Common Stock, after giving effect to preferred dividends, had
declined from the projections as of earlier dates to $139.1 million as of May
15, 1995 ($3.53 per share of Common Stock). The analysis indicated that the
$49.50 per share represented, on an aggregate basis, a multiple of approximately
14.2 times projected 1995 earnings available to Common Stock. In addition, the
analysis annualized 1995 earnings based on the first-quarter reported operating
earnings. This analysis indicated 1995 year-end earnings available to the Common
Stock, after giving effect to preferred dividends, on such an annualized basis
would be $121.3 million ($3.08 per share of Common Stock).
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Goldman Sachs also reviewed projected operating earnings by segment
provided by the Company for the years 1996 and 1997. Earnings available to the
Common Stock, after giving effect to preferred dividends, were projected to be
$185.3 million for 1996 ($4.69 per share of Common Stock) and $247.8 million for
1997 ($6.29 per share of Common Stock). These projections reflect a compounded
annual growth rate of 33.5% in earnings available to the Common Stock after
giving effect to preferred dividends over the three-year period, including a
compounded annual growth rate of 46.5% in the asset management segment. The
analysis indicated that the $49.50 per share represented, on an aggregate basis,
a multiple of approximately 10.7 times projected 1996 earnings available to
Common Stock.
(ii) ANALYSIS OF STRATEGIC ALTERNATIVES. Goldman Sachs also reviewed two
hypothetical, strategic alternatives for the Company to the merger proposed by
Zurich and Insurance Partners and outlined the possible value per share of
Common Stock which theoretically could be achieved under each scenario over the
next two years. The alternatives analyzed included (i) a restructuring involving
only the divestiture of the securities brokerage segment and (ii) a
restructuring involving the divestiture of the securities brokerage segment and
a third-party equity investment in the Company (described in greater detail
below).
The first alternative scenario assumed that the Company's securities
brokerage segment would be divested in the ESOP Sale and related EVEREN
Distribution (see "The Merger -- Related Transactions"). In preparing this
hypothetical scenario, Goldman Sachs made several assumptions including, without
limitation, assumptions concerning the value of the ESOP Sale and related EVEREN
Distribution and pro forma operating earnings of the Company by segment based on
the Company's projections through 1997. This scenario also indicated that the
projected equity value of the Common Stock would depend heavily upon the
realization of the Company's earnings estimates. The first alternative scenario
indicated that the projected value of the Common Stock is highly sensitive to
both the multiple of trailing earnings and the rate of growth of the Company's
earnings. Furthermore, the present value of the projected value of the Common
Stock is highly sensitive to the rate at which the projected value is
discounted. To highlight these points, Goldman Sachs performed several
sensitivity analyses. Based on 1997 multiples of trailing earnings of 8x - 12x,
and assuming a compounded annual growth rate from 1995 to 1997 of 33.5% in
earnings available to the Common Stock after giving effect to preferred
dividends, the present value per share of Common Stock at December 31, 1995,
would be $37.69 - $62.11, assuming discount rates of 14% to 22%. Based on the
Company's projections of a compounded annual growth rate from 1995 to 1997 of
33.5% in earnings available to the Common Stock after giving effect to preferred
dividends and assuming a 10x multiple of trailing earnings, the present value
per share of Common Stock at December 31, 1995, would be $46.14 - $52.43,
assuming discount rates ranging from 14% to 22%. The analysis also indicated,
however, that if the two-year compounded annual growth rate in earnings
available to the Common Stock were to be 25%, 20%, 15%, 10% or 5% instead of
33.5%, the present value per share of Common Stock at December 31, 1995, would
be $40.96 - $46.48, $38.05 - $43.16, $35.26 - $39.96, $32.59 - $36.90 and $30.04
- -$33.98, respectively, assuming a 10x multiple of trailing earnings and discount
rates ranging from 14% to 22%.
The second alternative scenario assumed that (i) the Company's securities
brokerage segment would be divested in the ESOP Sale and related EVEREN
Distribution (see "The Merger -- Related Transactions"), (ii) a third-party
investor group would invest up to $400 million of common equity in the Company,
(iii) proceeds of the equity investment and excess cash would be used to finance
the purchase by the real estate segment (at current GAAP carrying value) of
nonaccrual real estate assets from the life insurance segment and (iv) the real
estate segment would then be spun off to stockholders. In preparing this
hypothetical scenario, Goldman Sachs made several assumptions including, without
limitation, assumptions concerning the value of the ESOP Sale and related EVEREN
Distribution, the value of the real estate segment after its spin-off, the cash
flows to the third-party investor, and pro forma operating earnings by segment
based on the Company's projections through 1997. This scenario also indicated
that the projected equity value of the Common Stock would depend heavily upon
the realization of the Company's earnings estimates and upon the price and size
of the equity investment. Furthermore, the present value of the projected equity
value of the Common Stock is highly sensitive to the rate at which the projected
equity value is discounted. To highlight these points, Goldman Sachs performed
several sensitivity analyses. Based on the Company's projections, the earnings
available to the Common Stock in this hypothetical scenario (which have
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a compound annual growth rate of 25%, excluding the hypothetically spun-off real
estate segment) would indicate a present value per share of Common Stock of
$46.45 - $52.43 assuming discount rates of 12% - 20% and assuming an 11x
multiple of trailing 1997 earnings. The analysis also indicated that if the
two-year compounded annual growth rate in earnings available to the Common Stock
were 15%, 10% or 5% instead of 25%, the present value per share of Common Stock
would be $40.35 - $45.43, $37.52 - $42.18, and $34.81 - $39.07, respectively,
assuming discount rates of 12% - 20% and assuming an 11x multiple of trailing
1997 earnings. Goldman Sachs also advised the Board of Directors that minority
investments are complicated transactions to structure, requiring substantial
negotiations on complex issues, most particularly the exercise of control by the
investor, and that there could be no assurance that such a transaction could be
negotiated or consummated on terms mutually acceptable to a third-party investor
and the Company.
(iii) Merger Transaction Analysis. Goldman Sachs calculated multiples of
the Company's latest 12 months ("LTM") net operating earnings and GAAP equity
(which is approximately equal to tangible book value for the Company) derived
from the $49.50 per share of Common Stock to be received in the Merger. The
multiple of LTM operating earnings and the multiple of GAAP equity for the
Merger were 14.2x and 1.5x, respectively. Goldman Sachs calculated similar
multiples obtained from a sample of sixteen transactions involving life
insurance companies completed since January 1, 1990. The multiple of LTM
operating income for the sixteen transactions had a median of 11.4x and ranged
from a high of 16.3x to a low of 7.1x. The median multiple of tangible book
value for the sixteen transactions was 1.48x, with a high of 2.85x and a low of
0.36x. Goldman Sachs also calculated multiples of LTM operating earnings for
recent asset management acquisitions. The median multiple of LTM operating
earnings for a sample of 17 mutual fund company acquisitions was 15.4x, with a
range of 8.6x to 18.0x. The median multiple of LTM operating earnings for a
sample of 16 institutional investment management acquisitions was 11.8x, with a
range of 11.2x to 13.4x.
Goldman Sachs also reviewed and compared certain financial information
relating to the Company's life subsidiaries and KFS to similar financial
information compiled for selected life insurance companies and investment
management companies as of May 12, 1995. The life insurance companies selected
for comparison were Equitable of Iowa Companies, First Colony Corporation,
SunAmerica Inc. and Western National Corporation (collectively, the "Annuity
Companies"), The Liberty Corporation, Life Partners Group, Inc., ReliaStar
Financial Corp., Protective Life Corporation, Security-Connecticut Corporation
and USLIFE Corporation (collectively, the "Small Cap Life Companies") and
American General Corporation, Aon Corporation, The Equitable Companies
Incorporated, Jefferson-Pilot Corporation, Providian Corporation and Torchmark
Corporation (collectively, the "Large Cap Life Companies"). The median
price/earnings ("P/E") ratios for the Annuity Companies, the Small Cap Life
Companies and the Large Cap Life Companies were 10.2x, 8.7x, and 10.3x,
respectively for 1995, and 9.1x, 7.9x, and 9.2x, respectively, for 1996. The
median projected long-term growth rates over the next five years for the Annuity
Companies, the Small Cap Life Companies and the Large Cap Life Companies were
15.0%, 12.0% and 10.5%, respectively, compared to 8.1% projected for the Life
Companies for the period from 1994 through 1997. The median LTM Return on
Average Assets for the Annuity Companies, the Small Cap Life Companies and the
Large Cap Life Companies were 1.3%, 1.3% and 2.1%, respectively, compared to
1.2% for the Life Companies. The median LTM Return on Average Common Equity for
the Annuity Companies, the Small Cap Life Companies and the Large Cap Life
Companies were 18.5%, 9.9% and 15.3%, respectively, compared to 14.9% for the
Life Companies. The investment management companies selected for comparison were
Franklin Resources, Inc., T. Rowe Price Associates, Inc., The John Nuveen
Company, and Eaton Vance Corp. (collectively, the "Mutual Fund Companies") and
Alliance Capital Management, L.P., United Asset Management Corporation, PIMCO
Advisors L.P., New England Investment Companies, L.P., and Oppenheimer Capital,
L.P. (collectively, the "Institutional Companies"). The median P/E ratios for
the Mutual Fund Companies and the Institutional Companies were 13.0x and 10.7x,
respectively, for 1995 and 11.9x and 11.7x, respectively, for 1996. The median
growth rates in assets under management for the last five years for the Mutual
Fund Companies and the Institutional Companies were 20.4% and 11.2%,
respectively, compared to 1.2% for KFS.
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<PAGE> 28
In addition to the foregoing, Goldman Sachs also noted that, since December
1994, contact was made with over 80 potential buyers for either the Company in
its entirety or various of its business segments. Although written indications
of interest relating to business segments of the Company, a leveraged
recapitalization of the Company or minority equity investments in the Company
were received from several of the parties contacted, except for the proposal of
Zurich and Insurance Partners, no other firm offers to purchase the whole
Company were received.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. The foregoing summary does not purport to be
a complete description of the analysis performed by Goldman Sachs. In arriving
at its fairness determination, Goldman Sachs considered the results of all such
analyses. Goldman Sachs did not separately consider the extent to which any one
analysis referred to in the summary set forth above affected the fairness
opinion, nor did Goldman Sachs attempt to quantify the effects that various
events subsequent to the announcement of GECC's unsolicited proposal in March
1994 may have had on the Company's actual or projected results of operations. No
company or transaction used in the above analyses as a comparison is identical
to the Company or the contemplated Merger. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the Company's Board of
Directors as to the fairness of the $49.50 per share in cash to be received by
the holders of Common Stock pursuant to the Merger Agreement and do not purport
to be appraisals or to reflect necessarily the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of the Company, Zurich, Insurance Partners, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of the
Company was one of many material factors taken into consideration by the
Company's Board of Directors in making its determination to approve the Merger
Agreement.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. The Company selected
Goldman Sachs as its financial advisor with respect to the Merger primarily
because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the Merger and because of its
familiarity with the Company.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company and/or Zurich for its own account and for the account
of customers. In this regard, as of the date hereof, Goldman Sachs owns no
shares or options on the shares of Zurich, and holds the following positions in
the Company's securities: (i) Common Stock: short 214,300 shares; (ii) Series E
Cumulative Convertible Preferred Stock: long 270,683 shares; (iii) 8.875%
Medium-Term-Notes due 2009: long $1,000,000; (iv) 9% Medium-Term-Notes due 1998:
long $1,000,000; and (v) 8.80% Notes due 1998: long $6,000,000. Goldman Sachs
held the same positions in the Company's securities on March 17, 1994, except
that it was short 2,400 shares of Common Stock at such date. In addition,
Goldman Sachs has provided certain investment banking services to the Company
from time to time for which it has received, or expects to receive, customary
fees, including having acted as managing underwriter for the issuance of $260
million of preferred stock and $200 million of long-term debt of the Company in
1993, having acted as its financial advisor in the divestiture of the Company's
reinsurance and risk management subsidiaries in 1993, having acted as its
financial advisor in connection with and having participated in certain of the
negotiations leading to the Merger Agreement, having acted as underwriter for
the Company's sale of 2,986,111 shares of State
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<PAGE> 29
Street Boston Corporation common stock in June 1995, and having acted as the
Company's financial advisor in connection with the ESOP Sale and related EVEREN
Distribution.
Pursuant to a letter agreement dated April 7, 1994, as supplemented by
letter agreements dated May 16, 1994 and May 15, 1995 (together the "Engagement
Letter"), the Company engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, the Company agreed to pay Goldman Sachs a transaction fee
established in accordance with a schedule based upon the aggregate value
received by the stockholders of the Company. If the Merger is consummated in the
manner contemplated, Goldman Sachs will receive a fee of $8,195,151. The Company
has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
Pursuant to separate letter agreements dated May 15, 1995, each of KFC and the
Company engaged Goldman Sachs to undertake a study to enable Goldman Sachs to
render its opinion with respect to the $900 million in cash to be received by
KFC in connection with the sale of all of the outstanding stock of KFS, a
wholly-owned subsidiary of KFC, pursuant to the Merger Agreement and the KFS
Agreement. In connection with this assignment, KFC agreed to pay Goldman Sachs a
fee of $100,000, payable upon closing of the KFS Merger. In addition, pursuant
to a letter agreement dated July 28, 1995, KFC engaged Goldman Sachs to
undertake a study to enable Goldman Sachs to render its opinion with respect to
the consideration to be received by KFC in connection with the ESOP Sale and
related EVEREN Distribution. KFC paid Goldman Sachs a fee of $100,000 upon
delivery of such opinion. KFC has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorney's fees, and to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws. Goldman Sachs also has entered into an engagement
letter with the Company pursuant to which Goldman Sachs is acting as financial
advisor with respect to the sale of significant portions of the Company's real
estate portfolio.
NO SOLICITATION
The Amended Merger Agreement provides that the Company may not permit, nor
may it authorize or permit any of its affiliates or subsidiaries, any of its or
their respective officers, directors or employees, or any investment banker,
financial advisor, attorney, accountant or other advisor or representative
retained by the Company or any of its affiliates or subsidiaries to, directly or
indirectly, (a) solicit, initiate or encourage any Transaction Proposal or (b)
propose, enter into or participate in any discussions or negotiations regarding
a Transaction Proposal, or furnish to any other person any information, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek a Transaction
Proposal, provided that, the Company may furnish information to and engage in
discussions or negotiations with any third party who has made an unsolicited
Transaction Proposal that is a Qualified Proposal, and following receipt of a
Transaction Proposal may take and disclose to its stockholders a position
contemplated by Rule 14e-2(a) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if the Board of Directors of the Company concludes
in good faith based on the advice of outside counsel that such action is
necessary for the Board of Directors of the Company to comply with its fiduciary
obligations to stockholders under applicable law. A "Transaction Proposal" is
any proposal with respect to any acquisition or purchase of a substantial amount
of assets of, or any equity interest in, the Company or any of its subsidiaries
or any tender offer or exchange offer, merger, consolidation, business
combination, sale of equity securities, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries or any other transaction, which impedes, interferes with, prevents
or materially delays the Merger or any of the other transactions contemplated by
the Amended Merger Agreement or, with certain exceptions, materially dilutes the
benefits to the Purchaser, Zurich and Insurance Partners of the Merger or any of
the other transactions contemplated by the Amended Merger Agreement. A
"Qualified Proposal" is any Transaction Proposal that, in the good faith opinion
of the Board following consultation with its independent financial advisors,
would provide holders of the Common Stock cash and/or readily marketable
securities having a value of more than $49.80 per share of Common Stock.
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<PAGE> 30
FIDUCIARY DUTIES
The Amended Merger Agreement provides that the Board of Directors of the
Company may not (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to the Purchaser, Zurich or Insurance Partners, its approval or
recommendation of the Amended Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Transaction Proposal or (iii)
approve the Company entering into any agreement with respect to any Transaction
Proposal, unless the Company receives an unsolicited Transaction Proposal from a
third party that is a Qualified Proposal and the Board of Directors concludes in
good faith based on the advice of outside counsel that in order to comply with
its fiduciary obligations to stockholders under applicable law, it is necessary
for the Board of Directors to withdraw or modify such approval or
recommendation, approve or recommend such Transaction Proposal, enter into an
agreement with respect to such Transaction Proposal or terminate the Amended
Merger Agreement, provided that concurrently with the taking of any of the
foregoing actions, the Company shall be obligated to pay Zurich or Insurance
Partners (or their designees) certain fees and expenses. See "-- Termination;
Fees and Expenses" below.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Amended Merger Agreement provides that the Purchaser and the Surviving
Corporation will maintain all rights of indemnification and exculpation from
liability for all acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors, officers and employees of
the Company and its subsidiaries as provided in their respective certificates of
incorporation or bylaws for a period of not less than six years from the
Effective Time. The Purchaser and the Surviving Corporation agreed in the
Amended Merger Agreement to maintain for a period of not less than six years
from the Effective Time the Company's current directors' and officers' insurance
and indemnification policy to the extent that it provides coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all persons who
are directors, officers or employees of the Company or any subsidiary on the
date of the Amended Merger Agreement, so long as the annual premium therefor
would not be in excess of $3,338,000 (the "Maximum Premium"); provided, however,
that the Purchaser and the Surviving Corporation may, in lieu of maintaining
such existing D&O Insurance as provided above, cause comparable coverage to be
provided under any policy maintained for the benefit of the directors and
officers of Zurich or any of its major United States subsidiaries, so long as
(i) the issuer thereof has at least an equal claims-paying rating and (ii) the
material terms thereof are no less advantageous than the existing D&O Insurance
to the extent commercially available.
On March 18, 1994, the Company and 13 senior executives (together, the
"Executives", and individually, an "Executive") entered into termination
protection agreements (the "Agreements") to encourage the Executives to remain
with the Company during periods of uncertainty with respect to the Company's
ownership and to enhance their abilities to act in the best interests of the
Company and its stockholders with respect to any offer for the Company, without
being influenced by any uncertainties surrounding their respective situations
with the Company. The Agreements provide the Executives with the severance
benefits described below if the Executive's employment is terminated by the
Company without Cause (as defined below) or the Executive voluntarily terminates
his or her employment for "Good Reason" (as defined below) within the three-year
period following a Change of Control (as defined below). The approval and
recommendation of the Conseco Merger Agreement on June 26, 1994 by the Board of
Directors constituted a Change of Control under the Agreements.
The following severance benefits are provided for under the Agreements: (i)
a payment equal to three times the sum of the Executive's base salary, target
bonus and target equity awards (i.e., the value of the Executive's target awards
of options and restricted stock under the Company's long-term equity award
programs); (ii) a payment equal to three times the Executive's target profit
sharing service contribution from the Company, reduced for each month of service
after the Change of Control; (iii) payment of a pro-rata portion of the
Executive's target bonus for the year of termination; (iv) continued welfare
benefits for three years (or, if shorter, until the Executive becomes covered
under a new employer's plan); (v) payment of any accrued but unpaid bonuses (for
prior years) and any deferred compensation; (vi) three years additional age and
service credit towards eligibility for post-retirement welfare benefits (offset
by additional age and
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<PAGE> 31
participation actually credited after the Change of Control); (vii) acceleration
of vesting under the Company's supplemental retirement plans, payment of the
Executive's accrued benefit under these plans and, to the extent the Executive
is entitled to a benefit under the defined benefit portion of any of these
plans, three years additional age and service credit towards eligibility for all
purposes, including benefit accrual and eligibility for early retirement (offset
by additional age and service actually credited after the Change of Control);
and (viii) reimbursement for outplacement counseling services. Any severance
benefits payable are grossed-up to the extent an Executive would be subject to
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), due to the receipt thereof. The Agreements preserve any
applicable change of control provisions under other agreements or arrangements,
such as the Company's equity-based compensation programs. They also preserve the
Executive's indemnification rights, require the Company to maintain certain
directors' and officers' liability insurance coverage and impose certain
confidentiality obligations on the Executive.
Cause is defined generally as (i) willful malfeasance which has a material
adverse effect on the Company or (ii) conviction of a felony. Good Reason is
defined to be any of the following actions, without the Executive's express
prior written approval, other than due to the Executive's permanent disability
or death: (i) any diminution in the Executive's titles, duties,
responsibilities, status or reporting relationship from the positions, duties,
responsibilities, status or reporting relationship existing immediately prior to
the Change of Control; (ii) removal of the Executive from, or any failure to
re-elect the Executive to, any of the positions the Executive held immediately
prior to the Change of Control; (iii) failure to pay the Executive's base salary
when due; (iv) any reduction of the Executive's base salary, target bonus or
target equity award; (v) a material reduction in the Executive's employee or
fringe benefits; (vi) a change of the Executive's principal place of employment
to a location more than 20 miles from the Executive's principal place of
employment immediately prior to the Change of Control; or (vii) any material
breach of any provision of the Agreement.
In February 1995, three of the Executives (including Charles M. Kierscht
and Robert T. Jackson) resigned and demanded payment under their respective
Agreements, claiming that their responsibilities and/or reporting relationships
had been diminished and thus their resignations were for Good Reason. The
Company rejected such Executives' demands, contending the resignations were not
for Good Reason, and has commenced an arbitration proceeding seeking damages and
other relief from such Executives, including a declaration that no amounts are
payable by the Company under such Executives' Agreements. If entitled thereto,
the aggregate amounts payable under their respective Agreements would
approximate $ 4.7 million for Mr. Kierscht and $3.4 million for Mr. Jackson,
calculated as of their February 1995 resignation date. These amounts assume no
excise tax gross-up will be payable. There can be no assurance regarding the
ultimate outcome of this arbitration.
If payment obligations (including estimated tax-related payments) under
their respective Agreements are triggered in connection with the Merger's
closing, an aggregate of approximately $11.1 million would be payable to Mr.
Mathis, $8.8 million would be payable to Stephen B. Timbers and $35.7 million
would be payable to the Company's current executive officers as a group
(including Messrs. Mathis and Timbers). Such amounts are calculated as of
January 4, 1996, the latest closing date currently anticipated for the Merger.
In consideration of a cash payment of $600,000, James R. Boris released certain
claims he had asserted under his Agreement and agreed to the termination of its
severance benefit provisions.
On March 17, 1994, the Company established the Kemper Corporation Holding
Company Change of Control Severance Program, which provides that if an Eligible
Employee (defined to include, among other persons, all officers of the Company
who are not parties to a termination protection agreement) is terminated without
Cause or resigns for Good Reason (the definitions of which are similar to the
definitions of such terms for purposes of the Agreements described above) within
a two-year period following a Change of Control, the Eligible Employee will be
entitled to the following severance benefits: (i) a single lump sum payment, in
cash, equal to the Eligible Employee's monthly salary times the Eligible
Employee's number of years of service (but not less than six nor more than 24);
(ii) in the case of officers and certain other employees, a single lump sum
amount, in cash, equal to a pro rata portion of such Eligible Employee's target
bonus for the year of termination; (iii) continued welfare benefits until the
earlier of the end of the Eligible Employee's Severance Period (defined as the
period commencing on the termination date and continuing for a number of
calendar
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<PAGE> 32
months equal to such Eligible Employee's number of years of service, but not
less than six nor more than 24 months) or the date on which such Eligible
Employee becomes employed by, or covered by a benefit plan of, a new employer;
(iv) payment of any accrued but unpaid bonus for the prior year and any deferred
compensation and (v) acceleration of vesting under the Company's supplemental
retirement plans and payment of the Eligible Employee's accrued benefit under
these plans. The approval and recommendation of the Conseco Merger Agreement on
June 26, 1994 by the Board of Directors constituted a Change of Control under
the severance program. See "-- Benefit Plans" below.
EFFECTIVE TIME OF THE MERGER
The Company shall file with the Delaware Secretary of State on the Closing
Date (or on such other date as the Company and the Purchaser may agree) the
Certificate of Merger or other appropriate documents, executed in accordance
with the relevant provisions of the DGCL, and make all other filings or
recordings required under the DGCL in connection with the Merger. The Merger
shall become effective upon the filing of the Certificate of Merger with the
Delaware Secretary of State, or at such later time as is specified in the
Certificate of Merger.
PAYMENT FOR SHARES OF COMMON STOCK
As a result of the Merger, holders of certificates formerly representing
shares of Common Stock will cease to have any equity interest in the Company.
After consummation of the Merger, all certificates formerly evidencing shares of
Common Stock (other than shares owned by the Company (except for Company
Fiduciary Shares), Zurich, Insurance Partners, the Purchaser or any of their
respective subsidiaries or shares in respect of which dissenters' rights have
been properly exercised) will be required to be surrendered to the Paying Agent
in order to receive the Merger Consideration to which holders thereof will be
entitled as a result of the Merger. No interest will be paid or accrued on the
cash payable upon the surrender of such certificates.
Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to holders of
certificates formerly evidencing shares of Common Stock as promptly as
practicable following the Effective Time (but in no event more than five days
thereafter) by the Paying Agent. HOLDERS OF SHARES OF COMMON STOCK SHOULD NOT
SUBMIT THEIR CERTIFICATES TO THE PAYING AGENT UNTIL THEY HAVE RECEIVED SUCH
MATERIALS. Upon surrender of stock certificates and other required documents to
the Paying Agent, the Paying Agent, as promptly as practicable following its
receipt of the certificates, will distribute the Merger Consideration for each
share represented by such stock certificates to the holder thereof.
If payment in respect of cancelled shares of Common Stock is to be made to
a person other than the person in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such payment that the
certificate or instrument so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of such
payment to a person other than that of the registered holder of the certificate
or instrument surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax either has been paid or
is not payable.
The Company's Dividend Reinvestment and Stock Purchase Plan will be
terminated effective as of the Effective Time. Harris Trust and Savings Bank is
the plan custodian, and an affiliate of the plan custodian is the record holder
of certificates representing shares of Common Stock beneficially owned by
certain participants and certain former participants in the plan. Promptly
following the Effective Time, such record holder will surrender such
certificates to the Paying Agent on such participants' behalf, and such
participants will receive payment of the Merger Consideration ($49.80 per share)
for the shares held of record in the plan, without the requirement of any action
on their part.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
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CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, the Company's common stockholders will not
have an opportunity to continue their equity interest in the Company as an
ongoing corporation and therefore will not share in future earnings and growth,
if any, of the Company.
If the Merger is consummated, public trading of the Common Stock will cease
and the Common Stock will cease to be quoted on the NYSE. Moreover, the
Surviving Corporation may be relieved of the obligation to file certain
informational reports under the Exchange Act, such as proxy statements, and its
officers, directors and more than 10% stockholders may be relieved of the
reporting requirements under, and the "short-swing" profit recapture provisions
of, Section 16 of the Exchange Act.
For information concerning the income tax consequences of the Merger, see
"The Merger -- Certain Tax Consequences of the Merger."
GOVERNMENT AND REGULATORY APPROVALS AND FILINGS
The consummation of the Merger is subject to, among other approvals, the
prior approval of the Department of Insurance of the State of Illinois (the
"DOI") and to the expiration or early termination of the relevant waiting period
under the HSR Act. The parties have agreed to make and cause their respective
subsidiaries to make all necessary filings, as soon as practicable, including,
without limitation, those required under the HSR Act, the Securities Act of
1933, as amended ("the Securities Act"), the Exchange Act, the Investment
Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940 (the
"Advisers Act"), and applicable state insurance laws in order to facilitate
prompt consummation of the Merger and the other transactions contemplated by the
Amended Merger Agreement.
In addition, pursuant to the Amended Merger Agreement, the Company, the
Purchaser, Zurich and Insurance Partners will each use commercially reasonable
efforts, and will cooperate fully with each other, (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger and the
other transactions contemplated by the Amended Merger Agreement, (ii) to obtain
as promptly as practicable all necessary permits, orders or other consents of
governmental entities and consents of all third parties necessary for the
consummation of the Merger and the other transactions contemplated by the
Amended Merger Agreement and (iii) to obtain consent from the DOI so that the
unassigned surplus of Kemper Investors Life Insurance Company ("KILICO") will be
reset to zero at the Effective Time in order to allow for dividends to be
declared by KILICO after the Effective Time. See "The Merger -- Conditions to
Consummation of the Merger; Representations and Warranties; Certain Covenants."
A definitive application for approval was submitted by Zurich and Insurance
Partners to the DOI on September 26, 1995. On August 28, 1995, the parties to
the Amended Merger Agreement were informed by the FTC that they had received
early termination of the relevant waiting period under the HSR Act with respect
to the Merger and certain real estate sales contemplated by the Amended Merger
Agreement.
BENEFIT PLANS
Under the terms of the Amended Merger Agreement, the Company and each other
person affiliated with the Company under sections 414(b), (c), (m) or (o) of the
Code, and the regulations promulgated thereunder (a "Commonly Controlled
Entity"), shall, if requested by the Purchaser, use commercially reasonable
efforts to cause any payment to an employee under any contract, benefit plan,
program, arrangement or understanding, to be delayed until after the Closing
Date to the extent that such delay would reduce or eliminate the portion of such
payment which otherwise would be disallowed as a deduction under Section 162(m)
of the Code, provided that such delay shall occur only if not otherwise legally
inconsistent with the terms of any such contract, benefit plan, program,
arrangement or understanding. The Surviving Corporation shall make any such
delayed payments as soon as practicable after the Closing Date in accordance
with the terms of the applicable contract, benefit plan, program, arrangement or
understanding.
For the one-year period beginning on the Closing Date, the Surviving
Corporation shall, subject to certain exceptions, continue to maintain each of
the following benefit plans: (i) all qualified "defined contribution"
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<PAGE> 34
plans (as defined in Section 414(i) of the Code), (ii) all supplemental plans,
to the extent such plans provide benefits which cannot otherwise be provided, as
a result of applicable Code limitations, under the aforementioned defined
contribution plans and (iii) all "welfare plans" (as defined in section 3(1) of
ERISA). As of the Effective Time, continuing employees then participating in
each of the aforementioned defined contribution plans shall, subject to certain
exceptions and adjustments, have nonforfeitable rights to receive the amounts
then credited to their accounts thereunder. Each continuing employee shall be
given full credit for his or her pre-Effective Time service with the Company and
each of its subsidiaries and predecessor employers, but only to the extent such
service is recognized under the terms of the specific benefit plan of the
Company or Company subsidiary with respect to which such service would be taken
into account as of the Effective Time.
See "-- General" for a description of the treatment of Company Stock
Options and Phantom Stock Rights in the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for by Zurich and Insurance Partners as a
"purchase" for accounting and financial reporting purposes.
TERMS OF THE MERGER
The terms of the Merger are set forth in the Amended Merger Agreement which
appears as Annex 1 to this Proxy Statement, and the description of the Amended
Merger Agreement contained herein is qualified in its entirety by reference to
the Amended Merger Agreement. Stockholders are urged to review the Amended
Merger Agreement carefully.
General. The Amended Merger Agreement sets forth the terms and conditions
upon which the Merger is to be effected. Upon the approval of the Amended Merger
Agreement by the holders of a majority of the shares of Common Stock at the
Special Meeting and the satisfaction or waiver of the other conditions to the
obligations of the parties thereto to consummate the Merger, the Merger will be
consummated (subject to the Purchaser's option to delay closing to no later than
January 4, 1996, which option the Company has been informed the Purchaser
currently expects to exercise).
At the Effective Time, the Purchaser will merge with and into the Company.
The Company will be the Surviving Corporation in the Merger and will thereby
become approximately 80% owned by Zurich and 20% owned by Insurance Partners.
Pursuant to the Merger, each share of Common Stock issued and outstanding at the
Effective Time will be cancelled and extinguished and converted automatically
into the right to receive $49.80 in cash, other than shares owned by the Company
(except for Company Fiduciary Shares), Zurich, Insurance Partners, the Purchaser
or any of their respective subsidiaries (which will be cancelled and
extinguished without any payment therefor) and shares held by common
stockholders who perfect their statutory dissenters' rights. Each share issued
and outstanding at the Effective Time, other than the shares held by preferred
stockholders who perfect their statutory dissenters' rights (see "The Merger --
Dissenters' Rights"), of (a) Series A Preferred Stock, (b) Series C Preferred
Stock, (c) Series D Preferred Stock and (d) Series E Preferred Stock shall
remain outstanding as one duly authorized, validly issued, fully paid and
non-assessable share of Series A Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, respectively, of the
Surviving Corporation. At the Effective Time, the Rights, which are currently
attached to the shares of Common Stock, will be cancelled and will have no
further force and effect. As a result of the Merger, common stockholders of the
Company will cease to have an equity interest in, or possess rights as
stockholders of, the Company.
Amendment, Extension, Waiver. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties may modify or amend
the Amended Merger Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties. However, after approval and
adoption of the Amended Merger Agreement by the common stockholders of the
Company at the Special Meeting, no amendment shall be made which, under
applicable law, requires the approval of such stockholders unless such further
stockholder approval shall have been obtained. The Amended Merger Agreement may
not be amended unilaterally by either party.
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At any time prior to the Effective Time, the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other parties contained in the Amended Merger Agreement or in any document
delivered pursuant to the Amended Merger Agreement or (c) waive compliance with
any of the agreements or conditions of the other parties contained in the
Amended Merger Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to the Amended Merger
Agreement to assert any of its rights under the Amended Merger Agreement or
otherwise shall not constitute a waiver of such rights.
CONDITIONS TO CONSUMMATION OF THE MERGER; REPRESENTATIONS AND WARRANTIES;
CERTAIN COVENANTS
Conditions to Each Party's Obligations to Effect the Merger
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions: (a) the Merger and the Amended Merger Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon; (b) all filings
required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, governmental entities in connection with the Amended Merger
Agreement and the consummation of the transactions contemplated thereby shall
have been made or obtained and shall be in full force and effect without any
term, condition or restriction that is not reasonably satisfactory to the
Purchaser, Zurich or Insurance Partners or, if such term, condition or
restriction would be effective absent consummation of the Merger, the Company;
provided, that such consents, approvals, permits and authorizations may be
subject to certain terms, conditions and limitations that are set forth
expressly in applicable insurance statutes, rules, and regulations and are
customarily imposed by insurance regulatory authorities; (c) the waiting period
applicable to the Merger and the KFS Merger under the HSR Act shall have
terminated or expired; (d) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger and the KFS Merger shall be in effect; (e) in accordance with
Section 15 of the 1940 Act, (i)(A) the respective boards of trustees/directors
of the Kemper Funds (as defined in the Amended Merger Agreement), including in
each case a majority of trustees/directors who are not parties to the investment
advisory contracts of such Kemper funds or "interested persons" (as such term is
defined in the 1940 Act) of any such party (the "Non-Interested Directors"), and
(B) holders of a majority of the outstanding voting securities (as such term is
defined in the 1940 Act) of Kemper Funds which, as of April 30, 1995,
represented at least 90% of all of the net assets of all of the Kemper Funds as
of such date and the holders of a majority of the outstanding voting securities
of Kemper Investors Fund ("KINF") acting in accordance with voting instructions,
shall have approved new investment advisory contracts with KFS and the
applicable subsidiaries of KFS (collectively, with KFS, the "Asset Management
Subsidiaries") acting as investment advisers of such funds upon terms identical
with those of each such Kemper Fund (other than changes in the term of the
contract), and (ii) the board of trustees/directors, including a majority of the
Non-Interested Directors, of each of the Kemper Funds which has approved a new
investment advisory contract shall have approved new underwriting, distribution
or dealer contracts, if any, with the applicable subsidiaries of the Company
that are parties to such agreements pursuant to Section 15 of the 1940 Act and
any other requirements applicable thereto contained in the 1940 Act; (f) the
Company shall have obtained the consent of non-investment company advisory
clients of the Asset Management Subsidiaries who are not affiliated with the
Company and who, as of April 30, 1995, represent at least 80% of all of the net
assets under management as of such date for all such advisory clients not
affiliated with the Company; and (g) at the time of the Closing, (i) at least
75% of the members of the board of trustees/directors of each Kemper Fund which
has approved a new investment advisory contract shall not be "interested
persons" (as such term is defined in the 1940 Act) of Zurich or an affiliate of
Zurich that will act as investment adviser to such Kemper Funds following the
Effective Time, or of the Company or of any affiliate of the Company that was
the investment adviser of any such Kemper Fund immediately preceding the
Effective Time, and (ii) the requirements of Section 15(f)(1)(B) of the 1940 Act
shall have been complied with in that no "unfair burden" shall have been imposed
on any of the Kemper Funds as a result of
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<PAGE> 36
the Amended Merger Agreement or under the KFS Agreement, the transactions
contemplated under the Amended Merger Agreement, new investment advisory
contracts or otherwise.
The respective boards of trustees/directors of the Kemper Funds, including
in each case a majority of Non-Interested Directors, have taken action to
satisfy the conditions specified in clauses (e)(i)(A) and (e)(ii) of the
preceding paragraph. At special meetings of the Kemper Funds held September 19,
1995, approval of new investment advisory contracts with the Asset Management
Subsidiaries acting as investment advisers of such Kemper Funds was obtained to
satisfy the condition described in clause (e)(i)(B) of the preceding paragraph.
In addition, in the Lumbermens Agreement, Lumbermens agreed to consent, and to
cause its subsidiaries and affiliates to consent, to the assignment of their
respective investment advisory and management contracts. These consents would
represent approximately 65% of the net assets under management as of April 30,
1995 of non-investment company advisory clients not affiliated with the Company.
Prior to the date hereof, the Company has obtained the consent of such
non-investment company advisory clients, including Lumbermens, sufficient to
satisfy the condition described in clause (f) of the preceding paragraph. With
respect to the condition specified in clause (c) of the preceding paragraph, the
parties to the Merger Agreement were informed by the FTC on August 28, 1995 that
they had received early termination of the relevant waiting period under the HSR
Act with respect to the Merger and certain real estate sales contemplated by the
Merger Agreement.
CONDITIONS TO THE OBLIGATIONS OF ZURICH, INSURANCE PARTNERS AND THE PURCHASER
The obligations of the Purchaser, Zurich and Insurance Partners to effect
the Merger are further subject to the following conditions: (a) the
representations and warranties of the Company set forth in the Amended Merger
Agreement and in the KFS Agreement that are qualified as to materiality shall be
true and correct and the representations and warranties of the Company set forth
in the Amended Merger Agreement and in the KFS Agreement that are not so
qualified shall be true and correct in all material respects, in each case on
the date of the Merger Agreement (except to the extent cured prior to the
Closing Date) and on the Closing Date as though made on the Closing Date, except
to the extent such representations and warranties speak as of an earlier date;
(b) the Company shall have performed in all material respects all obligations
and covenants required to be performed by it under the Amended Merger Agreement
at or prior to the Closing Date and under the KFS Agreement; (c)(i) no appraisal
rights shall have been asserted by any holders of capital stock of the Company
other than the holders of Dissenting Common Shares representing no more than 5%
of the Common Stock outstanding on the date of the Merger Agreement and
Dissenting Preferred Shares (other than Dissenting Preferred Shares that are
shares of Series C Preferred Stock) representing not more than 10% of the
aggregate shares of the Series A Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock outstanding on the date of the Merger Agreement, and
(ii) no appraisal rights shall have been asserted by any holders of Series C
Preferred Stock; (d) the KFS Merger shall have been consummated in all material
respects in accordance with the terms and conditions set forth in the KFS
Agreement, except that the Purchaser may elect to have such sale consummated
after the Effective Time; (e) the ESOP Sale and related EVEREN Distribution and
the other transactions contemplated by the ESOP Agreements and the ESOP Credit
Agreement (each, as defined in the Amended Merger Agreement) shall have been
consummated in all material respects; (f) after the date of the Merger
Agreement, no suit, action, proceeding, arbitration or investigation shall have
been commenced or threatened against or affecting the Company or any of its
subsidiaries that is more likely than not to result in liability to the Company
or any subsidiary that would have a material adverse effect with respect to the
Company; (g) there shall have been no material adverse changes or developments
arising out of or relating to any suits, actions, proceedings, arbitrations or
investigations against or affecting the Company or any of its subsidiaries that
were outstanding on the date of the Merger Agreement; (h) since December 31,
1994, there shall have been no material adverse change with respect to the
Company; (i) the Lumbermens Agreement shall be in full force and effect; (j) no
event of default shall have occurred and be continuing, or event or condition
existing that, with the giving of notice or lapse of time, would become an event
of default, under either of the Company's public debt indentures; (k)(i) the
Company shall have obtained all necessary waivers, consents, releases and
amendments in order to implement the provisions of the Amended Merger Agreement
relating to the cancellation of, and payment for, outstanding Company Stock
Options, Phantom Stock Rights and stock options for KFC common stock (except for
waivers, consents, releases and amendments relating to Company Stock Options
exercisable for fewer than 50,000 shares of Common Stock in the aggregate,
provided that such options are held by fewer than twenty
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<PAGE> 37
optionees), and (ii) certain anti-dilution actions with respect to all Company
Stock Options and the Phantom Stock Rights in connection with the ESOP Sale and
related EVEREN Distribution shall be in full force and effect; and (l) prior to
the Effective Time, certain directors and officers of the Company or its
subsidiaries set forth in a written notice delivered by the Purchaser to the
Company shall have provided their written resignations to the Company and the
Purchaser and the persons specified in such written notice shall have been duly
elected as directors and/or officers of the Company or any of its subsidiaries
effective at the Effective Time.
The ESOP Sale and related EVEREN Distribution referenced in clause (e)
above were consummated on September 13, 1995.
Conditions to the Obligation of the Company
The obligation of the Company to effect the Merger is further subject to
the following conditions: (a) the representations and warranties of the
Purchaser and Zurich in the Amended Merger Agreement that are qualified as to
materiality must be true and correct and the representations and warranties in
the Amended Merger Agreement that are not so qualified must be true and correct
in all material respects, in each case on the date of the Merger Agreement
(except to the extent cured prior to the Closing Date) and on the Closing Date
as though made on the Closing Date, except to the extent such representations
and warranties speak as of an earlier date; and (b) the Purchaser, Zurich and
Insurance Partners shall have performed in all material respects all obligations
and covenants required to be performed by them under the Amended Merger
Agreement at or prior to the Closing Date.
Satisfaction of Closing Conditions
The Amended Merger Agreement provides that if the Purchaser makes an
election by written notice sent to the Company prior to the third business day
following the date on which certain of the conditions to the obligations of the
Purchaser, Zurich and Insurance Partners to effect the Merger set forth above
shall be fulfilled or waived in accordance with the Amended Merger Agreement, to
delay the closing of the Merger to a later date (which shall not be later than
January 4, 1996), then, on a business day specified therein (the "Preliminary
Closing Date"), a preliminary closing shall take place at which the Company
shall seek to fulfill all conditions to the obligations of the Purchaser, Zurich
and Insurance Partners to effect the Merger set forth above (other than the
consummation of the KFS Merger and the resignations of certain officers and
directors of the Company and/or its subsidiaries, but including, without
limitation, the delivery of the officers' certificates with respect to the
truthfulness of certain representations and warranties and the performance of
certain obligations of the Company under the Amended Merger Agreement) (the
"Preliminary Closing Conditions"). If the Company shall fulfill all of the
Preliminary Closing Conditions on the Preliminary Closing Date, then on the
Closing Date (i) the Company's obligation to effect the Merger shall be subject
to the satisfaction or waiver on such date of each of the conditions set forth
above under "Conditions to Each Party's Obligation to Effect the Merger" and
"Conditions to the Obligation of the Company" and (ii) the Purchaser's, Zurich's
and Insurance Partners' obligations to effect the Merger shall be subject to the
satisfaction or waiver on such date of each of the conditions set forth above
under "Conditions to Each Party's Obligation to Effect the Merger" and
"Conditions to the Obligations of Zurich, Insurance Partners and the Purchaser";
provided, however, that (A) the conditions to the obligation of the Purchaser,
Zurich and Insurance Partners to effect the Merger set forth in clauses (c),
(e), (f), (g) and (h) of "Conditions to the Obligations of Zurich, Insurance
Partners and the Purchaser" above shall be deemed to have been satisfied on the
Closing Date and (B) the condition set forth in clause (a) of "Conditions to the
Obligations of Zurich, Insurance Partners and the Purchaser" above must be
satisfied or waived on the Closing Date, except that such condition, to the
extent it applies to the truth and correctness as of the Closing Date of the
representations and warranties set forth in clauses (e) through (k), (m), (o)
through (s), and (v) through (z) under "Representations and Warranties" below
and certain analogous representations contained in the KFS Agreement, shall be
deemed to be satisfied on the Closing Date unless the failure to satisfy such
condition is a result of any willful action or willful inaction by the Company,
any of its subsidiaries or any officers or directors thereof. If the Company
fulfills the Preliminary Closing Conditions, then the Closing shall
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occur on a business day specified in a written notice from the Purchaser to the
Company, which shall be no later than January 4, 1996. If the Company shall not
fulfill all of the Preliminary Closing Conditions on the Preliminary Closing
Date, the Company must fulfill all of the conditions set forth above under
"Conditions to Each Party's Obligation to Effect the Merger" and "Conditions to
the Obligations of Zurich, Insurance Partners and the Purchaser" on the Closing
Date as if no preliminary closing occurred.
Representations and Warranties
The Amended Merger Agreement includes various customary representations and
warranties of the parties thereto. The Amended Merger Agreement includes
representations and warranties by the Company as to, among other things, (a) the
corporate organization, standing and power of the Company and its significant
subsidiaries; (b) the Company's capital structure; (c) the authorization,
execution, delivery, performance, enforceability and binding effect of the
Amended Merger Agreement and related matters and the noncontravention of any
agreement, law, or charter or bylaw provision as a result of the execution of,
and consummation of the transactions contemplated by, the Amended Merger
Agreement and the absence of the need for governmental or third-party filings,
consents, approvals or actions with respect to any transaction contemplated by
the Amended Merger Agreement, except as provided in the Amended Merger
Agreement; (d) the filing or obtaining of consents, approvals, authorizations,
declarations or notices with any governmental entities with respect to the
Company or any of its subsidiaries in connection with the Merger and the Amended
Merger Agreement and related documents; (e) the filing of certain documents by
the Company with the Commission and the accuracy of the information contained
therein, including the registration statement filed by the Company with respect
to the ESOP Sale and related EVEREN Distribution and the information contained
in this Proxy Statement; (f) the absence of any changes that would have a
material adverse effect with respect to the Company, and that the Company and
its subsidiaries have conducted their business only in the ordinary course since
the date of the most recent audited financial statements filed with the
Commission; (g) the absence of certain material changes in the Company's benefit
plans; (h) the compliance with applicable laws of the Company's benefit plans
and certain other matters relating to ERISA; (i) the absence of any material
litigation; (j) the filing of tax returns and payment of taxes; (k) the absence
of certain "excess parachute payments" under Section 162(m) of the Code; (l) the
voting requirements for the approval of the Merger; (m) compliance with
applicable laws; (n) the fair value of the consideration received in the KFS
Merger; (o) the ESOP Sale and related EVEREN Distribution; (p) the payment of
dividends on the Common Stock and Preferred Stock; (q) the level of intercompany
indebtedness; (r) the intercompany transfer of real estate assets; (s) the
receipt of a fairness opinion from Goldman Sachs; (t) the inapplicability of the
supermajority voting provisions of Article Fifteenth of the Second Restated
Certificate of Incorporation of the Company; (u) the amendment of the Rights
Agreement in connection with the transactions contemplated by the Amended Merger
Agreement; (v) the payment of certain broker's fees and expenses; (w) certain
matters relating to the 1940 Act and the Advisers Act; (x) certain matters
relating to the Company's insurance business; (y) certain matters relating to
the reinsurance agreements in effect with respect to the life insurance
subsidiaries of the Company; and (z) the accuracy of certain disclosures
relating to the Company's real estate assets made by the Company in connection
with the Amended Merger Agreement.
The Amended Merger Agreement also includes representations and warranties
by Zurich, Insurance Partners and the Purchaser as to, among other things, (a)
the corporate organization, standing and power of Zurich, Insurance Partners and
the Purchaser; (b) the Purchaser's capital structure; (c) the authorization,
execution, delivery, performance and enforceability of the Amended Merger
Agreement and related matters and the noncontravention of any agreement, law, or
charter or bylaw provision as a result of the execution of, and consummation of
the transactions contemplated by, the Amended Merger Agreement and the absence
of the need for governmental or third-party filings, consents, approvals or
actions with respect to any transaction contemplated by the Amended Merger
Agreement, except as provided in the Amended Merger Agreement; (d) the accuracy
of information supplied by Zurich, Insurance Partners and the Purchaser in
connection with this Proxy Statement; (e) the absence of prior activities of the
Purchaser; (f) certain matters relating to the 1940 Act and the Advisers Act;
and (g) certain broker's fees and expenses.
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Covenants relating to the Conduct of Business Prior to the Merger
The Company has agreed that prior to the Effective Time it shall, and shall
cause its subsidiaries to, act and carry on their respective businesses in the
ordinary course of business and use reasonable efforts to preserve intact their
current business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them. Except as contemplated by the Amended Merger
Agreement or the Lumbermens Agreement, prior to the Effective Time, the Company
shall not, and shall not permit any of its subsidiaries to, without the prior
consent of the Purchaser: (i) (a) declare, set aside or pay any dividends on, or
make any other distributions (whether in cash, stock or property) with respect
to any of the Company's outstanding capital stock (other than the dividend of
capital stock declared in connection with the ESOP Sale and related EVEREN
Distribution of the securities brokerage segment, regular quarterly cash
dividends not in excess of $.23 per share of Common Stock and regular cash
dividends on Preferred Stock, in each case with usual record and payment dates
and in accordance with the Company's present dividend policy), (b) split,
combine or reclassify any of its outstanding capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock or (c) purchase, redeem
or otherwise acquire any shares of outstanding capital stock, any rights,
warrants or options to acquire any such shares or any outstanding notes or
debentures except, in the case of clause (c), for the acquisition of shares of
Common Stock from holders of Company Stock Options in full or partial payment of
the exercise price payable by such holder upon exercise of Company Stock Options
outstanding on the date of the Amended Merger Agreement and any mandatory
redemption or repurchase of the KFC Debentures, the KFC Class B Common Stock and
the KFC Stock Options in accordance with the terms thereof, the terms of the
indenture governing the KFC Debentures and the KFC Charter (each as defined in
the Amended Merger Agreement); (ii) issue, sell, grant, pledge or otherwise
encumber any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities other than (a) pursuant
to the Company's Dividend Reinvestment and Stock Purchase Plan as amended in
accordance with the Merger Agreement, (b) the ESOP Sale and related EVEREN
Distribution, (c) upon the exercise of the Company Stock Options outstanding on
the date of the Merger Agreement, (d) upon the conversion of shares of
convertible Preferred Stock outstanding on the date of the Merger Agreement or
(e) in accordance with their respective terms, upon the conversion of any KFC
Debentures or the exercise of any KFC Stock Options; (iii) amend its charter,
by-laws or other comparable charter or organizational documents or alter through
merger, liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of any subsidiary of the Company; (iv) acquire
any material asset, business, real estate asset, corporation, partnership, joint
venture, association or other business organization or division thereof, except
for portfolio investments in the ordinary course of business consistent with
recent past practice; (v)(a) sell, lease, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or assets, (b)
sell, mortgage or otherwise encumber or subject to any lien or otherwise dispose
of any of its real estate assets, or (c) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization; (vi) (a) incur any indebtedness for borrowed money, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its subsidiaries, guarantee any indebtedness
or debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
other than in the ordinary course of business of Kemper Clearing Corp.
consistent with recent past practice, or (b) make any loans, advances or capital
contributions to any other person, other than (x) routine advances to employees,
(y) policy loans to third parties in the ordinary course of business of certain
insurance subsidiaries of the Company, and (z) in the ordinary course of
business of Kemper Clearing Corp. consistent with recent past practice; (vii)
pay, discharge, settle or satisfy any intercompany indebtedness from KFC to the
Company other than as a result of the transactions contemplated by the Amended
Merger Agreement; (viii) enter into any transaction or agreement with any
director, executive officer or affiliate of the Company or any of its
significant subsidiaries or with Lumbermens; (ix) make any tax election or
settle or compromise any Federal income tax liability or any other material
income tax liability that could reasonably be expected to be material to the
Company and its subsidiaries taken as a whole; (x) pay, discharge, settle or
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satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with recent past
practice or in accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in documents filed
with the Commission or incurred since the date of such financial statements in
the ordinary course of business consistent with recent past practice; (xi)
except in the ordinary course of business, modify, amend or terminate any
material agreement, lease, sublease, permit, concession, or similar instrument
to which the Company or any subsidiary is a party or waive, release or assign
any material rights or claims thereunder; (xii) hire any new executive officers;
(xiii) (a) grant any director, executive officer or other employee of the
Company or any of its subsidiaries any increase in compensation, except, in the
case of employees who are not executive officers or directors, normal salary
increases consistent with recent past practice or as was required under
employment agreements or arrangements in effect as of the date of the most
recent audited financial statements included in documents filed with the
Commission, (b) grant any such director, executive officer or other employee any
severance or termination pay, except as was required under any employment,
severance or termination agreements or arrangements or plans in effect as of the
date of the most recent audited financial statements included in documents filed
with the Commission, (c) enter into any employment, severance or termination
agreement with, or adopt any plan or arrangement covering, any such director,
executive officer, or employee or (d) amend any benefit plan except as required
by law; (xiv) (a) expend funds for capital expenditures in excess of an
aggregate of $5 million other than as previously disclosed in writing to the
Purchaser, or (b) expend any funds in connection with the Spanish real estate
projects in which the Company has invested, subject to certain exceptions; (xv)
settle or compromise any stockholder derivative suits arising out of the
transactions contemplated by the Amended Merger Agreement, existing on the date
of the Merger Agreement or certain specified claims; (xvi) change any
accounting, underwriting or actuarial principles, assumptions or practices
materially affecting the assets, liabilities or business of the Company or any
of its subsidiaries, except insofar as may have been required by a change in
generally accepted accounting principles or statutory accounting principles and
except changes in crediting rates in the ordinary course of business; (xvii)
take any material action with respect to any material real estate asset owned by
the Company or any of its subsidiaries (including, without limitation, the
entering into of any construction contract or the undertaking of any
construction-related activity, the giving of consent to any third party, any
action in connection with the exercise of foreclosure or similar remedies, any
material amendment of an agreement governing or relating to any such real estate
asset or the ownership thereof and any prepayment of any third-party debt
secured by any such real estate asset); (xviii) cease to maintain the books and
records related to the business and assets of the Company and its subsidiaries
other than certain real estate subsidiaries; or (xix) authorize any of, or
commit or agree to take any of, the foregoing actions.
Additional Covenants
The Amended Merger Agreement contains additional covenants of the Company,
including (i) to prepare and file a registration statement in connection with
the ESOP Sale and related EVEREN Distribution, and to prepare, file and mail
this Proxy Statement; (ii) to convene the Special Meeting; (iii) to afford the
Purchaser, Zurich and Insurance Partners reasonable access to certain
properties, contracts, records and other information respecting the Company;
(iv) not to solicit other Transaction Proposals or withdraw its recommendation
of the Merger except as set forth under "The Merger -- No Solicitation" and "The
Merger -- Fiduciary Duties"; (v) (a) to use, and to cause each of the Asset
Management Subsidiaries to use, their commercially reasonable efforts to cause
the boards of trustees/directors of the Kemper Funds (other than KINF) to
approve, and to solicit their respective shareholders as promptly as practicable
with regard to the approval of, new investment advisory agreements with the
Asset Management Subsidiaries acting as investment advisers for such funds, to
be effective on or as promptly as practicable after the Effective Time, pursuant
to the provisions of Section 15 of the 1940 Act, and consistent with all
requirements of the 1940 Act applicable thereto, (b) to, and to cause each of
the Asset Management Subsidiaries to, use their commercially reasonable efforts
to ensure the satisfaction of the conditions set forth in Section 15(f) of the
1940 Act with respect to each of the Kemper Funds (including KINF), including
the requirement that no "unfair burden" (as defined in the 1940 Act) be imposed
on any of the Kemper Funds, (c) to cause certain insurance
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subsidiaries of the Company and KFS to use their commercially reasonable efforts
to cause the board of trustees of KINF to approve, and to solicit voting
instructions from owners of variable contracts issued by certain insurance
subsidiaries of the Company as promptly as practicable with regard to the
approval of a new investment advisory agreement with KFS, to be effective on or
as promptly as practicable after the Effective Time pursuant to the provisions
of Section 15 of the 1940 Act; (vi) to cause the non-investment company advisory
clients of the Asset Management Subsidiaries to be informed of the transactions
contemplated by the Amended Merger Agreement and give such clients an
opportunity to terminate their advisory contracts with the Asset Management
Subsidiaries or any of their affiliates; (vii) to adopt such resolutions and
take any other such actions as required by the Amended Merger Agreement relating
to the cancellation of, and payment for, outstanding Company Stock Options and
Phantom Stock Rights and the implementation of certain anti-dilution actions
with respect to all Company Stock Options and Phantom Stock Rights in connection
with the ESOP Sale and related EVEREN Distribution; (viii) to take such steps as
are reasonably requested by the Purchaser to effectuate any agreement entered
into prior to the Effective Time among Zurich, Insurance Partners and Lumbermens
relating to the Lumbermens Agreement which involves action with respect to the
Series C Preferred Stock in the Merger that is different than as contemplated in
the Amended Merger Agreement, and (ix) to authorize, if requested to do so by
the Purchaser prior to the Effective Time, one or more new series of preferred
stock of the Company to be issued in connection with the Merger.
Furthermore, under the Amended Merger Agreement, the parties have agreed
that: (i) the Purchaser and the Surviving Corporation will maintain for 6 years
after the Effective Time all rights of indemnification existing in favor of the
current or former directors, officers or employees of the Company and its
subsidiaries, and to maintain the Company's D&O Insurance as described under
"The Merger -- Interests of Certain Persons in the Merger"; (ii) each of the
Company, the Purchaser, Zurich and Insurance Partners will make and cause their
respective subsidiaries (as applicable) to make all necessary filings, obtain
all necessary governmental permits, orders or other consents and obtain the
consents of all third parties necessary for the consummation of the Merger and
the other transactions contemplated by the Amended Merger Agreement, as further
described under "The Merger -- Government and Regulatory Approvals and Filings";
(iii) Zurich shall use commercially reasonable efforts to assure the
satisfaction of the conditions set forth in Section 15(f) of the 1940 Act with
respect to each of the Kemper Funds, and, with the assistance of the Company,
shall use commercially reasonable efforts to obtain approval of new investment
advisory agreements between the Asset Management Subsidiaries and the Kemper
Funds by the boards of trustees or directors of the Kemper Funds; and (iv) the
Company and the Surviving Corporation will take the actions with respect to the
Company's benefit plans described under "The Merger -- Benefit Plans."
The Company has agreed in the Amended Merger Agreement to keep the
Purchaser informed of all actions taken by and all material communications
between the Company and Lumbermens (and their respective affiliates) pursuant to
or in connection with the Lumbermens Agreement. The Lumbermens Agreement sets
forth Lumbermens' consent to certain matters relating to the Merger (including
Lumbermens' agreement not to seek appraisal rights with respect to the Series C
Preferred Stock that it owns) and confirms and clarifies the scope of certain
contractual relationships existing between Lumbermens and the Company, including
certain agreements relating to (i) noncompetition between Lumbermens and the
Surviving Corporation; (ii) the use of the Kemper name by Lumbermens, the
Surviving Corporation and KFS; (iii) the use by Lumbermens prior to the
Effective Time of shares of Common Stock owned by Lumbermens to prepay certain
other obligations or to invest in KFS equity or debt securities; (iv) the
unwinding of a real estate limited partnership; and (v) certain other real
estate matters. If Lumbermens breaches any obligation under the Lumbermens
Agreement, the Company has agreed to take all actions reasonably requested by
the Purchaser with respect to the enforcement of any such obligation.
The Amended Merger Agreement obligates the Company to use its best efforts
to sell specified retail and bulk sale real estate assets in accordance with the
terms and procedures specified therein, including (i) not entering into certain
agreements with respect to such real estate assets without the Purchaser's
consent, (ii) being required to enter into agreements with respect to such real
estate assets that the Purchaser determines to be commercially reasonable and
for fair value and (iii) not making decisions or exercising remedies under
existing agreements relating to the sale of real estate assets without the
Purchaser's consent.
34
<PAGE> 42
The Company is further obligated to keep the Purchaser reasonably informed of
all material communications relating to any offers to purchase such real estate
assets, and to provide additional information reasonably requested by the
Purchaser in connection therewith. Unless it otherwise elects, the Company will
not be required to consummate such real estate sales unless and until the Merger
is consummated or certain Preliminary Closing Conditions are satisfied. The
Company will also be required to obtain the prior consent of the Purchaser
before making decisions or exercising remedies in connection with the
restructuring of a real estate limited partnership and other real estate related
matters contemplated by the Lumbermens Agreement. The expenses incurred by the
Company and the Purchaser in connection with the bulk sale process will be borne
equally by the parties.
On July 28, 1995, the Company entered into a bulk sale agreement pursuant
to which certain real estate assets would be sold at a price substantially below
their June 30, 1995 carrying value of approximately $504.2 million. The
consummation of this agreement is expressly conditioned on the Merger being
consummated or the Preliminary Closing Conditions being satisfied or waived.
Since May 15, 1995, the Company has also entered into other real estate sales
contracts with respect to certain selected real estate-related assets without
requiring such merger-related conditions, or the Company has otherwise
determined it is willing to enter into such sales contracts without such
conditions. As a consequence, the Company recorded after-tax, real
estate-related, realized investment losses of approximately $47.9 million in the
second quarter of 1995. The Company took these actions in order to facilitate
the sales of such real estate assets and the Merger. The Company would not have
intended to sell all such real estate assets at such prices in the absence of
the Merger Agreement.
TERMINATION; FEES AND EXPENSES
The Amended Merger Agreement may be terminated at any time prior to the
Effective Time: (1) by mutual consent of the parties; (2) by either party if the
Merger is not approved by the common stockholders of the Company; (3) by either
party if the Merger has not been consummated on or before February 29, 1996; (4)
by either party if a governmental authority issues a final permanent order or
injunction prohibiting the Merger; (5) by either party if the Company exercises
its rights described herein under "The Merger -- Fiduciary Duties"; (6) by the
Purchaser if (a) any tender or exchange offer is made which would result in
ownership by any person or group of more than 20% of the outstanding shares of
Common Stock and the Company's Board recommends or states that it is neutral
with respect to such offer, (b) any person or group shall acquire beneficial
ownership of more than 20% of the outstanding shares of Common Stock or (c) the
Company's Board takes certain actions with respect to the Rights Agreement which
are adverse to Zurich and Insurance Partners; (7) by either party upon a
material breach of a representation, warranty or covenant by the other party and
the lapse of a cure period; or (8) by Zurich and Insurance Partners if requisite
regulatory approvals, certain approvals with respect to the registered
investment companies for which certain of the Company's subsidiaries act as
investment adviser or sub-adviser, or certain advisory client consents have been
sought and refused.
In the event of termination of the Amended Merger Agreement, the Company
will pay to Zurich and Insurance Partners a fee of (a) $80 million if the
Amended Merger Agreement is terminated pursuant to clauses (5) or (6) above
(which sum shall be payable on demand or concurrently with the taking of any
action specified in clause (5) above); (b)(i) $40 million (payable on demand) if
the Amended Merger Agreement is terminated pursuant to clause (2) above or by
the Purchaser pursuant to clause (7) above and (ii) an additional fee of $40
million if within 12 months after the date of such termination a transaction
contemplated by a Transaction Proposal shall have occurred or the Company shall
have entered into a definitive agreement relating to a transaction contemplated
by a Transaction Proposal, which fee, in the event such a transaction shall have
occurred, shall be payable upon demand and, in the event such transaction shall
not have occurred, shall be payable upon demand on the earlier of (x) the date
such transaction occurs and (y) six months after a definitive agreement relating
to such transaction has been entered into by the Company; or (c) $40 million if
the Amended Merger Agreement is terminated pursuant to clauses (3) or (8) above,
and such termination is due to the fact that any of the conditions set forth in
clauses (c), (e)(i)(B) or (g) above under "Conditions to Each Party's Obligation
to Effect the Merger" or clauses (a), (c), (e), (i), (j), (k)
35
<PAGE> 43
or (l) above under "Conditions to the Obligations of Zurich, Insurance Partners
and the Purchaser" shall not have been satisfied or waived, and if within 12
months after the date of such termination a transaction contemplated by a
Transaction Proposal shall have occurred or the Company shall have entered into
a definitive agreement relating to a transaction contemplated by a Transaction
Proposal, which fee, in the event such a transaction shall have occurred, shall
be payable upon demand and, in the event such transaction shall not have
occurred, shall be payable upon demand on the earlier of (x) the date such
transaction occurs and (y) six months after a definitive agreement relating to
such transaction has been entered into by the Company. If the termination of the
Amended Merger Agreement pursuant to clause (3) above is due to the failure to
satisfy the condition set forth in clause (a) above under "Conditions to the
Obligations of Zurich, Insurance Partners and the Purchaser," the $40 million
payment required by clause (c) of this subsection shall only be payable if the
condition is not satisfied because of the failure of a representation or
warranty to meet the applicable standard of truthfulness and correctness as of
the date of the execution of the Amended Merger Agreement.
Pursuant to the Amended Merger Agreement, the Company will pay, whether or
not the Merger is consummated or the Amended Merger Agreement is terminated, all
documented expenses up to $35 million of Zurich and Insurance Partners unless
(i) the Amended Merger Agreement is terminated by the Company pursuant to clause
(7) above, or (ii) Zurich and Insurance Partners fail to close the Merger after
all conditions thereto have been satisfied.
PLANS OF THE COMPANY IN THE EVENT THE MERGER IS NOT CONSUMMATED
In the event that the Merger is not consummated, the Company would consider
other alternatives including, but not limited to, continuing the Company as an
independent entity, pursuing other business combinations and/or attempting to
obtain a third party equity investment in the Company. There can be no assurance
that any such alternatives would be available in the event that the Merger is
not consummated.
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. Generally, a stockholder
will recognize gain or loss for such purposes equal to the difference between
the cash received and such stockholder's tax basis for the shares of Common
Stock such stockholder sells in the Merger. For federal income tax purposes,
such gain or loss will be a capital gain or loss if the shares of Common Stock
are a capital asset in the hands of the stockholder, and a long-term capital
gain or loss if the stockholder's holding period is more than one year as of the
Effective Time. There are limitations on the deductibility of capital losses.
The summary of tax consequences set forth above is for general information
only. The tax treatment of each stockholder will depend in part upon his or her
particular situation. Special tax consequences not described herein may be
applicable to particular classes of taxpayers, such as financial institutions,
broker-dealers, persons who are not citizens or residents of the United States,
stockholders who acquired the shares of Common Stock through the exercise of
Company Stock Options or otherwise as compensation, and persons who received
payments in respect of Company Stock Options and Phantom Stock Rights. ALL
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL AND FOREIGN LAWS.
DISSENTERS' RIGHTS
Record holders of Common Stock and Preferred Stock are entitled to
appraisal rights under Section 262 of the DGCL in connection with the Merger.
The following discussion is not a complete statement of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 which is reprinted in its entirety as Annex 3 to this Proxy
Statement. Except as set forth herein, stockholders of the Company will not be
entitled to appraisal rights in connection with the Merger.
Section 262. Under the DGCL, record holders of shares of Common Stock or
Preferred Stock who follow the procedures set forth in Section 262 and who, in
the case of holders of shares of Common Stock, have not voted in favor of the
Merger will be entitled to have their shares of Common Stock or Preferred
36
<PAGE> 44
Stock appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 days prior to the meeting, the Company must notify
each of the holders of Common Stock and Preferred Stock at the close of business
on the Record Date that such appraisal rights are available and include in each
such notice a copy of Section 262. This Proxy Statement constitutes such notice.
Any such stockholder who wishes to exercise appraisal rights should review the
following discussion and Annex 3 carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the DGCL.
A holder of shares of Common Stock or Preferred Stock wishing to exercise
appraisal rights must deliver to the Company, before the vote on the approval
and adoption of the Amended Merger Agreement at the Special Meeting, a written
demand for appraisal of such holder's shares of Common Stock or Preferred Stock.
In addition, a holder of shares of Common Stock or Preferred Stock wishing to
exercise appraisal rights must hold of record such shares on the date the
written demand for appraisal is made and must continue to hold such shares
through the Effective Time.
Only a holder of record of shares of Common Stock or Preferred Stock is
entitled to assert appraisal rights for the shares of Common Stock or Preferred
Stock registered in that holder's name. A demand for appraisal should be
executed by or on behalf of the holder of record fully and correctly, as the
holder's name appears on the stock certificates.
If the shares of Common Stock or Preferred Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Common Stock or
Preferred Stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder such as a broker who holds Common Stock or Preferred Stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the Common Stock or Preferred Stock held for one or more beneficial owners
while not exercising such rights with respect to the Common Stock or Preferred
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares as to which appraisal is sought and where no
number of shares is expressly mentioned the demand will be presumed to cover all
Common Stock or Preferred Stock held in the name of the record owner. Holders of
Common Stock or Preferred Stock who hold their shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock or Preferred Stock should be mailed or delivered to
Kathleen A. Gallichio, Senior Vice President, General Counsel and Corporate
Secretary, Kemper Corporation, One Kemper Drive, C-3, Long Grove, Illinois 60049
so as to be received before the vote on the approval and adoption of the Amended
Merger Agreement at the Special Meeting.
Within 10 days after the Effective Time, the Company, as the surviving
corporation in the Merger, must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262. Within 120 days after the Effective Time, but not thereafter, the Company,
or any holder of shares of Common Stock or Preferred Stock entitled to appraisal
rights under Section 262 and who has complied with the foregoing procedures, may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of such shares. The Company is not under any obligation, and has
no present intention, to file a petition with respect to the appraisal of the
fair value of the shares of Common Stock or Preferred Stock. Accordingly, it is
the obligation of the stockholders to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares of
Common Stock or Preferred Stock who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request, to receive
from the Company a statement setting forth the aggregate number of shares of the
37
<PAGE> 45
Common Stock or Preferred Stock with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
statements must be mailed within 10 days after a written request therefor has
been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares of
Common Stock or Preferred Stock entitled to appraisal rights and will appraise
the "fair value" of the shares of Common Stock or Preferred Stock, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Holders considering seeking appraisal
should be aware that the fair value of their shares of Common Stock or Preferred
Stock as determined under Section 262 could be more than, the same as or less
than the value of the Merger Consideration that they would otherwise receive, in
the case of any holders of Common Stock, or the preferred stock in the Surviving
Corporation that they would otherwise continue to hold, in the case of holders
of Preferred Stock, if they did not seek appraisal of their shares of Common
Stock or Preferred Stock. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered
in the appraisal proceedings. More specifically, the Delaware Supreme Court has
stated that: "Fair value, in an appraisal context, measures 'that which has been
taken from [the shareholder], viz., his proportionate interest in a going
concern.' In the appraisal process the corporation is valued 'as an entity,' not
merely as a collection of assets or by the sum of the market price of each share
of its stock. Moreover, the corporation must be viewed as an on-going
enterprise, occupying a particular market position in the light of future
prospects." In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock or Preferred Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock or Preferred Stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares of Common
Stock or Preferred Stock entitled to appraisal.
Any holder of shares of Common Stock or Preferred Stock who has duly
demanded an appraisal in compliance with Section 262 will not, after the
Effective Time, be entitled to vote the shares of Common Stock or Preferred
Stock subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares of Common Stock or
Preferred Stock as of a date prior to the Effective Time).
If any holder of shares of Common Stock who demands appraisal of shares
under Section 262 fails to perfect, or effectively withdraws or loses, the right
to appraisal, as provided in the DGCL, the shares of Common Stock of such holder
will be converted into Merger Consideration in accordance with the Amended
Merger Agreement. If any holder of shares of Preferred Stock who demands
appraisal of shares under Section 262 fails to perfect, or effectively withdraws
or loses, the right to appraisal, as provided in the DGCL, the shares of
Preferred Stock of such holder will be treated as if they had remained
outstanding as of the Effective Time. A holder of shares of Common Stock or
Preferred Stock will fail to perfect, or effectively lose, the right to
appraisal if no petition for appraisal is filed within 120 days after the
Effective Time. A holder may withdraw a demand for appraisal by delivering to
the Company a written withdrawal of the demand for appraisal and acceptance of
the Merger, except that any such attempt to withdraw made more than 60 days
after the Effective Time will require the written approval of the Surviving
Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of such
Section, a copy of which is attached hereto as Annex 3.
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<PAGE> 46
SELECTED FINANCIAL INFORMATION CONCERNING THE COMPANY
The selected historical consolidated financial data presented below for
each of the last five fiscal years and the six months ended June 30, 1995 and
1994 have been derived from the Company's historical financial statements, as
adjusted to reflect the divestiture of the Company's securities brokerage
segment in the ESOP Sale and related EVEREN Distribution. This data should be
read in conjunction with the consolidated financial statements and notes thereto
of the Company included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, which are incorporated by reference into this Proxy
Statement. See "Additional Information -- Incorporation by Reference."
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED OR AT
JUNE 30, (UNAUDITED) FOR THE YEAR ENDED OR AT DECEMBER 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE BY CATEGORY
Asset management............. $ 227,552 $ 236,415 $ 429,551 $ 515,702 $ 525,058 $ 492,390 $ 476,698
Life insurance............... 328,393 370,128 687,584 726,518 688,448 803,378 824,641
Real estate.................. 1,501 (1,316) (9,547) (338,077) (309,274) (57,479) (21,446)
Other operations and
corporate.................. 16,223 8,323 14,108 31,937 12,946 12,753 27,288
Eliminations................. (3,850) (7,961) (16,846) (17,149) (34,363) (43,434) (49,903)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total revenue.............. $ 569,819 $ 605,589 $ 1,104,850 $ 918,931 $ 882,815 $ 1,207,608 $1,257,273
=========== =========== =========== =========== =========== =========== ==========
NET INCOME (LOSS) BY CATEGORY,
EXCLUDING REALIZED INVESTMENT
GAIN (LOSS)
Asset management............. $ 31,090 $ 39,511 $ 69,334 $ 99,087 $ 88,288 $ 85,000 $ 58,072
Life insurance............... 61,984 58,383 139,199 90,171 44,943 92,748 93,382
Real estate.................. (4,703) (20,422) (32,030) (59,330) (34,193) (19,357) (16,324)
Other operations and
corporate.................. (14,458) (18,437) (35,414) (30,014) (29,962) (17,552) (9,439)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total continuing
operations............... $ 73,913 $ 59,035 $ 141,089 $ 99,914 $ 69,076 $ 140,839 $ 125,691
=========== =========== =========== =========== =========== =========== ==========
PRIMARY PER SHARE.............. $ 1.78 $ 1.39 $ 3.40 $ 1.89 $ 1.42 $ 2.93 $ 2.83
=========== =========== =========== =========== =========== =========== ==========
FULLY DILUTED PER SHARE........ $ 1.78 $ 1.38 $ 3.40 $ 1.96 $ 1.42 $ 2.93 $ 2.83
=========== =========== =========== =========== =========== =========== ==========
NET INCOME (LOSS) BY CATEGORY
Asset management............. $ 30,966 $ 39,511 $ 50,029 $ 99,087 $ 88,288 $ 85,000 $ 58,072
Life insurance............... 22,068 59,813 90,182 79,777 (25,451) 45,795 74,581
Real estate.................. (4,699) (6,772) (18,021) (257,753) (209,117) (40,789) (16,324)
Other operations and
corporate.................. (7,900) (17,580) (34,239) (18,755) (29,962) (20,176) (4,530)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Total continuing
operations............... 40,435 74,972 87,951 (97,644) (176,242) 69,830 11,799
Discontinued operations........ (68,811) 2,592 3,489 333,131 (27,158) 134,709 (99,922)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Net income (loss)............ $ (28,376) $ 77,564 $ 91,440 $ 235,487 $ (203,400) $ 204,539 $ 111,877
=========== =========== =========== =========== =========== =========== ==========
Average Common and Equivalent
Shares Outstanding........... 34,925 34,068 34,488 42,830 48,840 48,094 48,431
=========== =========== =========== =========== =========== =========== ==========
NET INCOME (LOSS) PER SHARE
Primary
Continuing operations........ $ .82 $ 1.86 $ 1.86 $ (2.72) $ (3.60) $ 1.45 $ 2.55
Discontinued operations...... (1.97) .07 .11 7.78 (.56) 2.80 (2.30)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Net income (loss).......... $ (1.15) $ 1.93 $ 1.97 $ 5.06 $ (4.16) $ 4.25 $ .25
=========== =========== =========== =========== =========== =========== ==========
Fully diluted
Continuing operations........ $ .82 $ 1.78 $ 1.86 $ (2.28) $ (3.60) $ 1.45 $ 2.55
Discontinued operations...... (1.97) .06 .11 7.15 .56 2.80 (2.30)
----------- ----------- ----------- ----------- ----------- ----------- ----------
Net income (loss).......... $ (1.15) $ 1.84 $ 1.97 $ 4.87 $ (4.16) $ 4.25 $ .25
=========== =========== =========== =========== =========== =========== ==========
FINANCIAL SUMMARY
Total assets................... $11,718,877 $11,937,735 $11,761,158 $12,543,536 $11,312,819 $11,490,312 $9,888,829
=========== =========== =========== =========== =========== =========== ==========
Total long-term obligations and
redeemable securities........ $ 372,926 $ 431,542 $ 389,783 $ 435,864 $ 260,745 $ 315,786 $ 245,328
=========== =========== =========== =========== =========== =========== ==========
Stockholders' equity........... $ 1,575,225 $ 1,324,235 $ 1,257,357 $ 1,618,987 $ 1,766,114 $ 1,838,526 $1,625,909
=========== =========== =========== =========== =========== =========== ==========
Book value per common share.... $ 34.98 $ 28.68 $ 26.06 $ 38.24 $ 33.77 $ 37.92 $ 34.20
=========== =========== =========== =========== =========== =========== ==========
Cash dividends declared and
paid per common share........ $ .46 $ .46 $ .92 $ .92 $ .92 $ .92 $ .92
=========== =========== =========== =========== =========== =========== ==========
</TABLE>
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<PAGE> 47
MARKET PRICES
The Common Stock is listed and traded on the NYSE. As of April 10, 1995,
the date preceding public announcement of the signing of the Letter of Intent by
the parties regarding the proposed Merger, high and low sales prices of the
Common Stock on the NYSE Composite Transactions Tape were 41 1/2 per share and
40 7/8 per share, respectively. On October 16, 1995, the latest practicable
trading day before the printing of this Proxy Statement, the high and low sales
prices of the Common Stock on the NYSE Composite Transactions Tape were 48 1/2
per share and 48 3/8 per share, respectively.
CERTAIN PROJECTIONS
The Company does not, as a matter of course, publicly disclose projections
as to future revenues, earnings or other financial information. Following the
execution of the May 8, 1994 letter agreement between the Company and GECC,
pursuant to which the Company advised GECC that the Company's Board of Directors
had directed management and advisors to take all appropriate actions to maximize
value for the Company's stockholders, various non-public projected summary
financial information concerning the Company was distributed by the Company to
potential bidders in connection with such process. During the period from May
1994 through March 1995, such projected summary information was twice revised by
the Company, as new information became available to the Company, in order to be
provided to potential bidders for the entire Company, or certain business
segments of the Company, as part of the Company's processes to maximize value
for its stockholders. In connection with discussions among the Company, Zurich
and Insurance Partners concerning the feasibility of a business combination and
as part of Zurich and Insurance Partners' due diligence investigation of the
Company, the Company furnished Zurich and Insurance Partners certain projected
summary financial information regarding the Company. The following projections
consist of all material portions of the projected summary information concerning
the Company's earnings furnished to Zurich and Insurance Partners.
Projections of this type are based on estimates and assumptions that are
inherently subject to significant economic, industry and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond the Company's control. In particular, certain assumptions on
which the projections were based related to the achievement of certain strategic
goals, objectives and targets over the applicable periods. Accordingly, there
can be no assurance that the projected results would be realized or that actual
results would not be significantly higher or lower than those projected. In
addition, these projections were prepared by the Company not with a view to
public disclosure or compliance with the published guidelines of the Securities
and Exchange Commission or the guidelines established by the American Institute
of Certified Public Accountants regarding projections and forecasts, and are
included in this Proxy Statement only because such information was provided to
the Company's Board of Directors and to potential bidders for the entire Company
or certain business segments of the Company, including Zurich and Insurance
Partners, prior to the execution of the Letter of Intent.
WHILE SUCH PROJECTIONS WERE PREPARED IN GOOD FAITH BY THE COMPANY, NO
ASSURANCE CAN BE MADE REGARDING FUTURE EVENTS. THEREFORE, SUCH PROJECTIONS
CANNOT BE CONSIDERED A RELIABLE PREDICTOR OF FUTURE OPERATING RESULTS, AND THIS
INFORMATION SHOULD NOT BE RELIED ON AS SUCH. DUE TO THE SPECULATIVE NATURE OF
PROJECTIONS, NONE OF THE COMPANY, GOLDMAN SACHS, ZURICH, INSURANCE PARTNERS NOR
ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE
FOLLOWING PROJECTIONS. THE PROJECTIONS DO NOT PURPORT TO PRESENT OPERATIONS IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND THE COMPANY'S
INDEPENDENT AUDITORS HAVE NOT EXAMINED, COMPILED OR PERFORMED ANY PROCEDURES
REGARDING THESE PROJECTIONS AND, ACCORDINGLY, ASSUME NO RESPONSIBILITY FOR THEM.
STOCKHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTIONS. THE
PROJECTIONS ARE NOT INCLUDED IN THIS PROXY STATEMENT IN ORDER TO INDUCE ANY
STOCKHOLDER TO VOTE FOR THE APPROVAL AND ADOPTION OF THE AMENDED MERGER
AGREEMENT.
None of the Company, Zurich nor Insurance Partners intends publicly to
update or otherwise publicly to revise the projections to reflect circumstances
existing after May 15, 1995, nor to reflect the occurrence of unanticipated
events, even if experience or future changes in assumed conditions make or have
made it clear that the projections have become or are inaccurate.
40
<PAGE> 48
PROJECTED SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF MAY 1994 AS OF DECEMBER 1994 AS OF MARCH 1995
---------------- -------------------------- --------------------------
1995 1996 1995 1996 1997 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECTED SEGMENT OPERATING EARNINGS:
Asset management(1)............... $125.7 $153.0 $ 77.2 $101.5 $129.5 $ 59.4 $ 85.4 $127.5
Life insurance(2)................. 140.8 161.9 146.1 157.5 170.3 147.5 161.7 176.1
Real estate(3).................... (35.0) (30.0) (26.0) (22.0) (14.4) (29.4) (22.3) (15.1)
Other operations and
corporate(4).................... (32.7) (32.6) (29.8) (30.2) (31.4) (29.6) (30.2) (31.4)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL................................. $198.8 $252.3 $167.5 $206.8 $254.0 $147.9 $194.6 $257.1
Perpetual preferred stock dividends... (8.8) (9.3) (8.8) (9.3) (9.3) (8.8) (9.3) (9.3)
------ ------ ------ ------ ------ ------ ------ ------
EARNINGS AVAILABLE TO COMMON STOCK.... $190.0 $243.0 $158.7 $197.5 $244.7 $139.1 $185.3 $247.8
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Asset management projections as of May 1994 were primarily based on mutual
fund sales more than doubling from 1994 to 1996, with mutual fund
redemptions remaining relatively flat during this period. The material
reductions in asset management projections as of December 1994 and March
1995 were primarily based on reduced sales and increased redemption
activity, which had the effect of reducing projected asset management
revenues and increasing projected amortization expenses associated with
capitalized commission expenses. The adjustments to the projections
reflected the impacts on the Company of investment performance of managed
assets and sales and redemption activity primarily resulting from the
dramatic rise in interest rates throughout 1994 and also reflected impacts
of uncertainties with respect to the Company's ownership.
(2) Life insurance projections were primarily based on (i) improved spreads on
fixed annuity products, in part as a result of continuing efforts to reduce
the level of non-performing real estate-related investments in the life
insurance segment, (ii) increased fees from sales of variable annuity
products, (iii) increased sales of term insurance products and (iv)
continued expense control and favorable mortality results.
(3) Real estate projections as of May 1994 were primarily based on continuing
the Company's efforts to strategically reduce its investments in real
estate, the result of which would be to reduce the amount of joint venture
net operating losses which the Company would report. The material
improvement in real estate projections as of December 1994 and March 1995
was primarily based on assumed improvements in real estate markets.
(4) Other operations and corporate projections were primarily based on
continued reductions in overhead largely offsetting normal increases in
holding company operating and administrative expenses. No material
changes in the Company's capital structure were projected.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
At the Record Date, the following was the only person known to management
who beneficially owns more than 5% of the Company's outstanding Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(A)
- --------------------------------- ---------------------------- -------------------- -----------
<S> <C> <C> <C>
Common Stock ($5 par value) Franklin Resources, Inc. 3,004,044(b) 8.6%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403
</TABLE>
- ---------------
(a) Based on the number of shares of Common Stock outstanding on September 22,
1995 and an assumption that share totals beneficially owned have remained
equal to those last reported to the Company.
(b) Franklin Resources, Inc. has reported that, at December 31, 1994, it or its
investment advisory subsidiaries had sole voting power as to 2,821,444
shares, shared voting power as to 182,600 shares, sole dispositive power as
to no shares and shared dispositive power as to 3,004,044 shares.
41
<PAGE> 49
The following table shows the shares of Common Stock beneficially owned as
of June 1, 1995 by the Company's directors, other persons within the group of
five most highly-compensated executive officers of the Company during 1994, and
all directors and the executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF $5 PAR VALUE
COMMON STOCK PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- --------------------------------------------------------- ---------------------- --------
<S> <C> <C>
John T. Chain Jr......................................... 8,000(1) *
J. Reed Coleman.......................................... 1,518,098(1)(3)(4)(5) 4.4%
Raymond F. Farley........................................ 8,750(1) *
John H. Fitzpatrick...................................... 178,981(2)(5) *
Peter B. Hamilton........................................ 7,000(1) *
George D. Kennedy........................................ 1,500,098(1)(4) 4.3%
David B. Mathis.......................................... 1,842,511(2)(4) 5.3%
Richard D. Nordman....................................... 9,000(1) *
Kenneth A. Randall....................................... 9,711(1) *
Stephen B. Timbers....................................... 139,000(2) *
Daniel R. Toll........................................... 1,501,098(1)(4) 4.3%
James R. Boris(6)........................................ 51,591(2)(5) *
Robert T. Jackson(7)..................................... 50,262(2)(5) *
Charles M. Kierscht(7)................................... 84,160(2) *
Directors and executive officers as a group
(19 persons, including the above)...................... 2,810,456(2)(4) 8.0%
</TABLE>
- ---------------
* Less than 1% of the shares outstanding on September 22, 1995.
(1) Includes 8,000 shares which each of Messrs. Coleman, Farley, Kennedy,
Nordman, Randall and Toll, 7,000 shares which General Chain, and 6,000
shares which Mr. Hamilton, can acquire under stock options granted pursuant
to the Kemper Corporation Non-Management Director Stock Option Plan. All of
such options became exercisable in full when the approval in June 1994 of
the Conseco Merger Agreement activated certain "change of control"
acceleration provisions under such plan. The directors as a group can thus
presently acquire 61,000 shares under these stock options.
(2) Includes the following number of shares which the following persons or group
have the right to acquire pursuant to stock options granted under the
Kemper Corporation 1982. Incentive Stock Option Plan, 1985 Amended Stock
Option Plan or 1990 Stock Option Plan: Mr. Fitzpatrick, 165,540 shares; Mr.
Mathis, 306,765 shares; Mr. Timbers, 131,000 shares; Mr. Boris, 43,218
shares; Mr. Jackson, 42,257 shares; Mr. Kierscht, 63,680 shares; and all
directors and executive officers as a group, 1,100,685 shares. All of such
options granted prior to June 1994 became exercisable in full in connection
with the approval of the Conseco Merger. Options granted Messrs.
Fitzpatrick, Mathis and Timbers and other members of the executive officer
group in April 1995 became fully exercisable pursuant to the Amended Merger
Agreement. (Option shares reflected for Messrs. Jackson and Kierscht are as
of February 1, 1995. See footnote (7) below.)
(3) Excludes 6,592 shares held in several trusts created by Lumbermens for the
prospective retirement benefit of certain Lumbermens officers. As a member
of the distribution committee of these trusts, Mr. Coleman presently shares
voting and investment power over, but disclaims beneficial ownership of,
such shares.
(4) Includes 1,492,098 shares held by Lumbermens, the James S. Kemper
Foundation, American Manufacturers Mutual Insurance Company ("AMM") and
several trusts established for the benefit of Lumbermens' officers which
certain of the Company's directors, to the extent they are also members of
Lumbermens' or AMM's boards of directors, or trustees of the foundation,
could be deemed to control either through voting or dispositive power. Such
directors disclaim beneficial ownership of such shares.
42
<PAGE> 50
(5) Includes shares owned by or for the benefit of the spouse, minor children
or other relatives of the director or executive officer.
(6) Mr. Boris ceased to be an executive officer of the Company on September 13,
1995, in connection with the ESOP Sale and related EVEREN Distribution.
(7) Beneficial ownership reflected as of February 1, 1995, the latest date at
which information was available to the Company. In February 1995, Mr.
Kierscht resigned from the Company's Board of Directors, as well as his
positions as a Company executive officer and his various subsidiary
capacities, and Mr. Jackson resigned as a Company executive officer as well
as his various subsidiary positions.
CERTAIN PENDING LITIGATION
Since March 15, 1994, the Company and certain of its directors, including
directors who are also executive officers, have been named defendants in six
complaints filed in the Court of Chancery in the State of Delaware. The
complaints were brought by stockholders of the Company, individually and
purportedly as class actions on behalf of all other stockholders of the Company.
The complaints allege breaches of fiduciary duty by the Company and its
directors arising primarily from the unsolicited GECC proposal and the
defendants' alleged wrongful actions with respect thereto. The complaints seek
injunctive relief prohibiting the Company from, among other things, utilizing
certain defensive measures. The complaints also seek damages and other relief.
On March 31, 1994, one of the complaints was amended to allege further that,
among other things, the preliminary proxy statement (the "preliminary proxy")
filed by the Company in connection with the 1994 Annual Meeting of Stockholders
that was originally scheduled to be held on May 11, 1994 and was adjourned and
then postponed until December 23, 1994 did not provide full and fair disclosure
with respect to the Agreements or the Board's unanimous decision to reject the
GECC proposal. On April 4, 1994, plaintiffs filed a motion for expedited
discovery with respect to the amended allegations. The Court of Chancery granted
limited discovery with respect to the disclosure contained in the preliminary
proxy concerning the Board's decision. On May 4, 1994, the court heard oral
argument on the motion for a preliminary injunction. As a consequence of the
letter agreement, dated May 8, 1994, between the Company and GECC (see "The
Merger -- Background of the Merger"), and following consultation with the
parties, the Court of Chancery determined to withhold issuance of an opinion
with respect to plaintiffs' motion for a preliminary injunction.
Following Conseco's November 2, 1994 proposed modification of the Conseco
Merger Agreement, plaintiffs moved to file a further amended complaint alleging,
among other things, that "Conseco's revised offer in essence constitutes a
repudiation of its obligations under the merger agreement." The complaint seeks,
among other things, equitable relief ordering the individual defendants "to
create an active auction of the Company" and "to take all steps necessary to
compel Conseco to carry out its obligations under the merger agreement."
Since the commencement of this class action litigation in March 1994,
counsel for plaintiffs have periodically made inquiries -- through discovery
procedures, telephone calls and other requests for information -- about the
Company's efforts to maximize stockholder value. During a conference call on
August 29, 1995, counsel for the Company and Zurich discussed with counsel for
plaintiffs certain aspects of the proposed Merger transaction and the
divestiture of the Company's securities brokerage segment. Specifically, the
parties discussed the Company's efforts to satisfy certain conditions to the
Merger, including the divestiture of the Company's securities brokerage segment.
Counsel for plaintiffs sought clarification with respect to the change in the
nature of the security to be distributed to holders of Common Stock as part of
such divestiture (i.e., the distribution of shares of EVEREN Preferred Stock in
lieu of shares of EVEREN common stock) and confirmation that the Company had
negotiated the terms of the EVEREN Preferred Stock with EVEREN with a view
toward maximizing value for the Company's stockholders. During the course of
such conference call, the parties also discussed the Merger Consideration and
the maximization of stockholder value by way of the Merger.
The terms of a settlement agreement in principle regarding the class action
litigation have been reached, negotiated primarily between counsel for
plaintiffs and counsel for Zurich and Insurance Partners. The
43
<PAGE> 51
agreement in principle provides, INTER ALIA, for the payment of fees of counsel
for plaintiffs in an amount not to exceed $1.2 million, contingent on the
closing of the Merger and other conditions, including approval by the Delaware
Court of Chancery.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
Upon appointment by the Company's Board of Directors, ratified by the
holders of the Company's Common Stock, KPMG Peat Marwick LLP, independent public
accountants, audited and reported on the consolidated financial statements of
the Company and its subsidiaries for the year ended December 31, 1994. Such
financial statements have been incorporated by reference in this Proxy Statement
in reliance upon such report. The Company's Board of Directors appointed KPMG
Peat Marwick LLP as the Company's independent auditors for the year ending
December 31, 1995, and the Company's common stockholders ratified the
appointment of auditors at the Annual Meeting of Stockholders held May 17, 1995.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Special Meeting, will have an opportunity to make a statement if such
representative so desires and will be available to respond to appropriate
questions.
INCORPORATION BY REFERENCE
The following documents, filed by the Company with the Commission, are
incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K filed March 24, 1995 for
the year ended December 31, 1994, as amended by the Company's Form 10-K/A
filed September 28, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q filed May 12, 1995
and August 14, 1995 for the quarters ended March 31, 1995 and June 30,
1995, respectively;
(iii) the Company's Current Reports on Form 8-K filed February 6,
April 12, May 22, July 14, 1995 and September 28, 1995 and dated December
23, 1994, April 3, May 15, May 17, and August 24, 1995, respectively; and
(iv) the Company's Registration Statement on Form 8-A/A filed June 2,
1995.
All reports and definitive proxy or information statements filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement from the dates of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated in this Proxy Statement
shall be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or supersedes such statement.
A copy of the documents incorporated herein by reference (excluding
exhibits unless such exhibits are specifically incorporated by reference into
the information incorporated herein) that are not presented herein or delivered
herewith will be provided without charge to each person, including any
beneficial owner, to whom a Proxy Statement is delivered, upon oral or written
request of any such person and by first-class mail or other equally prompt means
within one business day of receipt of request. Requests should be directed to
John A. Effrein, Director of Investor Relations, Kemper Corporation, One Kemper
Drive, W-2, Long Grove, Illinois 60049 (telephone (708) 320-3435). In order to
ensure timely delivery of the documents in advance of the Special Meeting to
which this Proxy Statement relates, any such request should be made by November
5, 1995.
Statements contained in this Proxy Statement or in any document
incorporated by reference in this Proxy Statement relating to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document
44
<PAGE> 52
filed as an exhibit to this Proxy Statement or such other report or document,
each such statement being qualified in all respects by such reference.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Special Meeting and as of October 17, 1995 does not know of
any other matters that may be brought before the Special Meeting by others. If
any other matter should properly come before the Special Meeting, the persons
named in the enclosed proxy as proxy appointees will have discretionary
authority to vote the shares of Common Stock thereby represented in accordance
with their best judgment.
STOCKHOLDER PROPOSALS
If the Amended Merger Agreement is not approved by the holders of Common
Stock of the Company, it is presently expected that the 1996 Annual Meeting of
Stockholders will be held on May 15, 1996. Stockholder proposals intended to be
presented at that annual meeting in 1996 should be directed to the corporate
secretary of the Company and must be received by the Company no later than
December 4, 1995 for inclusion in the proxy statement and proxy card relating to
that meeting.
KATHLEEN A. GALLICHIO
CORPORATE SECRETARY
October 17, 1995
45
<PAGE> 53
- --------------------------------------------------------------------------------
ANNEX 1
AGREEMENT AND PLAN OF MERGER
AMONG
ZURICH INSURANCE COMPANY,
INSURANCE PARTNERS, L.P.,
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.,
ZIP ACQUISITION CORP.
AND
KEMPER CORPORATION
Dated as of: May 15, 1995
- --------------------------------------------------------------------------------
A1-1
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger........................................................... A1-6
SECTION 1.2 Closing.............................................................. A1-6
SECTION 1.3 Effective Time....................................................... A1-6
SECTION 1.4 Effects of the Merger................................................ A1-6
SECTION 1.5 Certificate of Incorporation; By-laws................................ A1-6
SECTION 1.6 Directors............................................................ A1-7
SECTION 1.7 Officers............................................................. A1-7
ARTICLE II
EFFECT OF THE MERGER ON THE SECURITIES
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock and Preferred Stock.......................... A1-7
(a) Common Stock of ZIP.................................................. A1-7
(b) Cancellation of Treasury Stock....................................... A1-7
(c) Conversion of Common Stock........................................... A1-7
(d) Company Preferred Stock.............................................. A1-7
(e) Dissenting Shares.................................................... A1-8
(f) Cancellation and Retirement of Common Stock.......................... A1-8
SECTION 2.2 Stock Options and Phantom Stock Units................................ A1-8
SECTION 2.3 Exchange of Certificates............................................. A1-9
(a) Paying Agent......................................................... A1-9
(b) Exchange Procedures.................................................. A1-9
(c) No Further Ownership Rights in Common Stock.......................... A1-10
(d) Termination of Payment Fund.......................................... A1-10
(e) No Liability......................................................... A1-10
(f) Investment of Payment Fund........................................... A1-10
(g) Conversion of the Convertible Preferred Stock........................ A1-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company........................ A1-11
(a) Organization, Standing and Corporate Power; Subsidiaries............. A1-11
(b) Capital Structure.................................................... A1-11
(c) Authority; Noncontravention; Binding Effect.......................... A1-13
(d) Government Approvals; Required Consents.............................. A1-14
(e) SEC Documents........................................................ A1-15
(f) Information Supplied................................................. A1-15
(g) Absence of Certain Changes or Events................................. A1-16
(h) Absence of Changes in Benefit Plans.................................. A1-17
(i) Employee Benefits.................................................... A1-17
(j) Litigation........................................................... A1-19
(k) Taxes................................................................ A1-19
(l) No Excess Parachute Payments; Section 162(m) of the Code............. A1-20
(m) Voting Requirements.................................................. A1-20
(n) Compliance with Applicable Laws...................................... A1-20
(o) Fair Value of KFS Sale............................................... A1-22
</TABLE>
A1-2
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(p) ESOP Sale............................................................ A1-22
(q) Dividends............................................................ A1-23
(r) Intercompany Indebtedness............................................ A1-23
(s) Transfer of Real Estate Assets....................................... A1-23
(t) State Street Boston Corporation Common Stock......................... A1-23
(u) Opinion of Financial Advisor......................................... A1-23
(v) Article Fifteenth of the Charter..................................... A1-23
(w) Rights Agreement..................................................... A1-23
(x) Brokers.............................................................. A1-23
(y) Ineligible Persons................................................... A1-24
(z) Insurance Business................................................... A1-24
(aa) Reinsurance.......................................................... A1-25
(bb) Full Disclosure...................................................... A1-25
SECTION 3.2 Representations and Warranties as to ZIP of Zurich, IP,
IP Bermuda and ZIP................................................... A1-25
(a) Organization, Standing and Corporate Power........................... A1-25
(b) Capital Structure.................................................... A1-25
(c) No Prior Activities.................................................. A1-25
(d) Authority; Noncontravention; Binding Effect.......................... A1-25
(e) Governmental Approvals............................................... A1-26
(f) Information Supplied................................................. A1-26
(g) Brokers.............................................................. A1-26
SECTION 3.3 Representations and Warranties of Zurich............................. A1-26
(a) Organization, Standing and Corporate Power........................... A1-26
(b) Authority; Noncontravention; Binding Effect.......................... A1-26
(c) Governmental Approvals............................................... A1-27
(d) Information Supplied................................................. A1-27
(e) Ineligible Persons; Compliance with Section 15(f) of the 1940 Act.... A1-27
SECTION 3.4 Representations and Warranties of Insurance Partners................. A1-28
(a) Organization, Standing and Power..................................... A1-28
(b) Authority; Noncontravention; Binding Effect.......................... A1-28
(c) Governmental Approvals............................................... A1-28
(d) Information Supplied................................................. A1-28
(e) Brokers.............................................................. A1-29
ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PRIOR TO MERGER
SECTION 4.1 Conduct of Business of the Company................................... A1-29
SECTION 4.2 Payment of Dividends; Advances and Cash Proceeds..................... A1-31
SECTION 4.3 KFC Obligations...................................................... A1-32
SECTION 4.4 Sale of State Street Boston Corporation Common Stock................. A1-32
SECTION 4.5 ESOP Sale............................................................ A1-32
SECTION 4.6 Real Estate.......................................................... A1-33
SECTION 4.7 KFS Sale............................................................. A1-34
SECTION 4.8 Sale of Venture Capital Portfolio.................................... A1-34
SECTION 4.9 Tax Returns.......................................................... A1-35
SECTION 4.10 Dividend Reinvestment Plan........................................... A1-35
SECTION 4.11 Subsidiaries......................................................... A1-35
SECTION 4.12 Other Actions........................................................ A1-35
</TABLE>
A1-3
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1 Preparation of Newco Form S-1 and the Proxy Statement................ A1-36
SECTION 5.2 Meeting of Stockholders.............................................. A1-36
SECTION 5.3 Reasonable Efforts................................................... A1-36
SECTION 5.4 Access to Information; Confidentiality............................... A1-36
SECTION 5.5 Indemnification and Insurance........................................ A1-36
SECTION 5.6 Public Announcements................................................. A1-37
SECTION 5.7 No Solicitation...................................................... A1-37
SECTION 5.8 Fiduciary Duties..................................................... A1-38
SECTION 5.9 Consents, Approvals and Filings...................................... A1-38
SECTION 5.10 Company Satisfaction of the Conditions of Section 15 of the 1940
Act.................................................................. A1-39
SECTION 5.11 Advisory Contract Consents........................................... A1-39
SECTION 5.12 Certain Fees and Expenses............................................ A1-39
SECTION 5.13 Compliance with Section 15(f) of the 1940 Act by Zurich.............. A1-41
SECTION 5.14 Financing............................................................ A1-41
SECTION 5.15 Certain Information Regarding Pension Plan Terminations.............. A1-41
SECTION 5.16 Board Action Relating to Stock Options and Phantom Stock Rights...... A1-41
SECTION 5.17 Lumbermens Series C Preferred Stock.................................. A1-42
SECTION 5.18 Merger Preferred Stock............................................... A1-42
SECTION 5.19 Consents............................................................. A1-42
SECTION 5.20 Benefit Plans........................................................ A1-42
SECTION 5.21 Lumbermens Agreement................................................. A1-43
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger........... A1-43
(a) Stockholder Approval................................................. A1-43
(b) Governmental and Regulatory Consents................................. A1-43
(c) HSR Act.............................................................. A1-43
(d) No Injunctions or Restraints......................................... A1-43
(e) Kemper Fund Approvals................................................ A1-43
(f) Advisory Client Approvals............................................ A1-44
(g) Compliance with Section 15(f) of the 1940 Act........................ A1-44
SECTION 6.2 Conditions to Obligations of ZIP, Zurich and Insurance Partners...... A1-44
(a) Representations and Warranties....................................... A1-44
(b) Performance of Obligations of the Company............................ A1-44
(c) Appraisal Rights..................................................... A1-44
(d) Sale of the Asset Management Subsidiary.............................. A1-45
(e) ESOP Sale............................................................ A1-45
(f) New Material Litigation.............................................. A1-45
(g) No Material Adverse Change in Existing Litigation.................... A1-45
(h) No Material Adverse Change........................................... A1-45
(i) Lumbermens Agreement................................................. A1-45
(j) No Event of Default.................................................. A1-45
(k) Stock Options and Phantom Stock Rights............................... A1-45
(l) Board of Directors and Officers...................................... A1-45
SECTION 6.3 Conditions to Obligation of the Company.............................. A1-46
(a) Representations and Warranties....................................... A1-46
(b) Performance of Obligations of ZIP, Zurich and Insurance Partners..... A1-46
SECTION 6.4 Satisfaction of Closing Conditions................................... A1-46
</TABLE>
A1-4
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination.......................................................... A1-47
SECTION 7.2 Effect of Termination................................................ A1-48
SECTION 7.3 Amendment............................................................ A1-48
SECTION 7.4 Extension; Waiver.................................................... A1-48
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties........................ A1-48
SECTION 8.2 Guaranty............................................................. A1-48
SECTION 8.3 Definitions.......................................................... A1-48
SECTION 8.4 Notices.............................................................. A1-49
SECTION 8.5 Interpretation....................................................... A1-52
SECTION 8.6 Counterparts......................................................... A1-52
SECTION 8.7 Entire Agreement; Third-Party Beneficiaries.......................... A1-52
SECTION 8.8 Governing Law........................................................ A1-52
SECTION 8.9 Assignment........................................................... A1-53
SECTION 8.10 Enforcement.......................................................... A1-53
SECTION 8.11 Severability......................................................... A1-53
SECTION 8.12 Fees and Expenses.................................................... A1-53
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 15, 1995 (this "Agreement"),
among Zurich Insurance Company, a corporation organized under the laws of
Switzerland ("Zurich"), Insurance Partners, L.P., a Delaware limited partnership
("IP"), Insurance Partners Offshore (Bermuda), L.P., a Bermuda limited
partnership ("IP Bermuda" and, together with IP, "Insurance Partners"), ZIP
Acquisition Corp., a Delaware corporation ("ZIP"), and Kemper Corporation, a
Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of each of the Company, ZIP,
Zurich and the respective ultimate general partners of IP and IP Bermuda have
adopted resolutions approving this Agreement pursuant to which ZIP will merge
with and into the Company (the "Merger"); and
WHEREAS, Zurich, Insurance Partners, ZIP and the Company wish to make
certain representations, warranties, covenants and agreements in connection with
the Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, Zurich, Insurance Partners, ZIP and the Company hereby agree as
follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), ZIP shall be merged with and into the
Company at the Effective Time (as hereinafter defined). Upon the Effective Time,
the separate existence of ZIP shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation").
SECTION 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York, at 10:00 a.m. on the third business day following
the date on which the conditions set forth in Sections 6.1 and 6.2 (other than
the delivery of the officers' certificates under Sections 6.2(a) and (b) and the
closing condition set forth in Section 6.2(d)) shall be fulfilled or waived in
accordance with this Agreement, (a) unless another date, time or place is agreed
to in writing by the parties hereto or (b) unless, by written notice sent to the
Company prior to such third business day, ZIP elects to delay the Closing until
another later date (which shall not be later than January 4, 1996) (such third
business day or such other date being the "Closing Date").
SECTION 1.3 Effective Time. The Company shall file with the Secretary of
State of the State of Delaware (the "Delaware Secretary of State") on the
Closing Date (or on such other date as the Company and ZIP may agree) a
certificate of merger (the "Certificate of Merger") or other appropriate
documents, executed in accordance with the relevant provisions of the DGCL, and
make all other filings or recordings required under the DGCL in connection with
the Merger. The Merger shall become effective upon the filing of the Certificate
of Merger with the Delaware Secretary of State, or at such later time as is
specified in the Certificate of Merger (the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.5 Certificate of Incorporation; By-laws. (a) The Second Restated
Certificate of Incorporation of the Company (the "Charter"), as in effect
immediately prior to the Effective Time, shall be amended as of the Effective
Time so that (i) the Certificate of Designations, Powers, Preferences and Rights
for the Series B Junior Participating Preferred Stock shall be deleted in its
entirety and (ii) the first sentence of Article Fourth of the Charter shall read
in its entirety as follows: "The total number of shares of all classes of
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capital stock which the Corporation shall have authority to issue is 65,000,000
shares which shall be divided into two classes as follows: 20,000,000 shares of
Preferred Stock, without par value, and 45,000,000 shares of Common Stock, par
value $5.00 per share." and, as so amended, the Charter shall, from and after
the Effective Time, be the Restated Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-laws of the Company as in effect at the Effective Time
shall, from and after the Effective Time, be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.6 Directors. The directors of the Company at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation, until the earlier of their death, resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
SECTION 1.7 Officers. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation, until the earlier of their death, resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
ARTICLE II.
EFFECT OF THE MERGER ON THE SECURITIES
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock and Preferred Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of (i) any shares of Common Stock, par value $5.00 per share, of the Company
(the "Common Stock") or any other shares of capital stock of the Company or (ii)
any shares of capital stock of ZIP:
(a) Common Stock of ZIP. Each share of Common Stock, par value $5.00
per share, of ZIP (the "ZIP Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one share of Common Stock, par value $5.00 per share, of the Surviving
Corporation, which will be duly authorized, validly issued, fully paid and
nonassessable.
(b) Cancellation of Treasury Stock. Each share of Common Stock that
is owned by the Company or by any subsidiary of the Company (other than
shares held in trust accounts, managed accounts, custodial accounts and the
like, shares that are beneficially owned by third parties and shares held
in the ordinary course of business by subsidiaries of the Company that are
insurance companies or broker-dealers) shall automatically be cancelled and
retired and shall cease to exist, and no cash or other consideration shall
be delivered or deliverable in exchange therefor.
(c) Conversion of Common Stock. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to
be cancelled in accordance with Section 2.1(b) and other than Dissenting
Common Shares (as defined in Section 2.1(e)) shall be converted into the
right to receive $49.50 per share, without interest (the "Merger
Consideration").
(d) Company Preferred Stock. Each share of (i) Series A Cumulative
Convertible Preferred Stock of the Company (the "Series A Preferred
Stock"), (ii) Series C Cumulative Preferred Stock of the Company (the
"Series C Preferred Stock"), (iii) Series D Index Exchangeable Preferred
Stock of the Company (the "Series D Preferred Stock") and (iv) Series E
Cumulative Convertible Preferred Stock of the Company (the "Series E
Preferred Stock") issued and outstanding immediately prior to the Effective
Time (other than Dissenting Preferred Shares (as defined in Section 2.1(e))
shall remain outstanding as one duly authorized, validly issued, fully paid
and nonassessable share of Series A Cumulative Convertible Preferred Stock,
Series C Cumulative Preferred Stock, Series D Index Exchangeable Preferred
Stock and Series E Cumulative Convertible Preferred Stock, respectively, of
the Surviving Corporation. The Series A Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock are referred
to collectively as the "Company Preferred Stock."
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(e) Dissenting Shares. (i) Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock issued and outstanding immediately
prior to the Effective Time held by a holder (if any) who has the right to
demand, and who properly demands, an appraisal of such shares in accordance
with Section 262 of the DGCL (or any successor provision) ("Dissenting
Common Shares") shall not be converted into a right to receive Merger
Consideration unless such holder fails to perfect, withdraws or otherwise
loses such holder's right to such appraisal, if any. If, after the
Effective Time, such holder fails to perfect, withdraws or loses such right
to appraisal, each such share of such holder shall be treated as a share
that had been converted at the Effective Time into the right to receive
Merger Consideration in accordance with this Section 2.1. Prior to the
Effective Time, the Company shall give prompt notice to ZIP of any demands
received by the Company for appraisal of shares of Common Stock, and ZIP
shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of ZIP, make any
payment with respect to, or settle or offer to settle, any such demands.
(ii) Notwithstanding anything in this Agreement to the contrary,
shares of Company Preferred Stock issued and outstanding immediately prior
to the Effective Time held by a holder (if any) who has the right to
demand, and who properly demands, an appraisal of such shares in accordance
with Section 262 of the DGCL ("Dissenting Preferred Shares") shall not be
deemed to remain outstanding as of the Effective Time, in accordance with
this Section 2.1, unless such holder fails to perfect, withdraws or
otherwise loses such holder's right to such appraisal, if any. If, after
the Effective Time, such holder fails to perfect, withdraws or loses any
such right to appraisal, such shares shall be treated as if they had
remained outstanding as of the Effective Time, in accordance with this
Section 2.1. Prior to the Effective Time, the Company shall give prompt
notice to ZIP of any demands received by the Company for appraisal of
shares of Company Preferred Stock, and ZIP shall have the right to
participate in and direct all negotiations and proceedings with respect to
such demands. Prior to the Effective Time, the Company shall not, except
with the prior written consent of ZIP, make any payment with respect to, or
settle or offer to settle, any such demands.
(f) Cancellation and Retirement of Common Stock. As of the Effective
Time, all certificates representing shares of Common Stock (other than
certificates representing shares cancelled in accordance with Section
2.1(b) and Dissenting Common Shares) issued and outstanding immediately
prior to the Effective Time, shall no longer be deemed outstanding, and
each holder of a certificate representing any such shares of Common Stock
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration upon surrender of such certificate in
accordance with Section 2.3. At the Effective Time, all certificates
representing Dissenting Common Shares or Dissenting Preferred Shares issued
and outstanding immediately prior to the Effective Time shall no longer be
deemed outstanding and shall cease to have any rights with respect thereto
except the rights referred to in Section 2.1(e).
SECTION 2.2 Stock Options and Phantom Stock Units. (a) As of the date
hereof, the unexercisable portion of each outstanding option (other than each
option cancelled as a result of the exercise of the related Phantom Stock Option
(as defined below)) to purchase shares of Common Stock (a "Company Stock
Option") issued under the Kemper Corporation 1982 Incentive Stock Option Plan,
the Kemper Corporation 1985 Amended Stock Option Plan, the Kemper Corporation
1990 Stock Option Plan and the Kemper Corporation Non-Management Directors Stock
Option Plan (collectively, the "Company Stock Option Plans") and each
outstanding Option Associated Phantom Stock Award (a "Phantom Stock Option")
issued (other than each Phantom Stock Option cancelled in accordance with its
terms) under the Kemper Corporation 1995 Executive Incentive Plan (the "1995
Plan") shall become immediately exercisable in full, subject to all expiration,
lapse and other terms and conditions thereof. Immediately prior to the Effective
Time, the unexercisable portion of each outstanding phantom stock unit issued
under the 1995 Plan (each a "Phantom Stock Unit" and collectively, with the
Phantom Stock Options, the "Phantom Stock Rights") shall become immediately
exercisable in full, subject to all expiration, lapse and other terms and
conditions thereof.
(b) Each Company Stock Option (and any rights thereunder) and Phantom Stock
Right (and any rights thereunder) outstanding immediately prior to the Effective
Time shall be cancelled immediately prior to the
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Effective Time in exchange for the right to receive an amount in cash equal to
the product of (A) the number of shares of Common Stock subject to such Company
Stock Option or such Phantom Stock Right immediately prior to the Effective Time
and (B) the excess, if any, of (1) the Merger Consideration per share of Common
Stock over (2) the per share exercise price or appreciation base ($0 in the case
of the Phantom Stock Units and $45.125 in the case of the Phantom Stock
Options), as the case may be, of such Company Stock Option or such Phantom Stock
Right, to be delivered within ten business days (subject to receipt by ZIP of an
executed consent to the cancellation of all Company Stock Options and Phantom
Stock Rights held by such Person and to the Anti-dilution Actions (as defined
herein)) after the Effective Time from the Paying Agent (as defined herein) out
of the Payment Fund (as defined herein) subject to the terms and conditions of
Section 2.3; provided, however, that, in no event, shall a Person who holds a
Company Stock Option and a related Phantom Stock Right be entitled to payment in
respect of both such Company Stock Option and related Phantom Stock Right.
SECTION 2.3 Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, ZIP shall designate a bank or trust company reasonably
satisfactory to the Company to act as paying agent in the Merger (the "Paying
Agent") for the purpose of effecting the exchange of certificates previously
representing shares of Common Stock for the Merger Consideration and paying
amounts due to the holders of the Company Stock Options and the Phantom Stock
Rights. Immediately prior to the Effective Time, for the benefit of the holders
of shares of Common Stock, the holders of shares of Series A Preferred Stock and
Series E Preferred Stock (together, the "Convertible Preferred Stock") and the
holders of the Company Stock Options and the Phantom Stock Rights, ZIP shall
deposit, or cause to be deposited, with or for the account of the Exchange
Agent, cash in an aggregate amount sufficient to pay the aggregate Merger
Consideration (assuming the full conversion of all outstanding shares of Series
A Preferred Stock and Series E Preferred Stock prior to the Effective Time) and
the aggregate cash consideration payable to the holders of the Company Stock
Options and Phantom Stock Rights under Section 2.2.
(b) Exchange Procedures. (i) Promptly after the Effective Time (but in no
event more than five days thereafter), the Surviving Corporation shall require
the Paying Agent to mail to each holder of record of certificates which
immediately prior to the Effective Time (other than the holders referred to in
Section 2.1(b) or (e)) represented shares of Common Stock which were converted
into the right to receive the Merger Consideration pursuant to Section 2.1, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the certificates shall pass, only upon delivery of
such certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Surviving Corporation may reasonably specify) and (ii)
instructions for use in effecting the surrender in exchange for the Merger
Consideration to which such holder shall be entitled therefor pursuant to
Section 2.1. Upon surrender to the Paying Agent of such certificate, together
with such letter of transmittal, duly executed, and such other documents as
reasonably may be required by the Paying Agent, and acceptance thereof by the
Paying Agent, the holder of such certificate shall be entitled to receive in
exchange therefore the amount of Merger Consideration that such holder has the
right to receive pursuant to Section 2.1(c) of this Agreement, and such
certificate so surrendered shall forthwith be cancelled. The Paying Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof
in accordance with normal exchange practices. If the Merger Consideration (or
any portion thereof) to be paid in the Merger is to be delivered to any person
other than the person in whose name the certificate previously representing
shares of Common Stock surrendered in exchange therefor is registered, it shall
be a condition to such exchange that the certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of such Merger Consideration to a
person other than the registered holder of the certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been paid or
is not applicable. After the Effective Time, there shall be no further transfer
on the records of the Company or its transfer agent of certificates previously
representing shares of Common Stock and if such certificates are presented to
the Company for transfer, they shall be cancelled against delivery of the Merger
Consideration as hereinabove provided. Until surrendered as contemplated by this
Section 2.3(b), each certificate which immediately prior to the Effective Time
represented shares of Common Stock (other than certificates representing shares
cancelled in accordance with
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Section 2.1(b) and Dissenting Common Shares), shall be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender
the Merger Consideration, without any interest thereon, as contemplated by
Section 2.1. No interest will be paid or will accrue on the Merger
Consideration.
(ii) Promptly after the Effective Time (but in no event later than five
business days thereafter), the Surviving Corporation shall, if necessary, cause
the Paying Agent to mail to the holders of Company Stock Options and Phantom
Stock Rights a written notice stating that the Surviving Corporation has
deposited with the Paying Agent the aggregate cash consideration payable to the
holders of such options and rights under Section 2.2 and such consideration
shall be delivered to such holder upon receipt by the Surviving Corporation or
ZIP of an executed consent to the cancellation of such options or rights as
described in Section 2.2.
(c) No Further Ownership Rights in Common Stock. The Merger Consideration
paid upon the surrender for exchange of certificates previously representing
shares of Common Stock in accordance with the terms of this Article II shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Common Stock previously represented by such
certificates, subject, however, to the Surviving Corporation's obligation (if
any) to pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared by the Company on such
shares of Common Stock in accordance with the terms of this Agreement or prior
to the date of this Agreement and which remain unpaid at the Effective Time.
(d) Termination of Payment Fund. In the event that a holder of Dissenting
Common Shares or a holder of Dissenting Preferred Shares (representing
Convertible Preferred Stock) perfects his right to payment for such Dissenting
Common Shares or Dissenting Preferred Shares pursuant to Sections 262 of the
DGCL (or any successor provision), the Paying Agent shall release to the
Surviving Corporation cash equal to the Merger Consideration (or the cash
payable upon conversion of the Convertible Preferred Stock) that would have been
paid to such holder under Section 2.1 if such shares were not Dissenting Common
Shares or Dissenting Preferred Shares. Any portion of the Payment Fund which
remains undistributed to the holders of the certificates representing shares of
Common Stock or the Company Stock Options or Phantom Stock Rights for 120 days
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any holders of shares of Common Stock or Company Stock Options or
Phantom Stock Rights who have not theretofore complied with this Article II
shall thereafter look only to the Surviving Corporation and only as general
creditors thereof for payment of their claim for any Merger Consideration (or,
with respect to Company Stock Options and Phantom Stock Rights, consideration
payable pursuant to Section 2.2).
(e) No Liability. None of Zurich, Insurance Partners, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
cash payable from the Payment Fund delivered to a Governmental Entity (as
defined in Section 3.1(d)) pursuant to any applicable abandoned property,
escheat or similar law. If any certificates which represented shares of Common
Stock shall not have been surrendered or the former holders of any Company Stock
Options or Phantom Stock Rights shall not have received amounts payable under
Section 2.2 prior to five years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of such
certificate, option or right would otherwise escheat to or become the property
of any Governmental Entity), any such cash payable in respect of such
certificate, option or right shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(f) Investment of Payment Fund. The Paying Agent shall invest the Payment
Fund, as directed by ZIP (and after the Effective Time, the Surviving
Corporation), and any net earnings with respect thereto shall be paid to the
Surviving Corporation as and when requested by the Surviving Corporation;
provided, that, any such investment or any such payment of earnings shall not
delay the receipt by holders of shares of Common Stock of the Merger
Consideration or the receipt by holders of shares of Convertible Preferred Stock
of the amounts to which they are entitled with respect to any shares of
Convertible Preferred Stock theretofore converted in accordance with the terms
thereof or receipt by the holders of Company Stock Options or Phantom Stock
Rights of the consideration payable pursuant to Section 2.2 or otherwise impair
such holders' respective rights hereunder. In the event the Payment Fund shall
realize a loss on any such investment, the Surviving Corporation shall promptly
thereafter deposit in such Payment Fund cash in an amount sufficient to
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enable such Payment Fund to satisfy all remaining obligations originally
contemplated to be paid out of such Payment Fund.
(g) Conversion of the Convertible Preferred Stock. Until the Payment Fund
is terminated pursuant to Section 2.3(d), the Surviving Corporation shall, and
shall require the Paying Agent to, make the Payment Fund available for the
purpose of paying any amounts due with respect to any shares of Convertible
Preferred Stock theretofore converted in accordance with the terms thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
represents and warrants to each of ZIP, Zurich and Insurance Partners as
follows:
(a) Organization, Standing and Corporate Power; Subsidiaries. Each of
the Company and each Significant Subsidiary of the Company (as hereinafter
defined) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as
now being conducted. Each of the Company and each Significant Subsidiary of
the Company is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a Material Adverse Effect with respect to the Company. The Company has
delivered to Zurich and Insurance Partners complete and correct copies of
its Charter and By-laws, as amended to the date of this Agreement. Set
forth in Section 3.1(a) of the Disclosure Schedule are the names of all
Real Estate Subsidiaries (with the Excluded Real Estate Subsidiaries noted
by an asterisk). For purposes of this Agreement, a "Significant Subsidiary"
of the Company means each of Kemper Securities Holdings, Inc. ("KSH"),
Kemper Securities, Inc. ("KSI"), Federal Kemper Life Assurance Company
("FKLA"), Kemper Financial Companies, Inc. ("KFC"), Kemper Financial
Services, Inc. ("KFS"), Kemper Investors Life Insurance Company ("KILICO"
and, together with FKLA, the "Insurance Companies") and any other
subsidiary of the Company that would constitute a Significant Subsidiary
within the meaning of Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "SEC"); provided, however, that KSH, KSI and
Kemper Clearing Corp. shall be Significant Subsidiaries only so long as
they are subsidiaries of the Company.
(b) Capital Structure. The authorized capital stock of the Company
consists of (i) 200,000,000 shares of Common Stock and (ii) 20,000,000
shares of preferred stock, without par value (the "Preferred Stock"). At
the close of business on March 31, 1995, (i) 34,521,604 shares of Common
Stock were issued and outstanding, 3,076,856 shares of Common Stock were
reserved for issuance pursuant to outstanding Company Stock Options, 32,626
shares of Common Stock were reserved for issuance upon conversion of Series
A Preferred Stock, 4,755,940 shares of Common Stock were reserved for
issuance upon conversion of shares of Series E Preferred Stock and
31,812,441 shares of Common Stock were held by the Company in its treasury;
(ii) 7,181,157.53 shares of Preferred Stock, consisting of 14,519 shares of
Series A Preferred Stock, 2,000,000 shares of Series C Preferred Stock,
66,638.53 shares of Series D Preferred Stock and 4,600,000 shares of Series
E Preferred Stock, were issued and outstanding; and (iii) 500,000 shares of
Series B Junior Participating Preferred Stock were reserved for issuance
upon exercise of the preferred stock purchase rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of July 18, 1990, between the
Company and Harris Trust and Savings Bank, as rights agent (as amended, the
"Rights Agreement"). Except as set forth in Section 3.1(b) of the
disclosure schedule delivered to ZIP by the Company on the date hereof (the
"Disclosure Schedule"), since April 1, 1995, the Company has not issued any
shares of Preferred Stock or any shares of Common Stock other than (i)
shares of Common Stock issued pursuant to the exercise of any Company Stock
Options outstanding on March 31, 1995, (ii) shares of Common Stock issued
upon conversion of shares of Series A Preferred Stock and shares of Series
E Preferred Stock outstanding on March 31, 1995 and (iii) shares of Common
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Stock issued pursuant to the Kemper Corporation Stock Purchase and Dividend
Reinvestment Plan (the "Dividend Reinvestment Plan"). Other than shares
held in trust accounts, managed accounts, custodial accounts and the like,
shares that are beneficially owned by third parties and shares held in the
ordinary course of business by subsidiaries of the Company that are
insurance companies or broker-dealers, no shares of Common Stock or
Preferred Stock are held by any subsidiary of the Company. There are no
shares of "restricted" Common Stock or any other restricted equity security
of the Company outstanding. At the close of business on March 31, 1995,
there were Company Stock Options representing 3,076,856 shares of Common
Stock outstanding, there were 194,790 Phantom Stock Units outstanding and
there were no Phantom Stock Options outstanding. Except as set forth in
Section 3.1(b) of the Disclosure Schedule, since April 1, 1995, there were
no Company Stock Options, Phantom Stock Units or Phantom Stock Options
issued or granted. So long as the Phantom Stock Options are exercisable, an
identical number of the Company Stock Options related thereto are not
exercisable and upon exercise of any such Phantom Stock Options, the
related Company Stock Options will expire by their terms. On October 19,
1995, all unexercised Phantom Stock Options will expire by their terms.
Except as set forth above or in Section 3.1(a) and (b) of the Disclosure
Schedule, at the close of business on the date hereof, no shares of capital
stock or other equity securities of the Company were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the
Company are, and all shares which may be issued (i) pursuant to Company
Stock Options or the Dividend Reinvestment Plan, (ii) upon the conversion
of the Series A Preferred Stock and the Series E Preferred Stock or the
exchange of the Series D Preferred Stock or (iii) pursuant to the Company's
Anniversary Award Plan will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in Section 3.1(b) of the Disclosure Schedule and as
expressly set forth in this Section 3.1(b) with respect to KFC, no bonds,
debentures, notes or other indebtedness of the Company or any Significant
Subsidiary of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which the stockholders of the Company or any Significant Subsidiary of the
Company may vote are issued or outstanding. Except as disclosed in Section
3.1(b) of the Disclosure Schedule, all the outstanding shares of capital
stock of each Significant Subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are
owned by the Company, by one or more subsidiaries of the Company or by the
Company and one or more such subsidiaries, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Except as set forth above or in
Section 3.1(b) of the Disclosure Schedule and except as expressly set forth
in this Section 3.1(b) with respect to KFC, neither the Company nor any
Significant Subsidiary of the Company has any outstanding option, warrant,
subscription or other right, agreement or commitment which either (i)
obligates the Company or any Significant Subsidiary of the Company to
issue, sell or transfer, repurchase, redeem or otherwise acquire or vote
any shares of the capital stock of the Company or any Significant
Subsidiary of the Company or (ii) restricts the transfer of Common Stock.
Grants of 116,900 and 95,100 restricted shares of Common Stock under the
Kemper Corporation 1993 Senior Executive Long-Term Incentive Plan by the
Board of Directors on May 12, 1993 and April 11, 1994, respectively, were
not approved by the stockholders of the Company and such grants expired by
their terms and currently do not exist. The authorized capital stock of KFC
consists of 150,000,000 shares of common stock, par value $.10 per share,
which shares are divided into 135,000,000 shares of Class A Common Stock
("KFC Class A Common Stock") and 15,000,000 shares of Class B Common Stock
("KFC Class B Common Stock"). At the close of business on March 31, 1995,
(i) 43,268,038 shares of KFC Class A Common Stock and 5,831 shares of KFC
Class B Common Stock were issued and outstanding and, in the case of KFC
Class B Common Stock, not subject as of such date to mandatory redemption,
(ii) 160,595 shares of KFC Class B Common Stock were reserved for issuance
pursuant to outstanding KFC employee stock options (the "KFC Stock
Options"), (iii) no shares of Preferred Stock of KFC were outstanding and
(iv) approximately $32.7 million aggregate principal amount of KFC's
floating rate convertible subordinated debentures (the "KFC Debentures")
were outstanding, which are convertible into an aggregate of 1,153,959
shares of KFC Class B Common Stock. Except as set forth in Section 3.1(b)
of the Disclosure Schedule, since April 1, 1995, KFC has not issued any
securities, stock options or Phantom Stock Rights other than shares of KFC
Class B Common Stock issued pursuant to
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the exercise of KFC Stock Options outstanding on March 31, 1995 and
pursuant to the conversion of KFC Debentures outstanding on March 31, 1995.
All outstanding KFC Debentures are currently redeemable at the option of
KFC. As determined at December 31, 1994 (after taking into account the sale
of approximately 55% of the common stock (the "Newco Common Stock") of a
newly formed company ("Newco") that will be the owner of all the
outstanding shares of KSH to an employee stock ownership plan (the "ESOP"),
the sale of approximately 44% of the Newco Common Stock by KFC to the
Company as payment for intercompany indebtedness, the issuance of
approximately 1% of the Newco non-voting common stock to the management of
KSI and the distribution of approximately 44% of the Newco Common Stock by
the Company to its stockholders pursuant to the terms and conditions set
forth in Exhibit I to the Disclosure Schedule (collectively, the "ESOP
Sale"), the merger of KFS into KFS Acquisition Corp. (the "KFS Sale")
pursuant to the Agreement and Plan of Merger, dated as of the date hereof
(as amended from time to time, the "KFS Agreement"), between the Company,
KFS, KFC, Zurich and KFS Acquisition Corp. and the other transactions
contemplated by this Agreement) in accordance with the terms of KFC's
Fourth Restated Certificate of Incorporation (the "KFC Charter"), the
Formula Purchase Price Per Share (as defined in the KFC Charter) for
repurchases by KFC of shares of the KFC Class B Common Stock would have
been less than $20 per share. At the Effective Time, all KFC Debentures and
shares of KFC Class B Common Stock outstanding will be mandatorily
redeemable by KFC, and all KFC Stock Options will become subject to
expiration in accordance with their terms, unless ZIP exercises its right
under Section 6.2(d) to delay the KFS Sale until after the Effective Time
and provided that Invest Financial Corporation is at least a 50% owned
subsidiary of KFS at the time of the KFS Sale. After the Effective Time,
the holders of the KFC Debentures, the KFC Class B Common Stock and the KFC
Stock Options shall have no rights other than the right to receive payment
therefor (except, in the case of holders of KFC Stock Options, the right to
receive shares of KFC Class B Common Stock upon the exercise thereof) in
accordance with the terms of such securities, unless ZIP exercises its
right under Section 6.2(d) to delay the KFS Sale until after the Effective
Time and provided that Invest Financial Corporation is at least a 50% owned
subsidiary of KFS at the time of the KFS Sale. The exercise prices for all
KFC Stock Options and the conversion prices for all KFC Debentures are $20
or more per share of KFC Class B Common Stock and in each case, are set
forth in Section 3.1(b) of the Disclosure Schedule. As of the date hereof,
each share of outstanding Series A Preferred Stock is convertible into
2.24718 shares of Common Stock and each share of outstanding Series E
Preferred Stock is convertible into 1.0339 shares of Common Stock. Except
for the adjustment required as a result of the ESOP Sale, no event has
occurred that would require the conversion prices for the Series A
Preferred Stock and the Series E Preferred Stock to be adjusted.
(c) Authority; Noncontravention; Binding Effect. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to the approval of its stockholders as set forth in Section 6.1(a)
with respect to the consummation of the Merger, to consummate the
transactions contemplated by this Agreement. The Company and each of its
subsidiaries that is a party to the KFS Agreement or that will be a party
to the ESOP Agreements and the ESOP Credit Agreement (each as defined in
Section 4.5) (collectively, the "Selling Subsidiaries"), has all requisite
corporate power and authority to enter into and to consummate the
transactions contemplated thereby subject, in the case of KFS Agreement, to
the approval of KFC's stockholders with respect to the KFS Sale. The
execution and delivery of this Agreement and the KFS Agreement by the
Company and the Selling Subsidiaries that are parties thereto and the
consummation by the Company and such Selling Subsidiaries of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and such Selling Subsidiaries,
subject, (i) in the case of the Merger, to the approval of the Company's
stockholders as set forth in Section 6.1(a) and (ii) in the case of the KFS
Sale, to the approval of KFC's stockholders. Upon the execution and
delivery of the ESOP Agreements and the ESOP Credit Agreement, the
execution and delivery of the ESOP Agreements and the ESOP Credit Agreement
by the Company and the Selling Subsidiaries that are parties thereto and
the consummation of the transactions contemplated thereby by the Company
and such Selling Subsidiaries will have been duly authorized by all
necessary corporate action on the part of such persons. If any certificate
of designations or certificates of designations are filed with respect to
one or more new series of Preferred
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Stock prior to the Effective Time pursuant to Section 5.18, any such
certificate will have been duly authorized by all necessary corporate
action on the part of the Company. Each of this Agreement, the KFS
Agreement and the Lumbermens Agreement (as hereinafter defined) has been
duly executed and delivered by the Company and the Selling Subsidiaries
that are parties thereto and constitutes a valid and binding obligation of
each of the Company and such Selling Subsidiaries, enforceable against each
such person in accordance with its terms subject, as to enforcement, to
bankruptcy, insolvency, moratorium and other similar laws relating to or
affecting creditors' rights generally and to general equitable principles.
Upon the execution and delivery of the ESOP Agreements and the ESOP Credit
Agreement, each of the ESOP Agreements and the ESOP Credit Agreement will
be duly executed and delivered by the Company and the Selling Subsidiaries
that are parties thereto and shall constitute a valid and binding
obligation of each of the Company and such Selling Subsidiaries,
enforceable against each such person in accordance with its terms subject,
as to enforcement, to bankruptcy, insolvency, moratorium and other similar
laws relating to or affecting creditors' rights generally and to general
equitable principles. The execution and delivery of this Agreement and the
KFS Agreement by each of the Company and the Selling Subsidiaries that are
parties thereto do not, and the execution and delivery of the ESOP
Agreements and the ESOP Credit Agreement by the Company and the Selling
Subsidiaries that are parties thereto, the consummation of the transactions
contemplated by this Agreement, the KFS Agreement, the ESOP Agreements and
the ESOP Credit Agreement by the Company and the Selling Subsidiaries and
compliance with the provisions hereof and thereof by the Company and the
Selling Subsidiaries will not, (i) conflict with any of the provisions of
the Charter or By-laws of the Company or the equivalent documents of any
Significant Subsidiary or any Selling Subsidiary, (ii) subject to the
consents, approvals, authorizations, declarations and filings referred to
in Sections 3.1(d) and 3.1(c) of the Disclosure Schedule, conflict with,
result in a breach of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or require the
consent of any person under, any indenture, agreement, permit, concession,
franchise, license or similar instrument or undertaking to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their assets is bound or affected, or
(iii) subject to the consents, approvals, authorizations, declarations and
filings referred to in Section 3.1(d), contravene any law, rule or
regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, except for such
conflicts, breaches, defaults, rights, consents or contradictions, in the
cases of clauses (ii) and (iii) above, which, singly or in the aggregate,
would not have a Material Adverse Effect with respect to the Company.
Assuming that ZIP and its affiliates and associates do not own beneficially
15% or more of the outstanding shares of Common Stock on the date hereof,
the restrictions contained in Section 203 of the DGCL will not apply to the
Merger or any of the other transactions contemplated by this Agreement.
(d) Government Approvals; Required Consents. No consent, approval or
authorization of, or declaration or filing with, or notice to, any
governmental agency or regulatory authority (a "Governmental Entity") which
has not been received or made, is required by or with respect to the
Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement, the KFS Agreement, the ESOP Agreements and the
ESOP Credit Agreement by the Company and the Selling Subsidiaries or the
consummation by the Company and the Selling Subsidiaries of the
transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), with respect to the
Merger and the KFS Sale, (ii) the approvals, filings and/or notices
required under the insurance laws of the jurisdictions set forth in Section
3.1(d)(ii) of the Disclosure Schedule, (iii) the filing with the SEC (and
with respect to any registration statements, effectiveness) of (w) a proxy
statement relating to the approval by the stockholders of the Company of
the Merger (such proxy statement (including the exhibits thereto and the
documents incorporated by reference therein), as amended or supplemented
from time to time, the "Proxy Statement"), (x) a Registration Statement on
Form S-1 by Newco in connection with the ESOP Sale (such Registration
Statement (including the exhibits thereto and any preliminary prospectus,
final prospectus or summary prospectus contained therein), as amended or
supplemented from time to time,
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<PAGE> 67
the "Newco Form S-1") (y) an information Statement relating to the KFS Sale
to be transmitted to the stockholders of KFC if, at the effective time of
the KFS Sale, KFC has a class of securities registered pursuant to Section
12 of the Exchange Act and (z) such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iv) the filing of the Certificate of Merger, the certificate of
merger relating to the KFS Sale and any certificates of designations with
respect to any new series of Preferred Stock requested pursuant to Section
5.18 with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified
to do business, (v) the consents, approvals and notices as are set forth in
Sections 5.10 and 5.11 of this Agreement required under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), (vi) such other
consents, approvals, authorizations, filings or notices as are set forth in
Section 3.1(d)(vi) of the Disclosure Schedule, (vii) any applicable filings
under state anti-takeover laws, and (viii) filings, authorizations,
consents or approvals the failure to make or obtain which, in the
aggregate, would not have a Material Adverse Effect with respect to the
Company.
(e) SEC Documents. (i) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January
1, 1994 (such reports, schedules, forms, statements and other documents are
hereinafter referred to as the "SEC Documents");
(ii) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be,
and the rules and regulations promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents as of such dates contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and
(iii) The consolidated financial statements of the Company included in
the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments). Except to the
extent that information contained in any SEC Document has been revised or
superseded by a later Filed SEC Document (as defined in Section 3.1(g)),
none of the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) Information Supplied. (i) The Newco Form S-1 will not, at the
time the Newco Form S-1 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Proxy Statement will not, at
the date it is first mailed to the Company's stockholders, at the time of
the Stockholders Meeting (as defined in Section 5.2) and at the Effective
Time, be false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies
for the Stockholders Meeting that has become false or misleading; provided,
however, that, no representation or warranty is made by the Company with
respect to statements made in the Proxy Statement based on information
supplied in writing by ZIP, Zurich or Insurance Partners specifically for
inclusion in the Proxy Statement. The Newco Form S-1 will comply as to form
in all
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material respects with the requirements of the Securities Act and the rules
and regulations promulgated thereunder and the Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder, except that no
representation or warranty is made by the Company with respect to
statements made therein based on information supplied in writing by ZIP,
Zurich or Insurance Partners specifically for inclusion in the Proxy
Statement. The consolidated financial statements of Newco included in the
Newco Form S-1 will comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved and fairly present the consolidated financial
position of Newco and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements,
to normal year-end audit adjustments).
(g) Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed SEC Documents") or in Section 3.1(g) of the
Disclosure Schedule, (x) since the date of the most recent audited
financial statements included in the Filed SEC Documents with respect to
clause (i) hereof and (y) from the date of the most recent audited
financial statements included in the Filed SEC Documents to the date hereof
with respect to clause (ii) hereof:
(i) there has not been any change which would have a Material
Adverse Effect with respect to the Company; and
(ii) the Company and its subsidiaries have conducted their business
only in the ordinary course, and there has not been (A) any declaration,
setting aside or payment of any dividend or other distribution (whether
in cash, stock or property) with respect to any of the Company's
outstanding capital stock (other than the dividend of Newco Common Stock
declared in connection with the ESOP Sale, regular quarterly cash
dividends of $.23 per share of Common Stock and regular cash dividends
on Company Preferred Stock, in each case in accordance with usual record
and payment dates and in accordance with the Company's present dividend
policy), (B) any split, combination or reclassification of any of the
outstanding capital stock of the Company or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of such outstanding capital stock,
(C) any issuance by the Company or any of its subsidiaries of any equity
securities (including, without limitation, stock options, stock
appreciation rights, phantom stock units, restricted stock or
convertible debentures), except for variable life insurance policies or
variable annuity contracts (collectively, "Variable Contracts") issued
by the Insurance Companies that may be deemed to be securities, (D) (x)
any granting by the Company or any of its subsidiaries to any director,
executive officer or other employee of the Company or any of its
subsidiaries (other than KSH and its subsidiaries) of any increase in
compensation, except as was required under employment agreements in
effect as of the date of the most recent audited financial statements
included in the Filed SEC Documents or, with respect to employees who
are not executive officers or directors and whose total annual
compensation in 1994 (including bonuses but excluding stock options,
restricted stock awards and phantom stock awards) was less than
$250,000, increases in the ordinary course of business consistent with
recent past practice, (y) any granting by the Company or any of its
subsidiaries (other than KSH and its subsidiaries) to any such director,
executive officer or other employee of any severance or termination pay,
except as was required under any employment, severance or termination
agreements or plans in effect as of the date of the most recent audited
financial statements included in the Filed SEC Documents or (z) any
adoption by the Company or any of its subsidiaries (other than KSH and
its subsidiaries) of any plan covering any such director, executive
officer or other employee, (E) any change in the indebtedness for
borrowed money or any other material indebtedness of the Company and its
subsidiaries other than (x) in the ordinary course of business of Kemper
Clearing Corp. consistent with recent past practice and (y) indebtedness
owing between the Company and any subsidiary, or between any
subsidiaries of the Company, or (F) any change in accounting,
underwriting or actuarial principles, assumptions
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or practices by the Company or any of its subsidiaries materially
affecting its assets, liabilities or business, except insofar as may
have been required by a change in generally accepted accounting
principles or SAP (as defined in Section 3.1(n)) and except for changes
in crediting rates in the ordinary course of business; provided,
however, that to the extent that they relate to any Excluded Real Estate
Subsidiaries, the representations and warranties in clause (ii) are
given only to the knowledge of the Company.
(h) Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents or in Section 3.1(h) of the Disclosure Schedule, since
the date of the most recent audited financial statements included in the
Filed SEC Documents, there has not been any adoption or amendment in any
material respect by the Company, any of its subsidiaries (other than by the
Excluded Real Estate Subsidiaries and KSH and any of its subsidiaries) or,
to the knowledge of the Company, any of the Excluded Real Estate
Subsidiaries of any collective bargaining agreement or any Benefit Plan (as
defined in Section 3.1(i)). Except as disclosed in the Filed SEC Documents
or in Section 3.1(h) of the Disclosure Schedule, there exist no employment,
consulting, severance, termination or indemnification agreements,
arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director of the
Company, any of its subsidiaries (other than the Excluded Real Estate
Subsidiaries) or, to the knowledge of the Company, any of the Excluded Real
Estate Subsidiaries other than any such agreements, arrangements or
understandings (i) with employees who are not executive officers or
directors, which agreements, arrangements or understandings, in the
aggregate, involve payment obligations of the Company and its subsidiaries
of less than $1,000,000 and (ii) between KSH and any of its subsidiaries
and any current or former employee, officer or director of KSH or any of
its subsidiaries.
(i) Employee Benefits. (i) Except as set forth in Section 3.1(i)(i)
of the Disclosure Schedule, there are no employee benefit plans or
individual or group arrangements of any type (including, without
limitation, plans described in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations thereunder
("ERISA"), executive perquisites, relocation policies or Company-owned
residences acquired from employees), under which the Company has or in the
future could have directly, or indirectly through a person ("Commonly
Controlled Entity") affiliated with the Company under section 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder (the "Code")), any material liability
(whether or not such liability is funded or unfunded) with respect to any
current or former employee or director of the Company or any Commonly
Controlled Entity (the "Benefit Plans"). Except as set forth in Section
3.1(i)(i) of the Disclosure Schedule, no such Benefit Plan is a "multiple
employer plan" (within the meaning of Code section 413) or a "multiemployer
plan" (within the meaning of ERISA section 4001(a)(3)).
(ii) With respect to each Benefit Plan (where applicable): the Company
has delivered to ZIP complete and accurate copies of (A) all plan and trust
texts and agreements which govern the payment of benefits to current or
former employees or directors and all applicable amendments; (B) all
material employee and former employee communications (including the most
recent summary plan descriptions); (C) the most recent annual report; (D)
the most recent annual and periodic accounting of plan assets; (E) the most
recent determination letter received from the Internal Revenue Service (or
determination application); (F) the most recent actuarial valuation; and
(G) all related funding contracts.
(iii) With respect to each Benefit Plan: except as set forth in
Section 3.1(i)(iii) of the Disclosure Schedule or except as not applicable,
(A) if intended to qualify under Code section 401(a) or 401(k), such
Benefit Plan so qualifies, and its related trust is exempt from taxation
under Code section 501(a); (B) such Benefit Plan has been maintained and
administered at all times in compliance with its terms and applicable laws
and regulations; (C) no event has occurred and there exists no circumstance
under which the Company could directly, or indirectly through a Commonly
Controlled Entity, incur liability under ERISA, the Code (including,
without limitation, Section 4980B of the Code) or otherwise (other than
routine claims for benefits); (D) there are no actions, suits or claims
(other than routine claims for benefits) pending or, to the knowledge of
the Company, threatened, with respect to any Benefit Plan or
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against the assets of any Benefit Plan; (E) no "accumulated funding
deficiency" (as defined in ERISA section 302) has occurred; (F) no
"prohibited transaction" (as defined in ERISA section 406 or in Code
section 4975) which is not covered by an applicable exemption has occurred;
(G) no "reportable event" (as defined in ERISA section 4043) has occurred;
(H) all contributions and premiums due have been made on a timely basis;
(I) all contributions made under any Benefit Plan intended to be tax
deductible meet the requirements for deductibility under the Code; (J)
records pertaining to each participant and beneficiary are accurate in all
material respects; and (K) the actuarial assumptions used to calculate all
liabilities have been communicated to ZIP, and all such liabilities have
been allocated in accordance with generally accepted accounting principles
on the books of the Company and the Company's subsidiaries to which such
liabilities relate; except in the case of any of the foregoing where the
failure thereof, either individually or in the aggregate, would not have a
Material Adverse Effect with respect to the Company.
(iv) With respect to each Benefit Plan that is subject to Title IV of
ERISA: except as set forth in Section 3.1(i)(iv) of the Disclosure
Schedule, (A) as of the date of the most recent actuarial valuation, the
present value of all benefit liabilities (as defined in ERISA section
4001(a)(16)) does not exceed the then current fair market value of the
assets of such plan (determined by using the actuarial assumptions used for
the most recent actuarial valuation); (B) the Company has not incurred, nor
will it incur, directly, or indirectly through a Commonly Controlled
Entity, any liability arising from a plan termination (including plans that
have been formally terminated); (C) the Company has complied with all laws,
regulations and pronouncements pertaining to the termination of any such
Benefit Plan, including, but not limited to, the selection of an insurance
company to provide benefits under such terminated Benefit Plan; and (D) the
Company has taken all commercially reasonable actions to insulate assets of
any such Benefit Plan from depreciating in value except in the case where
any of the foregoing, either individually or in the aggregate, would not
have a Material Adverse Effect with respect to the Company.
(v) Except as set forth in Section 3.1(i)(v) of the Disclosure
Schedule, with respect to those Benefit Plans that are "welfare plans" (as
defined in section 3(1) of ERISA) there are no reserves, assets, surpluses
or prepaid premiums under any such plans the existence of which, either
individually or in the aggregate, would have a Material Adverse Effect with
respect to the Company.
(vi) Except as set forth in Section 3.1(i)(vi) of the Disclosure
Schedule, neither the approval or execution of this Agreement, nor the
consummation of the transactions contemplated by this Agreement will (A)
entitle any individual to severance pay or (B) accelerate the time of
payment or vesting of, or increase the amount of, compensation due to any
individual; except in the case where any of the foregoing, either
individually or in the aggregate, would not have a Material Adverse Effect
with respect to the Company.
(vii) Except as disclosed in Section 3.1(i)(vii) of the Disclosure
Schedule or where the existence of any of the following, either
individually or in the aggregate, would not have a Material Adverse Effect
with respect to the Company, (A) there is no labor strike, slowdown or work
stoppage or lockout pending or, to the best knowledge of the Company,
threatened against or affecting the business of the Company or any of its
subsidiaries, and the Company and its subsidiaries have not experienced any
strike, slow down or work stoppage, lockout or other collective labor
action within the last three years; (B) neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to employees of the Company or its
subsidiaries nor does the Company know of any activities or proceedings of
any labor union to organize any such employees currently taking place or
planned or that have occurred within the last three years; and (C) there is
no representation claim or petition pending before the National Labor
Relations Board and no question concerning representation exists relating
to the employees of the Company and its subsidiaries.
(viii) No guaranteed interest contracts issued by any insurance
company that is currently insolvent, or has been in insolvency proceedings,
are held by any of the Benefit Plans except for such contracts, which,
either individually or in the aggregate, would not have a Material Adverse
Effect with respect to the Company.
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(ix) Within the five year period ending on the date of this Agreement,
neither the Company nor any member of its "controlled group" (within the
meaning of Section 4069 of ERISA) has engaged in any transaction which
could result in liability to any of the parties to this Agreement, or to
any other members of their respective controlled groups (as above so
defined), pursuant to Section 4069 of ERISA or otherwise with respect to
any Benefit Plan maintained by the Company or any other member of its
controlled group (as above so defined) during such five-year period, but
not so maintained as of the date of this Agreement, except where the
existence of such a liability would not have a Material Adverse Effect with
respect to the Company.
(j) Litigation. As of the date of this Agreement, except as disclosed
in Section 3.1(j) of the Disclosure Schedule or the Filed SEC Documents,
there is no suit, action, proceeding, arbitration or investigation pending
or, to the knowledge of the Company, threatened against the Company or any
subsidiary of the Company that, individually or in the aggregate with any
other such suits, actions, proceedings, arbitrations or investigations,
could reasonably be expected to have a Material Adverse Effect with respect
to the Company, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the
Company or any subsidiary of the Company that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
with respect to the Company.
(k) Taxes. (i) Except as set forth in Section 3.1(k)(i) of the
Disclosure Schedule, each of the Company, its subsidiaries (other than the
Excluded Real Estate Subsidiaries) and, to the knowledge of the Company,
the Excluded Real Estate Subsidiaries has filed all tax returns and reports
required to be filed by it or requests for extensions to file such returns
or reports have been timely filed, granted and have not expired. All tax
returns filed by the Company and each of its subsidiaries are complete and
accurate except to the extent that such failure to be complete and accurate
would not have a Material Adverse Effect with respect to the Company. The
Company and each of its subsidiaries (other than the Excluded Real Estate
Subsidiaries) and, to the knowledge of the Company, the Excluded Real
Estate Subsidiaries has paid (or the Company has paid on the subsidiaries'
behalf) all taxes shown as due on such returns, and the most recent
financial statements contained in the Filed SEC Documents reflect, in
management's best judgment, an adequate reserve for all taxes payable by
the Company and its subsidiaries (other than the Excluded Real Estate
Subsidiaries) and, to the knowledge of the Company, the Excluded Real
Estate Subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) Except as set forth on Section 3.1(k)(ii) of the Disclosure
Schedule, no deficiencies for any taxes have been proposed, asserted,
assessed or threatened against the Company, any of its subsidiaries (other
than the Excluded Real Estate Subsidiaries) or, to the knowledge of the
Company, any of the Excluded Real Estate Subsidiaries that are not
adequately reserved for and no requests for waivers of the time to assess
any Federal or Illinois taxes or any other material taxes have been granted
or are pending. The Federal and Illinois income tax returns of the Company
and each of its subsidiaries consolidated in such returns have been
examined by and settled with the United States Internal Revenue Service or
the Illinois Department of Revenue, as the case may be, or the statute of
limitations on assessment or collection of any Federal or Illinois income
taxes due from the Company or any of such subsidiaries has expired, for all
taxable years of the Company or any of such subsidiaries through the
taxable year ended December 31, (a) 1986 for Federal income taxes, (b) 1979
for Illinois insurance unitary income taxes and (c) 1987 for Illinois
non-insurance unitary income taxes. None of the Company or any such
subsidiaries has made an election to be treated as a "consenting
corporation" under Section 341(f) of the Code. Except as previously
described to Zurich and Insurance Partners, there is no material deferred
inter-company gain within the meaning of the Treasury Regulations
promulgated under Section 1502 of the Code.
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise, employment,
payroll, withholding and other taxes, tariffs or governmental charges of
any nature whatsoever.
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(iv) Each Insurance Company is a "life insurance company" within the
meaning of section 816 of the Code. All tax reserves of such Insurance
Companies have been determined in accordance with the requirements of
section 807 or the Code. Except as set forth in Section 3.1(k)(iv) of the
Disclosure Schedule, neither of the Insurance Companies is subject to any
adjustment under Section 807(f) of the Code.
(v) The Company has (i) properly elected to file a life/non-life
consolidated return under Section 1504(c)(2) of the Code and Treasury
Regulations Section 1.1502-47, and (ii) will file a life/ non-life
consolidated return for the Company and its consolidated group
subsidiaries, including KILICO and FKLA, for its 1995 taxable year.
(vi) The amount of the policy-holders' surplus account (as defined in
Section 815 of the Code) of each of the Insurance Companies is accurately
set forth in Section 3.1(k)(vi) of the Disclosure Schedule.
(vii) Each of the Kemper Funds (as defined herein) has elected to be
treated as a "regulated investment company" ("RIC") under the Code, and
has, since the end of the most recent taxable year of each of such Kemper
Funds that has been closed and for which the statute of limitations for
assessment has expired, qualified as a RIC.
(l) No Excess Parachute Payments; Section 162(m) of the Code. (i)
Except as disclosed in Section 3.1(l) of the Disclosure Schedule, no
payment, either individually or in combination with any other payment or
payments, that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of the Company or any
of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation
arrangement or Benefit Plan currently in effect will be an "excess
parachute payment" (as such term is defined in section 280G(b)(1) of the
Code).
(ii) Except as disclosed in Section 3.1(l) of the Disclosure Schedule,
the disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any subsidiary (other than an Excluded Real Estate Subsidiary)
of the Company under any contract, Benefit Plan, program, arrangement or
understanding currently in effect.
(m) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote thereon
at the Stockholders Meeting with respect to the approval of the Merger is
the only vote of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.
(n) Compliance with Applicable Laws. (i) Each of the Company and its
subsidiaries and the Kemper Funds (as defined below) has in effect all
Federal, state, local and foreign governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights
("Permits") necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has
occurred no default under any such Permit, except for the lack of Permits
and for defaults under Permits which lack or default individually or in the
aggregate would not have a Material Adverse Effect with respect to the
Company. Except as disclosed in the Filed SEC Documents, the Company and
its subsidiaries and the Kemper Funds are in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for possible noncompliance which individually
or in the aggregate would not have a Material Adverse Effect with respect
to the Company. Except as disclosed in the Filed SEC Documents and except
for regular and routine examinations by state Governmental Entities charged
with supervision of insurance companies ("Insurance Regulators"), on the
date of this Agreement, to the knowledge of the Company, no investigation
by any Governmental Entity with respect to the Company or any of its
subsidiaries or any of the Kemper Funds is pending or threatened, other
than, in each case, those that would not have a Material Adverse Effect
with respect to the Company. For purposes of this Agreement, the "Kemper
Funds" shall mean
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the registered investment companies for which the Company or any subsidiary
acts as investment adviser or sub-adviser.
(ii) The Annual Statements (including without limitation the Annual
Statements of any separate accounts) for the year ended December 31, 1994,
together with all exhibits and schedules thereto, and financial statements
relating thereto, and any actuarial opinion, affirmation or certification
filed in connection therewith, and the Quarterly Statements for the periods
ended after January 1, 1995, together with all exhibits and schedules
thereto, with respect to each subsidiary of the Company that is a regulated
insurance company (a "Regulated Insurance Company"), in each case as filed
with the Insurance Regulator of its jurisdiction of domicile, were prepared
in conformity with statutory accounting practices prescribed or permitted
by such Insurance Regulator ("SAP") applied on a consistent basis (except
as set forth in the notes, exhibits or schedules thereto), present fairly,
to the extent required by and in conformity with SAP, the statutory
financial condition of such Regulated Insurance Company at their respective
dates and the results of operations, changes in capital and surplus and
cash flow of such Regulated Insurance Company for each of the periods then
ended, and were correct in all material respects when filed and there were
no material omissions therefrom when filed. No deficiencies or violations
material to the financial condition or operations of any Regulated
Insurance Company have been asserted in writing by any Insurance Regulator
which have not been cured or otherwise resolved to the satisfaction of such
Insurance Regulator and which have not been disclosed in writing to Zurich
and Insurance Partners prior to the date of this Agreement.
(iii) Section 3.1(n)(iii) of the Disclosure Schedule contains a
complete list of all of the Kemper Funds as of the date of this Agreement.
The Company or one of its subsidiaries acts as investment adviser pursuant
to valid, binding and enforceable investment advisory agreements for all
the Kemper Funds listed in Section 3.1(n)(iii) of the Disclosure Schedule
(which agreements will terminate upon the consummation of the transactions
contemplated hereby). Except as set forth on Section 3.1(n)(iii) of the
Disclosure Schedule, there is no money management operation of the Company
or any of its subsidiaries outside the United States other than the money
management operation of Kemper Investment Management Company Limited.
(iv) Since January 1, 1994, each of the Kemper Funds has complied with
the requirements of all laws, rules and regulations applicable to it
including, without limitation, the 1940 Act, the Securities Act, the
Exchange Act, the Commodities Exchange Act, as amended, ERISA, the Code and
all state Blue Sky laws, and the rules and regulations promulgated under
the foregoing, and has filed with the SEC and all other appropriate
regulatory authorities all proxy materials, registration statements,
financial reports, prospectuses and other reports and documents required to
be filed by it pursuant to applicable laws, and the rules and regulations
thereunder, except any filings customarily made by a distributor or
principal underwriter on behalf of any Kemper Fund in connection with the
underwriting, distribution or sale of any Kemper Fund shares that may be
required pursuant to any applicable securities laws or under any
governmental or self-regulatory authority, which filings have been made by
the Company or an affiliate of the Company if the Company or an affiliate
has acted in such capacity (collectively, the "Fund Filings"), except to
the extent that any noncompliance or failure to file, either individually
or in the aggregate, would not have a Material Adverse Effect with respect
to the Company. The Company has made available to ZIP true and complete
copies of all Fund Filings. The Fund Filings (A) complied in all material
respects with the requirements of applicable law and (B) did not (as of
their respective filing dates, mailing dates or effective dates, as the
case may be) contain any untrue statement of a material fact or omit to
state a material fact required to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(v) Section 3.1(n)(v) of the Disclosure Schedule contains a complete
list of all of the separate accounts (the "Separate Accounts") of the
Insurance Companies as of the date of this Agreement. Since January 1,
1994, each of the Separate Accounts of the Insurance Companies has complied
in all material respects with the requirements of all laws, rules and
regulations applicable to it including, without limitation, the 1940 Act,
the Securities Act, the Exchange Act and all state Blue Sky laws and the
rules and regulations promulgated under the foregoing, and has filed with
the SEC and all other appropriate
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regulatory authorities all proxy materials, registration statements,
financial reports, prospectuses and other reports and documents required to
be filed by it pursuant to applicable laws, and the rules and regulations
promulgated thereunder (collectively, the "Separate Account Filings"). The
Separate Account Filings (1) complied in all material respects with the
requirements of applicable law and (2) did not (as of their respective
filing dates, mailing dates or effective dates, as the case may be) contain
any untrue statement of a material fact or omit to state a material fact
required to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(vi) All proxy statements to be prepared for use by the Kemper Funds
in connection with the transactions contemplated by this Agreement and the
KFS Agreement (including, without limitation, the proxy statements to be
used for the purpose of soliciting voting instructions from the holders of
Variable Contracts issued by the Insurance Companies), any written
information provided by the Company and its subsidiaries to each Board of
Directors or Trustees or other comparable body of the Kemper Funds in
connection with this Agreement or the transactions contemplated hereby at
the time such information is provided and, in the case of a proxy
statement, the date of the shareholder vote for which such proxy statement
will be used, as then amended or supplemented, and any information
disseminated to any advisory clients in respect of the transactions
contemplated hereby at the time such information is disseminated (other
than, in each case, for information provided or to be provided by ZIP in
writing relating to ZIP or its affiliates expressly for use therein), in
each case, will be accurate and complete in all material respects and will
not be false or misleading with respect to a material fact, or omit to
state any material fact required to make the statements therein, in the
light of the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier communication that has
become false or misleading.
(vii) Each of the Company and each of its subsidiaries (other than the
Excluded Real Estate Subsidiaries) is, if so required by the nature of its
business or assets, duly registered with the SEC and the various states as
a broker-dealer and is duly registered with the Commodity Futures Trading
Commission and the various states as required as a commodities trading
advisor or commodity pool operator. Each of the Company and each of its
subsidiaries (other than the Excluded Real Estate Subsidiaries) is, if so
required by the nature of its business or assets, duly registered with the
various states as an investment adviser, other than in such states where
the failure to be so registered (individually or in the aggregate) would
not have a Material Adverse Effect with respect to the Company.
(viii) The Company and its subsidiaries have complied with the
requirements of Section 15(f)(1)(B) of the 1940 Act that there not be
imposed an "unfair burden" on any of the Kemper Funds as a result of the
Merger, the KFS Sale or the transactions contemplated hereby or thereby or
any express or implied terms, conditions or understandings applicable
thereto.
(o) Fair Value of KFS Sale. As contemplated by Section 1009 of each
of (i) the Indenture, dated as of January 15, 1987, between the Company and
The Chase Manhattan Bank, N.A., as amended and supplemented (the "Chase
Indenture"), and (ii) the Indenture, dated as of September 15, 1993 between
the Company and The First National Bank of Chicago, as amended and
supplemented (the "First Chicago Indenture"), the Board of Directors of the
Company has, by resolution duly adopted in accordance with the DGCL,
declared that the merger of KFS into KFS Acquisition Corp. in the KFS Sale
is for consideration at least equal to the fair value thereof.
(p) ESOP Sale. As of the date hereof, the Company has delivered to
ZIP true and complete copies of the most recent draft of the Newco S-1. The
Company and its subsidiaries shall not retain any liabilities (whether
directly or indirectly through guaranties, keepwell agreements, similar
arrangements or otherwise) of Newco and its subsidiaries (including,
without limitation, liabilities attributable to employees, former
employees, directors and consultants of KSH and its subsidiaries) upon
completion of the ESOP Sale and shall not incur any liabilities in
connection with the ESOP Sale other than those liabilities set forth in
Section 3.1(p) of the Disclosure Schedule. After the Effective Time,
neither Newco nor any of its subsidiaries shall be permitted to use the
Kemper name except to the extent set forth in Section 3.1(p) of the
Disclosure Schedule. Prior to the ESOP Sale, the Board of Directors of the
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Company will have, by resolution duly adopted in accordance with the DGCL,
stated that none of Newco, KSH or KSI is a Restricted Subsidiary within the
meaning ascribed to such term in Section 101 of each of the Chase Indenture
and the First Chicago Indenture. The ESOP Sale and the transfer of Newco
Common Stock in accordance with Section 2.1 will not result in or cause the
occurrence of an Event of Default (as defined in the Chase Indenture and
the First Chicago Indenture) or an event or condition that, with the giving
of notice or lapse of time, would become an Event of Default or result in a
prohibited transaction under either ERISA or the Code.
(q) Dividends. Pursuant to the terms of the Charter and Certificates
of Designations relating to the Company Preferred Stock, the Company has
declared and paid all scheduled dividends to the holders of the Company
Preferred Stock, except for (i) the scheduled cash dividend declared on the
Series D Preferred Stock in April 1995, which will be paid on May 31, 1995
and (ii) scheduled cash dividends declared on the Company Preferred Stock
after the date hereof and which are payable after the Closing Date. As of
the date hereof, the Company has paid all dividends declared on all shares
of its Common Stock, except for the quarterly cash dividend of $.23 per
share of Common Stock declared on April 18, 1995, which will be paid on May
31, 1995.
(r) Intercompany Indebtedness. Section 3.1(r) of the Disclosure
Schedule sets forth as of March 31, 1995, the amount of all intercompany
indebtedness (i) among the Company and any of its subsidiaries, on the one
hand, and KFC and any of its subsidiaries, on the other hand, and (ii)
among the Company and any of its subsidiaries, on the one hand, and KSH and
any of its subsidiaries, on the other hand. Except as set forth in Section
3.1(r) of the Disclosure Schedule, the amount of intercompany indebtedness
owing by KFC to the Company at March 31, 1995 has not been reduced.
(s) Transfer of Real Estate Assets. Between January 1, 1995 and the
date hereof, there has been no sale, transfer or other disposal of real
estate assets between the Company and any of its subsidiaries or between
any of such subsidiaries other than the transfers of the real estate assets
described in Section 3.1(s) of the Disclosure Schedule; provided, however,
that the sale, transfer or other disposition of real estate assets between
the Company and the Insurance Companies described in Section 3.1(s) of the
Disclosure Schedule involve assets with a book value not in excess of $5
million in the aggregate.
(t) State Street Boston Corporation Common Stock. As of the date
hereof, KFS owns beneficially and of record 2,986,111 shares of common
stock of State Street Boston Corporation, free and clear of all Liens.
(u) Opinion of Financial Advisor. The Company has received the
opinion of Goldman, Sachs & Co., dated the date hereof, to the effect that,
on such date, the consideration to be received in the Merger by the
Company's stockholders is fair to the Company's common stockholders from a
financial point of view.
(v) Article Fifteenth of the Charter. The Board of Directors of the
Company (including a majority of the "Continuing Directors," as defined in
the Charter) has approved the execution and delivery by the Company of this
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement, and such approval is sufficient to render
inapplicable to this Agreement, the Merger and the other transactions
contemplated by this Agreement the restrictions contained in Article
Fifteenth of the Charter.
(w) Rights Agreement. The Rights Agreement has been duly amended
pursuant to the Second Amendment to the Rights Agreement between the
Company and Harris Trust and Savings Bank, as rights agent, attached hereto
as Exhibit A, and the Rights Agreement, as amended by such Second
Amendment, is in full force and effect. No Distribution Date (as such term
is defined in the Rights Agreement) has occurred.
(x) Brokers. No broker, investment banker, financial advisor or other
person, other than Goldman, Sachs & Co., the fees and expenses of which
have been disclosed in writing to ZIP and which will be paid by the
Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or
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commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
(y) Ineligible Persons. None of the Company or any "affiliated
person" (as defined in the 1940 Act) thereof (i) is ineligible pursuant to
Section 9(a) of the 1940 Act to serve as an investment adviser (or in any
other capacity contemplated by the 1940 Act) to a registered investment
company or (ii) except as set forth in Section 3.1(y) of the Disclosure
Schedule, to the knowledge of the senior officers of the Company on the
date hereof, has engaged in any of the conduct specified in Section 9(b) of
the 1940 Act of Section 203(e) of the Advisers Act prior to the date hereof
that would be reasonably likely to result in SEC action to disqualify the
Company or any of its affiliates as an investment adviser.
(z) Insurance Business. (i) All insurance policies and annuity
contracts (including, without limitation, certificates issued pursuant to
group policies or contracts, riders and endorsements to such certificates,
contracts or policies, and contracts issued in connection with retirement
plans or arrangements) issued by the Insurance Companies (collectively, the
"Policies") are, to the extent required by the insurance laws of each
jurisdiction in which an Insurance Company is authorized to do business, on
forms that have been approved by the Insurance Regulator of each such
jurisdiction (or have been filed with and not objected to by the relevant
Insurance Regulator within the time for objection), except when the failure
to obtain any necessary approval (or to make such filing) would not have a
Material Adverse Effect with respect to the Company.
(ii) Except to the extent funded by the Separate Account of either
Insurance Company, or as set forth on Section 3.1(z)(ii) of the Disclosure
Schedule, no Policy gives the holder thereof the right to receive
dividends, distributions or other benefits based on the earnings or
revenues of such Insurance Company.
(iii) Except as disclosed in writing to Zurich and Insurance Partners,
(A) all Policies issued by either Insurance Company that are intended to
qualify as "life insurance contracts" meet the requirements of sections
7702 and 817(h) of the Code; (B) all Policies that are intended to qualify
as "annuity contracts" (excluding annuity contracts described in sections
72(s)(5) or 72(u) of the Code) meet the requirements of sections 72(s) and
817(h) of the Code; (C) all Policies that are intended to qualify under
sections 403(a), 403(b) or 408 of the Code contain all provisions required
by the Code for qualification under such sections; (D) any Policy or
product (including any "prototype plan") marketed in connection with any
Policy that is intended to meet formal requirements imposed by sections 401
or 457 of the Code meet all such requirements; (E) the Separate Accounts
supporting Variable Contracts of each Insurance Company, and each
subaccount of such Separate Accounts, have been operated in compliance with
the diversification requirements of Section 817(h) of the Code and the
regulations thereunder since their enactment; and (F) each Insurance
Company has adequate administrative measures in place to ensure that each
such Separate Account and subaccount is maintained in compliance with the
diversification rules of section 817(h) of the Code and the regulations
thereunder.
(iv) To the knowledge of the Company, each insurance agent, at the
time such agent wrote, sold or produced business for any Insurance Company,
was duly licensed as an insurance agent (for the type of business written,
sold, or produced by such insurance agent) in the particular jurisdiction
in which such agent wrote, sold or produced such business, and no such
insurance agent is in violation (or with or without notice or lapse of time
or both, would be in violation) of any term or provision of any law or any
writ, judgment, decree, injunction or similar order applicable to the
writing, sale or production of business for any Insurance Company except
when any such failure to be licensed or such violation would not have a
Material Adverse Effect with respect to the Company.
(v) There has been no violation of the provisions of Section 404 or
406 of ERISA or Section 4975 of the Code with respect to any "plan assets"
(within the meaning of Section 2510.3-101 of the Department of Labor
regulations) held under the general account of the Company or of any
affiliate of the Company, except where such a violation would not have a
Material Adverse Effect with respect to the Company.
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(aa) Reinsurance. Section 3.1(aa) of the Disclosure Schedule sets
forth as of the date hereof all contractual treaties and agreements
regarding reinsurance, coinsurance, excess insurance, ceding of insurance,
assumption of insurance or indemnification with respect to insurance to
which FKLA or KILICO is a party (collectively, the "Reinsurance
Agreements"). Each of the Reinsurance Agreements is valid and binding in
all material respects in accordance with its terms on FKLA or KILICO, as
the case may be. The Reinsurance Agreements are in material compliance with
applicable insurance laws and regulations regarding life and health
reinsurance agreements. To the knowledge of the Company, any amount
recoverable by FKLA and KILICO under the Reinsurance Agreements is fully
collectible in due course. Neither FKLA nor KILICO nor, to the knowledge of
the Company, any other party thereto, is in default in any material respect
under any Reinsurance Agreement and, to the knowledge of the Company, there
is no reason to believe that the financial condition of any such other
party is impaired to the extent that a default thereunder may reasonably be
anticipated.
(bb) Full Disclosure. To the knowledge of the Company, no information
given by the Company to ZIP, Zurich or Insurance Partners or their advisers
relating to the material matters listed on Section 3.1(bb)(i) of the
Disclosure Schedule contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances in which
made, not materially false or misleading. To the knowledge of the Company,
the Company has made available (or has caused its subsidiaries to make
available) to Zurich, Insurance Partners and ZIP and their advisers true,
correct and complete copies of all material agreements and documents
pertaining or which relate to the real estate assets owned by the Company
and its subsidiaries. To the knowledge of the Company, none of the
agreements and documents described in the preceding sentence contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made, in
the light of circumstances in which made, not materially false or
misleading, except for any such misstatement or omission which would not
have a material adverse effect on the aggregate fair market value of the
real estate assets owned by the Company and its subsidiaries (other than
the real estate assets described in Section 3.1(bb)(ii) of the Disclosure
Schedule).
SECTION 3.2. Representations and Warranties as to ZIP of Zurich, IP, IP
Bermuda and ZIP. Each of Zurich, IP, IP Bermuda and ZIP, jointly and severally,
represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. ZIP is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of ZIP consists of (i) 1,000 shares of ZIP Common Stock and (ii)
1,000 shares of preferred stock, without par value. All of the outstanding
shares of capital stock of ZIP have been validly issued and are fully paid
and nonassessable and are owned, directly or indirectly, by Zurich, IP or
IP Bermuda, free and clear of all Liens. Zurich directly or indirectly owns
a majority of the issued and outstanding shares of ZIP Common Stock. As of
the date hereof, ZIP has no indebtedness for borrowed money outstanding,
and at the Effective Time, ZIP will have no indebtedness for borrowed money
outstanding except for indebtedness incurred in connection with the
financing of the Merger.
(c) No Prior Activities. ZIP is a newly formed corporation and,
except for activities incident to the Merger and as contemplated by this
Agreement, ZIP (i) has not engaged in any business activities of any type
or kind whatsoever, (ii) has not entered into any agreements or
arrangements with any person or entity and (iii) is not subject to or bound
by any obligation or undertaking.
(d) Authority; Noncontravention; Binding Effect. ZIP has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by ZIP and the consummation by ZIP of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of ZIP and by the stockholders
of ZIP. Each of this Agreement and the Lumbermens Agreement has been duly
executed and delivered by ZIP and constitutes a valid and binding
obligation of
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ZIP, enforceable against ZIP in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, moratorium and other similar laws
relating to or affecting creditors' rights generally and to general
equitable principles. The execution and delivery of this Agreement by ZIP
do not, and the consummation of the transactions contemplated by ZIP by
this Agreement and compliance with the provisions of this Agreement by ZIP
will not (i) conflict with any of the provisions of the Certificate of
Incorporation or By-laws of ZIP or (ii) subject to the consents, approvals,
authorizations, declarations and filings referred to in Section 3.2(e)
below, contravene any law, rule or regulation of any state or of the United
States or any political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in effect,
except for such consents or contraventions, in the case of clause (ii),
which, singly or in the aggregate, would not have a material adverse effect
on the business, financial condition or results of operations of ZIP, or
would not adversely affect the ability of ZIP to consummate the
transactions contemplated by this Agreement in any material respect.
(e) Governmental Approvals. No consent, approval or authorization of,
or declaration or filing with, or notice to any Governmental Entity which
has not been received or made is required by or with respect to ZIP in
connection with the execution and delivery of this Agreement by ZIP or the
consummation by ZIP of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report
forms under the HSR Act, with respect to the Merger, (ii) the filings
and/or notices required under the insurance laws of the jurisdictions set
forth in Section 3.1(d)(ii) of the Disclosure Schedule, (iii) the filing of
the certificate of merger with the Delaware Secretary of State, and
appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (iv) such other consents,
approvals, authorizations, filings or notices as are set forth in Section
3.1(d)(vi) of the Disclosure Schedule, (v) any applicable filings under
state anti-takeover laws, (vi) filings, authorizations, consents or
approvals the failure to make or obtain which, in the aggregate, would not
have a material adverse effect on the business, financial condition or
results of operations of ZIP and (vii) filings, authorizations, consents or
approvals the failure to make or obtain which, in the aggregate, would not
adversely affect the ability of ZIP to consummate the transactions
contemplated by this Agreement in any material respect.
(f) Information Supplied. None of the information supplied or to be
supplied by ZIP to the Company in writing specifically for inclusion in the
Proxy Statement will, at the date the Proxy Statement is first mailed to
the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
are made, not misleading.
(g) Brokers. No broker, investment banker, financial advisor or other
person, other than such persons who were disclosed by ZIP in writing to the
Company prior to the date hereof, the fees and expenses of which will be
paid by ZIP, is entitled to any broker's, finder's, financial advisors or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of ZIP.
SECTION 3.3 Representations and Warranties of Zurich. Zurich represents
and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Zurich is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted.
(b) Authority; Noncontravention; Binding Effect. Zurich has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Zurich and the consummation by Zurich of
the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Zurich. Each of this
Agreement and the Lumbermens Agreement has been duly executed and delivered
by Zurich and constitutes a valid and binding obligation of Zurich
enforceable against Zurich in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency,
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moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles. The execution and
delivery of this Agreement by Zurich do not, and the consummation of the
transactions contemplated by this Agreement by Zurich and compliance with
the provisions of this Agreement by Zurich will not (i) conflict with any
of the provisions of the Articles of Incorporation of Zurich, (ii) subject
to the consents, approvals, authorizations, declarations and filings
referred to in Section 3.3(c) below, require the consent of any person
under any material indenture, agreement, permit, concession, franchise,
license or similar instrument or undertaking to which Zurich or any of its
subsidiaries is a party or by which Zurich or any of its subsidiaries or
any of their assets is bound or affected, or (iii) subject to the consents,
approvals, authorizations, declarations and filings referred to in Section
3.3(c) below, contravene any law, rule or regulation of any state, or of
the United States or Switzerland or any political subdivision thereof or
therein, or any order, writ, judgment, injunction, decree, determination or
award currently in effect, except for such consents or contraventions, in
the case of clauses (ii) and (iii) above, which singly or in the aggregate,
would not have a material adverse effect on the business, financial
condition or results of operations of Zurich, and would not adversely
affect the ability of Zurich to consummate the transactions contemplated by
this Agreement in any material respect.
(c) Governmental Approvals. No consent, approval or authorization of,
or declaration or filing with, or notice to any Governmental Entity which
has not been received or made is required by or with respect to Zurich in
connection with the execution and delivery of this Agreement by Zurich or
the consummation by Zurich of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report
forms under the HSR Act, with respect to the Merger and the KFS Sale, (ii)
the filings and/or notices required under the insurance laws of the
jurisdictions set forth in Section 3.1(d)(ii) of the Disclosure Schedule,
(iii) the approval of the Federal Office of Supervision of Private
Insurance of Switzerland of the KFS Sale, if necessary, (iv) filings
required by the International Investment Survey Act of 1976, (v) filings
with Federal and state regulatory authorities and agencies in connection
with the registration or qualification of KFS Acquisition Corp. and its
subsidiaries, as necessary, as a broker-dealer, investment adviser,
transfer agent, commodities trading advisor or commodity pool operator,
(vi) such other consents, approvals, authorizations, filings or notices as
are set forth in Section 3.1(d)(vi) of the Disclosure Schedule, (vii) any
applicable filings under state anti-takeover laws and (viii) filings,
authorizations, consents or approvals the failure to make or obtain which,
in the aggregate, would not have a material adverse effect on the business,
financial condition or results of operations of Zurich and (xi) filings,
authorizations, consents or approvals the failure to make or obtain which,
in the aggregate, would not adversely affect the ability of Zurich to
consummate the transactions contemplated by this Agreement in any material
respect.
(d) Information Supplied. None of the information supplied or to be
supplied by Zurich to the Company in writing specifically for inclusion in
the Proxy Statement will, on the date the Proxy Statement is first mailed
to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
(e) Ineligible Persons; Compliance with Section 15(f) of the 1940
Act. (i) None of Zurich or any "affiliated person" (as defined in the 1940
Act) thereof (A) is ineligible pursuant to Section 9(a) of the 1940 Act to
serve as an investment adviser (or in any other capacity contemplated by
the 1940 Act) to a registered investment company or (B) to the knowledge of
senior officers of Zurich as of the date hereof, has engaged in any of the
conduct specified in Section 9(b) of the 1940 Act or Section 203(e) of the
Advisers Act prior to the date hereof that would be reasonably likely to
result in SEC action to disqualify Zurich or any of its affiliates as an
investment adviser.
(ii) Zurich has complied with the requirements of Section 15(f)(1)(B)
of the 1940 Act that there not be imposed an "unfair burden" on any of the
Kemper Funds as a result of the Merger, the KFS Sale or the transactions
contemplated hereby or thereby or any express or implied terms, conditions
or understandings applicable thereto.
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(f) Brokers. No broker, investment banker, financial advisor or other
person, other than such persons who were disclosed by Zurich in writing to
the Company prior to the date hereof, the fees and expenses of which will
be paid by ZIP, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Zurich.
SECTION 3.4 Representations and Warranties of Insurance Partners. Each of
IP and IP Bermuda represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of IP and IP Bermuda is a
limited partnership duly organized and validly existing under the laws of
the jurisdiction of its formation and has the requisite power and authority
to carry on its business as now being conducted.
(b) Authority; Noncontravention; Binding Effect. Each of IP and IP
Bermuda have all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by each of IP and IP Bermuda and
the consummation by each of IP and IP Bermuda of the transactions
contemplated by this Agreement have been duly authorized by all necessary
action on the part of each of IP and IP Bermuda. Each of this Agreement and
the Lumbermens Agreement has been duly executed and delivered by each of IP
and IP Bermuda and constitutes a valid and binding obligation of each of IP
and IP Bermuda, enforceable against each such party in accordance with its
terms subject, as to enforcement, to bankruptcy, insolvency, moratorium and
other similar laws relating to or affecting creditors' rights generally and
to general equitable principles. The execution and delivery of this
Agreement by each of IP and IP Bermuda do not, and the consummation of the
transactions contemplated by this Agreement by each of IP and IP Bermuda
and compliance with the provisions of this Agreement by each of IP and IP
Bermuda will not, (i) conflict with any of the provisions of the
partnership agreements or other organizational documents of each of IP or
IP Bermuda, (ii) subject to the consents, approvals, authorizations,
declarations and filings referred to in Section 3.4(c) below, require the
consent of any person under any material indenture, agreement, Permit,
concession, franchise, license or similar instrument or undertaking to
which IP or IP Bermuda is a party or by which IP or IP Bermuda or any of
their assets is bound or affected, or (iii) subject to the consents,
approvals, authorizations, declarations and filings referred to in Section
3.4(c) below, contravene any law, rule or regulation of any state or of the
United States or any political subdivision thereof or therein, or any
order, writ, judgment, injunction, decree, determination or award currently
in effect, except for such consents and contraventions, in the case of
clauses (ii) and (iii) above, which singly or in the aggregate, would not
have a material adverse effect on the business, financial condition or
results of operations of IP or IP Bermuda, and would not adversely affect
the ability of IP or IP Bermuda to consummate the transactions contemplated
by this Agreement in any material respect.
(c) Governmental Approvals. No consent, approval or authorization of,
or declaration or filing with, or notice to any Governmental Entity which
has not been received or made is required by or with respect to IP or IP
Bermuda in connection with the execution and delivery of this Agreement by
IP or IP Bermuda or the consummation by IP or IP Bermuda, as the case may
be, of any of the transactions contemplated by this Agreement, except for
(i) the filing of premerger notification and report forms under the HSR
Act, (ii) the filings and/or notices required under the insurance laws of
the jurisdictions set forth in Section 3.1(d)(ii) of the Disclosure
Schedule, (iii) such other consents, approvals, authorizations, filings or
notices as are set forth in Section 3.1(d)(vi) of the Disclosure Schedule,
(iv) any applicable filings under state anti-takeover laws, (v) filings,
authorizations, consents or approvals the failure to make or obtain which,
in the aggregate, would not have a material adverse effect on the business,
financial condition or results of operations of IP or IP Bermuda and (vi)
filings, authorizations, consents or approvals the failure to make or
obtain which, in the aggregate, would not adversely affect the ability of
IP or IP Bermuda to consummate the transactions contemplated by this
Agreement in any material respect.
(d) Information Supplied. None of the information supplied or to be
supplied by IP or IP Bermuda to the Company in writing specifically for
inclusion in the Proxy Statement will, on the date the
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Proxy Statement is first mailed to the Company's stockholders or at the
time of the Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(e) Brokers. No broker, investment banker, financial advisor or other
person, other than such persons who were disclosed by Insurance Partners in
writing to the Company, the fees and expenses of which will be paid by ZIP,
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of IP and IP
Bermuda.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 4.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or the Lumbermens Agreement (as defined herein) or as set forth
in Section 4.1 of the Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, act and carry on their respective businesses in the ordinary
course of business and use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current key
officers and employees and preserve the goodwill of those engaged in material
business relationships with them. Without limiting the generality of the
foregoing, except as contemplated by this Agreement or the Lumbermens Agreement
or as set forth in Section 4.1 of the Disclosure Schedule, during the period
from the date hereof to the Effective Time, the Company shall not, and shall not
permit any of its subsidiaries to, without the prior consent of ZIP:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) with respect to any of
the Company's outstanding capital stock (other than the dividend of Newco
Common Stock declared in connection with the ESOP Sale, regular quarterly
cash dividends not in excess of $.23 per share of Common Stock and regular
cash dividends on Company Preferred Stock, in each case with usual record
and payment dates and in accordance with the Company's present dividend
policy), (ii) split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital
stock or (iii) purchase, redeem or otherwise acquire any shares of
outstanding capital stock, any rights, warrants or options to acquire any
such shares or any outstanding notes or debentures except, in the case of
clause (iii), for the acquisition of shares of Common Stock from holders of
Company Stock Options in full or partial payment of the exercise price
payable by such holder upon exercise of Company Stock Options outstanding
on the date of this Agreement and any mandatory redemption or repurchase of
the KFC Debentures, the KFC Class B Common Stock and the KFC Stock Options
in accordance with the terms thereof and the terms of the indenture
governing the KFC Debentures and the KFC Charter;
(b) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities other than (i) pursuant to the
Dividend Reinvestment Plan as amended in accordance with Section 4.10, (ii)
the ESOP Sale, (iii) upon the exercise of the Company Stock Options
outstanding on the date of this Agreement, (iv) upon the conversion of
shares of Convertible Preferred Stock outstanding on the date of this
Agreement or (v) in accordance with their respective terms, upon the
conversion of any KFC Debentures or the exercise of any KFC Stock Options;
(c) amend its Charter, By-laws or other comparable charter or
organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of any subsidiary of the Company;
(d) acquire (i) any assets that are material individually or in the
aggregate to the Company and its subsidiaries taken as a whole or any
Significant Subsidiary, (ii) any business, (iii) any real estate asset
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(or invest any funds in connection with any real estate asset, except
pursuant to binding obligations or commitments effective as of the date
hereof and except for tenant improvements with respect to any single
property costing not more than $100,000; provided, that the Company (or its
applicable subsidiary) shall expend funds only in minimum amounts which are
absolutely required under such obligations or commitments) or (iv) any
corporation, partnership, joint venture, association or other business
organization or division thereof, except for portfolio investments (other
than investments in real estate assets, debt or preferred equity securities
rated below investment grade (except pursuant to the restructuring of any
such securities acquired prior to the date hereof) or common equity
securities) made in the ordinary course of business consistent with recent
past practice;
(e) (i) sell, lease, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets other than (A)
those that are immaterial to the Company and its subsidiaries taken as a
whole or any Significant Subsidiary, (B) those disclosed in Section 4.1(e)
of the Disclosure Schedule, (C) the KFS Sale, (D) the ESOP Sale, (E) the
sale of common stock of State Street Boston Corporation in accordance with
Section 4.4 and (F) the Venture Capital Portfolio Sale (as defined herein)
in accordance with Section 4.8 (the transactions contemplated by clauses
(B) through (F) are herein referred to as "Permitted Sale Transactions"),
(ii) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its assets or properties to the Company or any
of its subsidiaries other than (A) sales, leases, mortgages, encumbrances
or dispositions between KSH and any of its subsidiaries or between any
subsidiaries of KSH, and (B) cash payments for intercompany services
performed in the ordinary course of business consistent with recent past
practice, (iii) sell, mortgage or otherwise encumber or subject to any Lien
(other than in connection with refinancings, extensions and rollovers in
the ordinary course of business and only to the extent that such mortgages,
encumbrances or Liens were granted in the original financings) or otherwise
dispose of any of its real estate assets, except to unrelated third parties
in accordance with Section 4.6 or (iv) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such a liquidation
or a dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(f) (i) incur any indebtedness for borrowed money, issue or sell any
debt securities or warrants or other rights to acquire any debt securities
of the Company or any of its subsidiaries, guarantee any indebtedness or
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, other than in the ordinary course of business of Kemper Clearing
Corp. consistent with recent past practice, or (ii) make any loans,
advances or capital contributions to any other person, other than (x)
routine advances to employees, (y) policy loans to third parties in the
ordinary course of business of the Insurance Companies, and (z) in the
ordinary course of business of Kemper Clearing Corp. consistent with recent
past practice;
(g) pay, discharge, settle or satisfy any intercompany indebtedness
from KFC to the Company other than as a result of the transactions
contemplated by this Agreement;
(h) enter into any transaction or agreement with any director,
executive officer or affiliate of the Company or any of its Significant
Subsidiaries or with Lumbermens Mutual Casualty Company ("Lumbermens");
(i) make any tax election (other than an election under Section
338(h)(10) of the Code related to the ESOP Sale) or settle or compromise
any Federal income tax liability or any other material income tax liability
(other than with respect to audits of 1990 and prior years on terms
substantially consistent with those disclosed to Zurich and Insurance
Partners in writing) that could reasonably be expected to be material to
the Company and its subsidiaries taken as a whole;
(j) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with recent past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or
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the notes thereto) of the Company included in the Filed SEC Documents or
incurred since the date of such financial statements in the ordinary course
of business consistent with recent past practice;
(k) except in the ordinary course of business, modify, amend or
terminate any material agreement, lease, sublease, Permit, concession, or
similar instrument to which the Company or any subsidiary is a party or
waive, release or assign any material rights or claims thereunder;
(l) hire any new executive officers of the Company or any of its
subsidiaries (other than KSH and its subsidiaries);
(m) (i) grant any director, executive officer or other employee of the
Company or any of its subsidiaries (other than KSH and its subsidiaries)
any increase in compensation, except, in the case of employees who are not
executive officers or directors, normal salary increases consistent with
recent past practice or as was required under employment agreements or
arrangements in effect as of the date of the most recent audited financial
statements included in the Filed SEC Documents, (ii) grant any such
director, executive officer or other employee any severance or termination
pay, except as was required under any employment, severance or termination
agreements or arrangements or plans in effect as of the date of the most
recent audited financial statements included in the Filed SEC Documents,
(iii) enter into any employment, severance or termination agreement with,
or adopt any plan or arrangement covering, any such director, executive
officer, or employee or (iv) amend any Benefit Plan except as required by
law;
(n) (i) expend or commit to expend funds for capital expenditures in
excess of an aggregate of $5 million other than as previously disclosed in
writing to ZIP and other than capital expenditures (A) of KSH and its
subsidiaries funded solely with amounts generated by KSH and its
subsidiaries and (B) subject to Section 4.1(d)(iii), in connection with
real estate assets, or (ii) notwithstanding the provisions of Section
4.1(d)(iii), expend or commit to expend any funds in connection with the
Kepro (Barcelona) project except as contemplated in Section 4.1(n) of the
Disclosure Schedule;
(o) settle or compromise any shareholder derivative suits arising out
of the transactions contemplated hereby or existing on the date hereof or
any of the litigation or claims set forth in Section 4.1(o) of the
Disclosure Schedule;
(p) change any accounting, underwriting and actuarial principles,
assumptions or practices materially affecting the assets, liabilities or
business of the Company or any of its subsidiaries, except insofar as may
have been required by a change in generally accepted accounting principles
or SAP and except changes in crediting rates in the ordinary course of
business;
(q) take any material action with respect to any material real estate
asset owned by the Company or any of its subsidiaries (including, without
limitation, the entering into of any construction contract or the
undertaking of any construction-related activity, the giving of consent to
any third party, any action in connection with the exercise of foreclosure
or similar remedies, any material amendment of an agreement governing or
relating to any such real estate asset or the ownership thereof and any
prepayment of any third party debt secured by any such real estate asset);
(r) cease to maintain the books and records related to the business
and assets of the Company and its subsidiaries other than the Excluded Real
Estate Subsidiaries; or
(s) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 4.2 Payment of Dividends; Advances and Cash Proceeds. (a) During
the period from the date of this Agreement to the Effective Time, to the extent
permitted by applicable law and any Governmental Entity having jurisdiction over
the Company and any of its subsidiaries:
(i) the Company shall cause FKLA to declare and pay quarterly cash
dividends to the Company in an amount of $3.25 million so that the total
cash dividends paid by FKLA to the Company is at least $13 million during
1995;
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(ii) the Company shall cause KFS to transfer to the Company $50
million in cash in a manner and on terms and conditions reasonably
satisfactory to ZIP;
(iii) at the written request of ZIP, the Company shall cause its
subsidiaries to dividend or otherwise transfer cash in such amounts
immediately prior to the Effective Time, as ZIP may reasonably request, to
the Company in a manner and on terms and conditions reasonably satisfactory
to ZIP; and
(iv) the Company shall (i) cause its subsidiaries other than the
Insurance Companies to make quarterly tax sharing payments in accordance
with recent past practice and (ii) cause the Insurance Companies not to
make any quarterly tax sharing payments except to the extent of actual tax
liability of the Company that is attributable to the Insurance Companies.
(b) To the extent that any of the actions set forth in Section 4.2(a) are
prohibited by any Governmental Entity having jurisdiction over the Company or
any of its subsidiaries, the Company shall use commercially reasonable efforts
to cause such Governmental Entity to permit such action.
SECTION 4.3 KFC Obligations. The Company shall cause KFC to perform its
obligations under the KFC Debentures and the indenture relating to the KFC
Debentures, the KFC Charter and the Benefit Plans and agreements relating to the
KFC Stock Options, including, without limitation, repurchasing or redeeming any
KFC Debentures, KFC Class B Common Stock or KFC Stock Options as a result of the
ESOP Sale and the KFS Sale, to the extent required.
SECTION 4.4 Sale of State Street Boston Corporation Common Stock. Prior to
the Effective Time, the Company shall use commercially reasonable efforts to
cause (a) the proposed offering of the 2,986,111 shares of common stock of State
Street Boston Corporation by KFS to be registered by State Street Boston
Corporation on a "shelf" Registration Statement on Form S-3 under the Securities
Act and to sell such shares at a price and on terms and conditions reasonably
satisfactory to ZIP and (b) the net cash proceeds from such sale to be
transferred from KFS to the Company in a manner and on terms and conditions
reasonably satisfactory to ZIP. If KFS has not sold all of the 2,986,111 shares
of common stock of State Street Boston Corporation on or prior to the Closing
Date, then, immediately prior to the Effective Time, the Company shall cause KFS
to transfer such shares to the Company in a manner and on terms and conditions
reasonably satisfactory to ZIP. Upon such transfer, the Company shall own all
such shares free and clear of all Liens.
SECTION 4.5 ESOP Sale. The Company will use commercially reasonable
efforts to cause (i) KFC to enter into a stock purchase agreement with an ESOP
to sell approximately 55% of the Newco Common Stock to such ESOP (such
agreement, together with all other agreements related thereto or contemplated
therein, the "ESOP Agreements") and (ii) KSHI and the ESOP each to enter into a
bank credit agreement with a syndicate of banks lead by the Bank of New York
(the "ESOP Credit Agreement"), in each case in all material respects in
accordance with the terms and conditions set forth in Exhibit I to the
Disclosure Schedule and such other terms as are reasonably satisfactory to ZIP;
provided, however, that the Company and its subsidiaries shall not retain or
assume any liabilities (whether directly or indirectly through guaranties,
keepwell agreements, similar arrangements or otherwise) of Newco and its
subsidiaries (including, without limitation, liabilities attributable to
employees, former employees, their respective beneficiaries, directors and
consultants of KSH and its subsidiaries) upon completion of the ESOP Sale and
shall not incur any liabilities in connection with the ESOP Sale other than
those liabilities set forth in Schedule 3.1(p) of the Disclosure Schedule. The
Company shall not, and shall not permit any of its subsidiaries to, waive or
amend any covenant, agreement, condition or term in the ESOP Agreements or the
ESOP Credit Agreement without the prior written consent of ZIP. The Company
shall use commercially reasonable efforts to consummate the ESOP Sale
(including, without limitation, the distribution by the Company of approximately
44% of the Newco Common Stock to its stockholders) in accordance with the terms
and conditions of the ESOP Agreements and the ESOP Credit Agreement; provided,
however, that the Company shall not cause the ESOP Sale to be consummated prior
to the earlier of (i) the date on which the Company receives a favorable ruling
from the Internal Revenue Service relating to the ESOP Sale substantially in the
form of the ruling request dated March 24, 1995 and (ii) August 31, 1995. The
Company agrees to (x) keep ZIP and its counsel fully informed of all
communications with the Internal Revenue Service concerning the proposed ruling
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request and (y) consult with ZIP and its counsel with respect to any meetings
with the Internal Revenue Service concerning the proposed ruling request.
SECTION 4.6. Real Estate. (a) Subject to the further provisions of this
Section 4.6, the Company shall use diligent efforts to enter into agreements to
sell, or to cause its subsidiaries to enter into agreements to sell, all of the
real estate assets set forth on Schedule I to this Agreement under the heading
"Retail Real Estate Assets" (the "Retail Real Estate Assets") and the Company
shall, and shall cause its subsidiaries to, use its and their best efforts to
consummate sales of the Retail Real Estate Assets in accordance with the terms
and conditions of such agreements. The Company shall keep ZIP informed as to the
status of its efforts pursuant to the foregoing. Without limiting the preceding
sentence, whenever the Company receives an offer (whether solicited or
unsolicited) from a third-party to purchase one or more of the Retail Real
Estate Assets, the Company shall immediately notify ZIP of such offer and
furnish ZIP with a copy thereof. Notwithstanding any provision hereof to the
contrary, (i) the Company shall not accept any such offer without ZIP's consent
and (ii) if, in ZIP's good-faith judgment, any such offer is commercially
reasonable and represents, under the circumstances, fair value to the Company
for the applicable Retail Real Estate Assets to be sold, the Company shall, at
ZIP's direction, accept such offer. If, pursuant to the foregoing, the Company
accepts any such offer, the Company shall, subject to the last sentence of this
Section 4.6(a), then use its best efforts to enter into a binding agreement with
the offeror on terms and conditions that are consistent with such offer and that
are otherwise commercially reasonable; provided, however, that notwithstanding
any provision hereof to the contrary, (i) the Company shall not enter into any
such agreement without ZIP's consent and (ii) subject to the last sentence of
this Section 4.6(a), if, in ZIP's good faith judgment, the terms and conditions
of any proposed agreement are consistent with the terms of the applicable offer
and are otherwise commercially reasonable, the Company shall, at ZIP's
direction, execute and deliver such agreement. The Company shall (x) keep ZIP
reasonably informed of all material communications between any such offeror and
the Company and (y) deliver to ZIP additional information, material or documents
reasonably requested from time to time by ZIP in connection with any such offer.
At the Company's option in its sole and absolute discretion, any binding
agreement with a third party for the sale to such third party of any Retail Real
Estate Asset may provide that the Company shall not be obligated to consummate
such sale unless and until either (i) the Merger is consummated or (ii) the
Preliminary Closing Conditions are satisfied or waived on the Preliminary
Closing Date.
(b) Subject to the further provisions of this Section 4.6, the Company
shall use diligent efforts to enter into agreements to sell, and to cause its
subsidiaries to enter into agreements to sell, all of the real estate assets set
forth on Schedule I to this Agreement under the heading "Bulk Sale Real Estate
Assets" (the "Bulk Sale Real Estate Assets") and the Company shall, and shall
cause its subsidiaries to, use its and their best efforts to consummate such
bulk sales of the Bulk Sale Real Estate Assets in accordance with the terms and
conditions of such agreements. The Company shall keep ZIP informed as to the
status of its efforts pursuant to the foregoing. Without limiting the preceding
sentence, whenever the Company receives an offer (whether solicited or
unsolicited) from a third party to purchase all or a part of the Bulk Sale Real
Estate Assets, the Company shall immediately notify ZIP of such offer and
furnish ZIP with a copy thereof. Notwithstanding any provision hereof to the
contrary, (i) the Company shall not accept any such offer without ZIP's consent
and (ii) subject to the penultimate sentence of this Section 4.6(b), if, in
ZIP's good-faith judgment, any such offer is commercially reasonable and
represents, under the circumstances, fair value to the Company for the
applicable Bulk Sale Real Estate Assets to be sold, the Company shall, at ZIP's
direction, accept such offer. If, pursuant to the foregoing, the Company accepts
any such offer, the Company shall, subject to the penultimate sentence of this
Section 4.6(b), then use its best efforts to enter into a binding agreement with
the offeror on terms and conditions that are consistent with such offer and that
are otherwise commercially reasonable; provided, however, that notwithstanding
any provision hereof to the contrary, (i) the Company shall not enter into any
such agreement without ZIP's consent and (ii) subject to the penultimate
sentence of this Section 4.6(b), if, in ZIP's good faith judgment, the terms and
conditions of any proposed agreement are consistent with the terms of the
applicable offer and are otherwise commercially reasonable, the Company shall,
at ZIP's direction, execute and deliver such agreement. The Company shall (x)
keep ZIP reasonably informed of all material communications between any such
offeror and the Company and (y) deliver to ZIP additional information, material
or documents reasonably requested from time to time by ZIP in connection
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with any such offer. All binding agreements with a third party for the sale to
such third party of any of the Bulk Sale Assets may, at the Company's option
provide that the Company shall not be obligated to consummate such sale unless
and until either (i) the Merger is consummated or (ii) the Preliminary Closing
Conditions are satisfied or waived on the Preliminary Closing Date. All
out-of-pocket costs and expenses incurred by the Company and ZIP and their
respective affiliates in connection with the bulk sale process outlined in this
Section 4.6(b) (other than fees and expenses payable to Goldman Sachs & Co. or
any other investment advisor or broker retained by any such person) shall be
paid one-half by the Company and one-half by ZIP.
(c) Subject to Section 4.6(e), at the request of ZIP, the Company shall not
sell or enter into an agreement to sell, any of the Retail Real Estate Assets or
Bulk Sale Real Estate Assets that are specified by ZIP in writing to the
Company.
(d) Notwithstanding anything to the contrary in the foregoing provisions of
this Section 4.6, the Company shall, and shall cause its subsidiaries to, comply
with and perform all obligations under written agreements executed by the
Company (and/or any applicable subsidiary) and the proposed buyer as of the date
hereof and written agreements executed pursuant to Section 4.6(a) or 4.6(b)
(including, without limitation, letters of intent, term sheets and the like) for
the sale of any real estate asset currently owned by the Company and/or any of
its subsidiaries; provided, however, that neither the Company nor any of its
subsidiaries shall make any decision it is entitled to make under, or relating
to, any such agreement, or exercise any remedy in connection with any such
agreement, without the prior written consent of ZIP, such consent not to be
unreasonably withheld.
(e) ZIP may, at any time, by written notice to the Company, add or subtract
any real estate asset to or from the "Retail Real Estate Asset" or "Bulk Sale
Real Estate Asset" category. Any such addition or subtraction shall be binding
and effective for all purposes of this Section 4.6.
(f) Neither the Company nor any of its subsidiaries shall sell any real
estate assets except in accordance with the foregoing provisions of this Section
4.6; provided, however, that the Company or any of its subsidiaries may sell any
vacant land or residential real estate (or any interest therein) if the purchase
price therefor is not more than $500,000, so long as such purchase price
represents, in the reasonable judgment of the Company, fair value for such
asset.
(g) The Company shall, and shall cause its subsidiaries to, perform all
obligations under or described in, paragraphs 11 and 12 of the Lumbermens
Agreement (as defined in Section 6.2(i)). Neither the Company nor any of its
subsidiaries shall make any decision it is entitled to make under, or relating
to, paragraphs 11 and 12 of the Lumbermens Agreement, or exercise any remedy in
connection with paragraphs 11 and 12 of the Lumbermens Agreement, without the
prior written consent of ZIP, such consent not to be unreasonably withheld.
Without limiting the foregoing, the Company shall use good faith and diligent
efforts to enter into a written agreement with Lumbermens covering the issues
described in paragraph 12 of the Lumbermens Agreement, provided that neither the
Company nor any of its subsidiaries shall enter into any such agreement (or any
agreement covering any of the matters addressed in paragraph 11 of the
Lumbermens Agreement) without the prior written consent of ZIP, such consent not
to be unreasonably withheld.
(h) The Company shall, and shall cause its subsidiaries to, take any action
reasonably requested by ZIP in connection with or pertaining to any real estate
asset owned by the Company or any of its subsidiaries; provided, however, that
if, in the reasonable judgment of the Company or the applicable subsidiary, the
taking of such action would materially decrease the value of such asset, the
Company or the applicable subsidiary shall not be required to take such action.
SECTION 4.7 KFS Sale. Pursuant to the KFS Agreement, the Company intends
to sell its asset management business to an affiliate of Zurich. The parties
agree to take commercially reasonable steps to cooperate in the KFS Sale.
SECTION 4.8 Sale of Venture Capital Portfolio. Without the prior written
consent of ZIP, the Company shall not permit Kemper Asset Holdings, Inc., KILICO
or FKLA, and shall use its commercially reasonably efforts to prevent Fidelity
Life Association (collectively, with Kemper Asset Holdings, Inc.,
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KILICO and FKLA, the "Kemper Entities") to waive or amend any material covenant,
agreement or term in the agreements, each dated as of May 5, 1995,
(collectively, the "Landmark Agreements") among the Kemper Entities and Landmark
Partners Inc. ("Landmark") to sell certain portfolio assets to Landmark (the
"Venture Capital Portfolio Sale"). The Company shall use commercially reasonable
efforts to consummate the Venture Capital Portfolio Sale in accordance with the
terms and conditions of the Landmark Agreements. Upon consummation of the
Venture Capital Portfolio Sale, the Company shall cause the Kemper Entities that
are subsidiaries of Kemper (other than KILICO) to transfer the net cash proceeds
of such sale (allocable to such Kemper Entities) to the Company in a manner and
on terms and conditions reasonably satisfactory to ZIP and the Company.
SECTION 4.9 Tax Returns. The Company shall, as promptly as practicable,
file (i) form 1120 for its 1994 taxable year, (ii) form 1139 relating to
carrybacks from its 1994 taxable year to earlier taxable years and (iii) any
corresponding forms under state and local tax law; provided however, that the
Company shall not file or request an extension to file any of such returns after
(a) September 15, 1995 with respect to clause (i), (b) September 22, 1995 with
respect to clause (ii) and (c) October 15, 1995 with respect to clause (iii), in
any case without the consent of ZIP.
SECTION 4.10 Dividend Reinvestment Plan. As soon as practicable after the
date hereof (but in no event later than May 22, 1995), the Company shall amend
the Dividend Reinvestment Plan to limit participation thereunder to employees of
the Company and its subsidiaries who, as of the date hereof, are actually
participating in the Dividend Reinvestment Plan ("Continuing Participants") and
to limit contributions made by Continuing Participants to payroll deduction
contributions not in excess, on a monthly basis, to the average monthly
contributions made in 1994.
SECTION 4.11 Subsidiaries. The Company shall not be obligated to cause any
of its Excluded Real Estate Subsidiaries to take any affirmative action under
either Article IV or V of this Agreement if either (i) such Excluded Real Estate
Subsidiary would violate a fiduciary or legal duty by taking such action or (ii)
the Company, either directly or through a subsidiary, does not have any right or
ability to require such action to be performed. The Company shall not be
obligated to cause any Excluded Real Estate Subsidiaries not to take any action
under either Article IV or V of this Agreement if either (A) such Excluded Real
Estate Subsidiary would violate a fiduciary or legal duty by not taking such
action or (B) the Company, either directly or through a subsidiary, does not
have a right or ability to veto or otherwise consent to such action or if the
Company or such subsidiary has such a right or ability to veto or consent to
such action, but either (x) the Company or a subsidiary thereof is not informed
of any such action by the relevant Excluded Real Estate Subsidiary or (y) the
relevant Excluded Real Estate Subsidiary performs such action after the Company
or a subsidiary thereof vetoes such action or otherwise withholds its consent
for such action. The Company has taken, and shall continue to take, commercially
reasonable steps to be informed of all material business transactions and
management decisions of the Excluded Real Estate Subsidiaries and to exercise
such rights as the Company has, directly or indirectly, with respect to the
Excluded Real Estate Subsidiaries to effectuate the purposes of the covenants of
Articles IV and V relating to the real estate assets owned by such Excluded Real
Estate Subsidiaries. The Company shall notify ZIP in writing promptly after the
Company learns of any action taken, or proposed to be taken, by the Excluded
Real Estate Subsidiaries which, in the absence of this Section 4.11, would
violate the covenants of Article IV and V of this Agreement.
SECTION 4.12 Other Actions. The Company, on the one hand, and ZIP, Zurich
and Insurance Partners, on the other, shall not, and the Company shall not
permit any of its respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in (a) any of the representations
and warranties of such party set forth in this Agreement becoming untrue or (b)
any of the conditions of the Merger set forth in Article VI not being satisfied.
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ARTICLE V.
ADDITIONAL COVENANTS
SECTION 5.1 Preparation of Newco Form S-1 and the Proxy Statement. As soon
as practicable following the date of this Agreement, the Company shall prepare
and file with the SEC the Proxy Statement. The Company will use commercially
reasonable efforts to cause the Proxy Statement to be cleared by the SEC and
shall thereafter mail the Proxy Statement to the Company's stockholders as
promptly as practicable. ZIP shall furnish all information concerning ZIP,
Zurich and Insurance Partners as may be reasonably requested by the Company in
connection with any of the actions to be taken by the Company pursuant to this
Section 5.1. The Company shall make, and shall cause Newco to make, available to
ZIP and its counsel prior to filing thereof with the SEC copies of the Newco
Form S-1 and the Proxy Statement and any amendments or supplements thereto and
shall make, and shall cause Newco to make, any changes therein reasonably
requested by ZIP insofar as such changes relate to such party or its affiliates
or the description of the transactions contemplated by this Agreement.
SECTION 5.2 Meeting of Stockholders. The Company will take all action
necessary in accordance with applicable law and its Charter and By-laws to
convene a meeting of its stockholders (the "Stockholders Meeting") to consider
and vote upon the approval of the Merger. Subject to Section 5.8, the Company
will, through its Board of Directors, recommend to its stockholders approval of
the foregoing matters. The Company shall hold the Stockholders Meeting as soon
as reasonably practicable after the date hereof.
SECTION 5.3 Reasonable Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the parties
agrees to use its commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger, the KFS Sale and the other transactions contemplated by this Agreement.
SECTION 5.4 Access to Information; Confidentiality. The Company shall, and
shall cause each of its subsidiaries to, afford to ZIP, Zurich and Insurance
Partners and to the officers, employees, counsel, financial advisors and other
representatives of each of ZIP, Zurich and Insurance Partners reasonable access
during normal business hours during the period prior to the Effective Time to
all its properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause its subsidiaries to,
furnish as promptly as practicable to ZIP, Zurich and Insurance Partners such
information concerning its business, properties, financial condition, operations
and personnel as Zurich and Insurance Partners may from time to time reasonably
request (including, without limitation, reasonably requested regular reports on
all material developments concerning such matters); provided, that no review
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty made by the Company or any closing condition under
this Agreement. Except as required by law, ZIP, Zurich and Insurance Partners
will hold, and will cause their respective directors, officers, partners,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information obtained from the Company in
confidence to the extent required by, and in accordance with, the provisions of
the letter agreement, dated December 23, 1994 (the "Confidentiality Agreement"),
between the Company and Insurance Partners Advisors, L.P. ("IP Advisors") and
the letter agreement, dated March 13, 1995, between IP Advisors and Zurich,
incorporating the terms of the Confidentiality Agreement.
SECTION 5.5 Indemnification and Insurance. ZIP and the Surviving
Corporation agree that all rights to indemnification and exculpation from
liability for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors, officers or employees of
the Company and its subsidiaries as provided in their respective certificates of
incorporation or by-laws shall survive the Merger and shall continue in full
force and effect in accordance with their terms for a period of not less than
six years from the Effective Time. ZIP and the Surviving Corporation shall cause
to be maintained for a period of not less than six years from the Effective Time
the Company's current directors' and officers' insurance and indemnification
policy to the extent that it provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") for all persons who are directors, officers
or employees of the Company or any subsidiary of the Company on the date of this
Agreement, if, or to the extent that, the annual premium therefor would not be
in excess of
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$3,338,000 (the "Maximum Premium"); provided, however, that ZIP and the
Surviving Corporation may, in lieu of maintaining such existing D&O Insurance as
provided above, cause comparable coverage to be provided under any policy
maintained for the benefit of the directors and officers of Zurich or any of its
major United States subsidiaries, so long as (i) the issuer thereof has at least
an equal claims-paying rating and (ii) the material terms thereof are no less
advantageous than the existing D&O Insurance to the extent commercially
available. If the existing D&O Insurance expires, is terminated or cancelled
during such six-year period, ZIP and the Surviving Corporation shall use all
reasonable efforts to cause to be obtained as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions no less advantageous than
the existing D&O Insurance to the extent commercially available.
SECTION 5.6 Public Announcements. ZIP, Zurich and Insurance Partners, on
the one hand, and the Company, on the other hand, shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements, including such
communications to employees of the Company or its subsidiaries, with respect to
the transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or government
regulation or decree, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
SECTION 5.7 No Solicitation. The Company shall not, nor shall it authorize
or permit any of its affiliates or subsidiaries to, nor shall it or any of its
affiliates or subsidiaries authorize or permit any of their respective officers,
directors or employees, or any investment banker, financial advisor, attorney,
accountant or other advisor or representative retained by the Company or any of
its affiliates or subsidiaries to, directly or indirectly (a) solicit, initiate,
encourage (including by way of furnishing information) or take any other action
to facilitate, any inquiry or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Transaction Proposal or agree to or
endorse any Transaction Proposal or (b) propose, enter into or participate in
any discussions or negotiations regarding any of the foregoing, or furnish to
any other person any information with respect to its business, properties or
assets or any of the foregoing, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing. Clauses (a) and (b) of the
preceding sentence shall not prohibit the Company from (i) furnishing
information pursuant to an appropriate confidentiality letter concerning the
Company and its businesses, properties or assets to a third party who has made
an unsolicited Transaction Proposal that is a Qualified Proposal, (ii) engaging
in discussions or negotiations with such a third party who has made an
unsolicited Transaction Proposal that is a Qualified Proposal or (iii) following
receipt of a Transaction Proposal, taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) under the Exchange Act, but in each case
referred to in the foregoing clauses (i) through (iii) only after the Board of
Directors of the Company concludes in good faith based on the advice of outside
counsel that such action is necessary for the Board of Directors of the Company
to comply with its fiduciary obligations to stockholders under applicable law.
Notwithstanding anything in this Agreement to the contrary, the Company shall
immediately inform ZIP, Zurich and Insurance Partners orally and in writing of
the receipt by it (or any of the other entities or persons referred to above)
after the date hereof of any Transaction Proposal, or any inquiry which could
lead to any Transaction Proposal or to any termination of this Agreement, the
terms and conditions of such Transaction Proposal or inquiry, and the identity
of the person making any such Transaction Proposal or inquiry. The Company will
keep ZIP, Zurich and Insurance Partners fully informed of the status and details
of any such Transaction Proposal or inquiry, and any response to such proposal
or inquiry. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the first sentence of this Section 5.7 by any
officer, director or employee of the Company or any of its subsidiaries or any
investment banker, financial advisors, attorney, accountant, or other advisor or
representative of the Company or any of its subsidiaries, whether or not such
person is purporting to act on behalf of the Company or any of its subsidiaries
or otherwise, shall be deemed to be a breach of this Section 5.7 by the Company.
"Transaction Proposal" means any proposal with respect to any acquisition or
purchase of a substantial amount of assets of, or any equity interest in, the
Company or any of its subsidiaries or any tender offer (including a self tender
offer) or exchange offer, merger, consolidation, business combination, sale of
equity securities, recapitalization,
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liquidation, dissolution or similar transaction (whether accomplished by means
of bulk reinsurance or otherwise) involving the Company or any of its
subsidiaries or any other transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger, the ESOP Sale, the KFS Sale or any of the other transactions
contemplated by this Agreement or materially dilute the benefits to ZIP, Zurich
and Insurance Partners of the Merger, the ESOP Sale, the KFS Sale or any of the
other transactions contemplated by this Agreement (other than Permitted Sale
Transactions, the sale of any real estate assets contemplated by Section 4.6 or
the conversion or exercise of any outstanding securities of the Company or any
of its subsidiaries in accordance with their terms). "Qualified Proposal" means
any Transaction Proposal that would provide the holders of the Common Stock with
cash and/or readily marketable securities having a value, in the good faith
opinion of the Board of Directors of the Company following consultation with its
independent financial advisors, of more than the sum of $49.50 per share of
Common Stock plus, at any time prior to the distribution of the Newco Common
Stock in connection with the ESOP Sale, the value of the Newco Common Stock per
share of Common Stock to be so distributed.
SECTION 5.8 Fiduciary Duties. The Board of Directors of the Company shall
not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to ZIP, Zurich or Insurance Partners, the approval or recommendation by
such Board of Directors of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Transaction Proposal or (iii)
approve the Company entering into any agreement with respect to any Transaction
Proposal (including, without limitation, the commencement of a self tender
offer), unless the Company receives an unsolicited Transaction Proposal from a
third party that is a Qualified Proposal and the Board of Directors of the
Company concludes in good faith based on the advice of outside counsel that in
order to comply with its fiduciary obligations to stockholders under applicable
law, it is necessary for the Board of Directors to withdraw or modify its
approval or recommendation of this Agreement or the Merger, approve or recommend
such Transaction Proposal, enter into an agreement with respect to such
Transaction Proposal or terminate this Agreement. In the event the Board of
Directors of the Company takes any of the foregoing actions, the Company shall,
concurrently with the taking of any such action, pay to Zurich or Insurance
Partners (or their designees) the Section 5.12 Fee, plus all of their
Transaction Expenses as required by Section 5.12. Nothing contained in this
Section 5.8 shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to the Company's stockholders which,
in the good faith reasonable judgment of the Board of Directors of the Company
based on the advice of outside counsel, is required under applicable law,
provided that the Company does not withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, a Transaction Proposal. Notwithstanding
anything contained in this Agreement to the contrary, any action by the Board of
Directors permitted by this Section 5.8 shall not constitute a breach of this
Agreement by the Company if, concurrently with such action, the Company pays the
Section 5.12 Fee and the Transaction Expenses as required by this Section 5.8.
SECTION 5.9 Consents, Approvals and Filings. (a) The Company, ZIP, Zurich
and Insurance Partners will make and cause their respective subsidiaries to make
all necessary filings, as soon as practicable, including, without limitation,
those required under the HSR Act, the Securities Act, the Exchange Act, the 1940
Act, the Advisers Act and applicable state insurance laws in order to facilitate
prompt consummation of the Merger and the other transactions contemplated by
this Agreement. In addition, the Company, ZIP, Zurich and Insurance Partners
will each use their commercially reasonable efforts, and will cooperate fully
with each other (i) to comply as promptly as practicable with all governmental
requirements applicable to the Merger and the other transactions contemplated by
this Agreement, (ii) to obtain as promptly as practicable all necessary permits,
orders or other consents of Governmental Entities and consents of all third
parties necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement and (iii) to obtain consents from Insurance
Regulators with respect to KILICO that provide that the unassigned surplus of
KILICO will be reset to zero at the Effective Time; provided, however, that none
of the Company, the Surviving Corporation, ZIP, KFS Acquisition Corp., Zurich or
Insurance Partners shall be required to comply with any governmental
requirements or permits, orders or other consents of Governmental Entities that
(i) prohibit or restrict the ownership or operation by the Surviving
Corporation, Zurich or Insurance Partners (or any of their respective affiliates
or subsidiaries) of any portion of the Company's
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business or assets which is material to the business of the Company and its
subsidiaries taken as a whole, or compels the Surviving Corporation, Zurich or
Insurance Partners (or any of their respective affiliates or subsidiaries) to
dispose of or hold separate any portion of the business of Zurich or Insurance
Partners or the Company's business or assets which is material to the business
of the Company and its subsidiaries taken as a whole, (ii) impose any material
limitations on the ability of Zurich or Insurance Partners or any of their
respective affiliates or subsidiaries effectively to control in any material
respect the business and operations of the Company and its subsidiaries, or
(iii) otherwise would materially adversely affect the Company and its
subsidiaries taken as a whole. Each of the Company, ZIP, Zurich and Insurance
Partners shall use all commercially reasonable efforts to provide such
information and communications to Governmental Entities as such Governmental
Entities may reasonably request.
(b) Each of the parties shall provide to the other party copies of all
applications as early as practicable in advance of filing or submission of such
applications to Governmental Entities in connection with this Agreement.
SECTION 5.10 Company Satisfaction of the Conditions of Section 15 of the
1940 Act. (a) The Company shall, and shall cause each of KFS and the applicable
subsidiaries of KFS (collectively, with KFS, the "Asset Management
Subsidiaries") to, use their commercially reasonable efforts to cause the boards
of trustees/directors of the Kemper Funds (other than Kemper Investors Fund
("KINF")) to approve, and to solicit their respective shareholders as promptly
as practicable with regard to the approval of, new investment advisory
agreements with the Asset Management Subsidiaries acting as investment advisers
for such funds, to be effective on or as promptly as practicable after the
Effective Time, pursuant to the provisions of Section 15 of the 1940 Act, and
consistent with all requirements of the 1940 Act applicable thereto, provided
that such agreements are identical in all respects to the existing agreements
other than the term of the agreement.
(b) The Company shall cause each Insurance Company and KFS to use their
commercially reasonable efforts to cause the board of trustees of KINF to
approve, and to solicit voting instructions from owners of Variable Contracts
issued by the Insurance Companies as promptly as practicable with regard to the
approval of, a new investment advisory agreement with KFS, to be effective on or
as promptly as practicable after the Effective Time, pursuant to the provisions
of Section 15 of the 1940 Act, and consistent with all requirements of the 1940
Act applicable thereto, provided that such agreement is identical in all
respects to the existing agreement other than the term of the agreement.
(c) The Company shall, and shall cause each of the Asset Management
Subsidiaries to, use their commercially reasonable efforts to ensure the
satisfaction of the conditions set forth in Section 15(f) of the 1940 Act with
respect to each of the Kemper Funds (including KINF), including the requirement
that no "unfair burden" (as defined in Section 15(f)(1)(B) of the 1940 Act) be
imposed on any of the Kemper Funds.
SECTION 5.11 Advisory Contract Consents. As promptly as practicable, the
Company shall cause the non-investment company advisory clients of the Asset
Management Subsidiaries to be informed of the transactions contemplated by this
Agreement and shall give such clients an opportunity to terminate their advisory
contracts with such Asset Management Subsidiaries or any of their affiliates.
Unless written consent is required by the terms of such advisory contracts, ZIP,
Zurich and Insurance Partners agree that the Company may satisfy this obligation
to the extent that applicable law permits insofar as it relates to noninvestment
company advisory clients by providing them with the notice contemplated by the
first sentence of this Section 5.11 and obtaining such clients' consent in the
form of actual or implied consent by way of informing such clients of the Asset
Management Subsidiaries' intention to continue the advisory services, pursuant
to the Asset Management Subsidiaries' existing contracts with such clients,
subject to such clients' right to terminate such contracts within sixty (60)
days of receipt of such notice, and that each such client's consent will be
implied if it continues to accept the services without rejection during such
specified sixty-day period.
SECTION 5.12 Certain Fees and Expenses. (a) The Company shall pay to
Zurich and Insurance Partners (or their designees) a single fee of $80 million
(the "Section 5.12 Fee"), upon the earlier of demand
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or at the time specified in Section 5.8, if (i) this Agreement is terminated
pursuant to Section 7.1(b), (c) or (d) or (ii) the Section 5.12 Fee is payable
pursuant to Section 5.8.
(b) If this Agreement is terminated pursuant to Section 7.1(a) or (e),
provided that any such termination pursuant to Section 7.1(e) is based on a
breach of a covenant or agreement or a willful breach of a representation or
warranty on the part of the Company, then the Company shall pay Zurich and
Insurance Partners (or their designees) (i) a single fee of $40 million, upon
demand following the date of such termination and (ii) if within 12 months after
the date of such termination of this Agreement, a transaction contemplated by a
Transaction Proposal shall have occurred or the Company shall have entered into
a definitive agreement relating to a transaction contemplated by a Transaction
Proposal, an additional single fee of $40 million which, in the case such a
transaction shall have occurred, shall be payable upon demand and, in the case
such transaction shall not have occurred, shall be payable upon demand on the
earlier of (x) the date such transaction occurs and (y) six months after a
definitive agreement relating to such transaction has been entered into by the
Company.
(c) If this Agreement is terminated pursuant to Section 7.1(h), (i) or (j),
and such termination is due to the fact that any of the conditions set forth in
Sections 6.1(c), 6.1(e)(i)(b), 6.1(g), 6.2(a) (as qualified below, but without
limiting the provisions of Section 5.12(b) hereof), 6.2(c), 6.2(e), 6.2(i),
6.2(j), 6.2(k) or 6.2(l) have not been satisfied or waived, and if within 12
months after the date of such termination a transaction contemplated by a
Transaction Proposal shall have occurred or the Company shall have entered into
a definitive agreement relating to a transaction contemplated by a Transaction
Proposal, then the Company shall pay Zurich and Insurance Partners (or their
designees) a single fee of $40 million, which, in the case such a transaction
shall have occurred, shall be payable upon demand and, in the case such
transaction shall not have occurred, shall be payable upon demand on the earlier
of (x) the date such transaction occurs and (y) six months after a definitive
agreement relating to such transaction has been entered into by the Company. If
the termination of the Agreement pursuant to Section 7.1(h) (and without
limiting the provisions of Section 5.12(b) hereof) is due to the failure to
satisfy the condition set forth in Section 6.2(a), the payment required by the
preceding sentence shall only be payable if the condition is not satisfied
because of the failure of a representation or warranty to meet the applicable
standard of truthfulness and correctness set forth in said Section 6.2(a) as of
the date of this Agreement.
(d) For purposes of this Section 5.12, "Transaction Proposal" shall not
include the purchase of an equity interest in the Company or any of its
subsidiaries if such purchase, together with all related purchases, constitutes
less than 5% of the common stock of the Company or such subsidiary and less than
5% of all securities of the Company or such subsidiary entitled to vote
generally in the election of directors.
(e) Whether or not the Merger is consummated or this Agreement is
terminated and in addition to any other amounts payable under this Section 5.12,
the Company agrees to pay all of its Transaction Expenses and the Transaction
Expenses of ZIP, Zurich and Insurance Partners; provided, however, that the
Company shall have no obligation to pay any Transaction Expenses of ZIP, Zurich
and Insurance Partners if (i) ZIP, Zurich or Insurance Partners fails to close
the transactions contemplated hereby after each of the closing conditions set
forth in Sections 6.1 and 6.2 have been fully satisfied (or deemed satisfied
pursuant to Section 6.4) (unless such failure to close occurs as a result of any
action taken by the Company) or (ii) the Company terminates this Agreement
pursuant to Section 7.1(f) (unless the breach by ZIP, Zurich or Insurance
Partners occurs as a result of any action taken by the Company). To the extent
provided for in the preceding sentence, the Transaction Expenses of ZIP, Zurich
and Insurance Partners shall be paid by the Company on the earlier of the
Effective Time, the date of termination of this Agreement, or at the time
specified in Section 5.8. For purposes of this Section 5.12, "Transaction
Expenses" shall mean, with respect to any party, the documented out-of-pocket
expenses (except to the extent expressly set forth below) of such party (whether
or not incurred prior to the date hereof) arising out of, relating to or
incidental to the discussion, evaluation, negotiation, documentation and closing
or potential closing of the Merger, the KFS Sale, the sale of real estate assets
in accordance with Section 4.6, the financing of such transactions, and all
other transactions contemplated by this Agreement (including, without
limitation, the fees, disbursements and other expenses of attorneys (including
allocated in-house attorneys costs), accountants, actuaries, investment bankers,
consultants and any other advisors (which may include fees, disbursements and
other expenses payable to affiliates of Zurich
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or Insurance Partners), and all printing costs and filing fees incurred in
connection with such transactions); provided, however, that the Transaction
Expenses payable under this Section 5.12 shall not exceed an aggregate of $35
million. For purposes of this Section 5.12, "Insurance Partners" means IP, IP
Bermuda, and their affiliates and "Zurich" means Zurich and its affiliates.
(f) In addition to the other provisions of this Section 5.12, upon demand,
the Company agrees to reimburse ZIP, Zurich and Insurance Partners for all
out-of-pocket costs, fees and expenses, including, without limitation, the fees
and disbursements of counsel and the expenses of litigation, incurred in
connection with collecting Transaction Expenses, the Section 5.12 Fee or any
other fee described in this Section 5.12 as a result of any breach by the
Company of its obligations under this Section 5.12.
(g) All amounts payable under this Section 5.12 shall be paid in
immediately available funds to an account or accounts designated by ZIP. The
Company shall not be required to pay the Section 5.12 Fee or the same expense
reimbursement more than once.
SECTION 5.13 Compliance with Section 15(f) of the 1940 Act by
Zurich. Zurich shall use commercially reasonable efforts to assure the
satisfaction of the conditions set forth in Section 15(f) of the 1940 Act with
respect to each of the Kemper Funds, including the requirement that no "unfair
burden" (as defined in Section 15(f)(1)(b) of the 1940 Act) be imposed on any of
the Kemper Funds. With the assistance of the Company in accordance with Section
5.3 of this Agreement, Zurich shall use commercially reasonable efforts
(including reasonable undertakings) to obtain approval of the new investment
advisory agreements between the Asset Management Subsidiaries and the Kemper
Funds by the boards of trustees or directors of the Kemper Funds.
SECTION 5.14 Financing. The Company will, and will cause its subsidiaries
to, cooperate with ZIP and take all commercially reasonable actions necessary in
order to assist ZIP in obtaining third party financing, if any, for the Merger
and arranging third party credit facilities to replace any bank credit
facilities of the Company and its subsidiaries which shall no longer be
available as a result of the Merger.
SECTION 5.15 Certain Information Regarding Pension Plan Terminations. The
Company shall promptly provide ZIP with copies of all written annuity quotes as
received from insurance companies in connection with the termination of the
Economy Retirement Plan, the FKLA Retirement Plan and the FKI Retirement Plan
within a reasonable time after received but in any event no later than five
business days prior to the date on which the annuities are purchased.
SECTION 5.16 Board Action Relating to Stock Options and Phantom Stock
Rights. (a) As soon as practicable following the date of this Agreement, the
Board of Directors of the Company (or, if appropriate, any committee
administering a Company Stock Option Plan) shall adopt such resolutions or take
such actions as may be required to cancel outstanding Company Stock Options and
Phantom Stock Rights in accordance with Section 2.2, and the Company shall have
taken such actions prior to the record date of the distribution of Newco Common
Stock contemplated by the ESOP Sale with respect to the Company Stock Options
(other than adjustment of the exercise price of Company Stock Options granted in
April 1994 the exercise price of which is $58 per share, but only to the extent
of an adjustment to the exercise price thereof that does not reduce such
exercise price below $50 per share) and Phantom Stock Rights to preclude any
anti-dilution adjustment (whether to the exercise price, the appreciation base,
the number of shares of Common Stock subject thereto or otherwise) that
otherwise would have occurred as a result of the ESOP Sale (collectively, the
"Anti-dilution Actions") (it being understood that the holders may receive
shares of Newco Common Stock in lieu of such adjustment) and shall make such
other changes to the Company Stock Option Plans and Phantom Stock Rights as it
deems appropriate to give effect to the Merger (subject to the approval of ZIP,
which shall not be unreasonably withheld).
(b) As soon as practicable following the date of this Agreement, the
Company shall cause the Board of Directors of KFC (or, if appropriate, any
committee administering any plan relating to the KFC Stock Options) to take such
actions as may be required to cancel outstanding KFC Stock Options effective as
of the Effective Time (subject to the approval of ZIP, which shall not be
unreasonably withheld) (the Company
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hereby represents and warrants that no anti-dilution adjustments with respect to
the KFC Stock Options shall be required in connection with the ESOP Sale).
SECTION 5.17 Lumbermens Series C Preferred Stock. If, prior to the
Effective Time, Zurich, Insurance Partners and Lumbermens enter into an
agreement relating to the Lumbermens Agreement which involves action, with
respect to the Series C Preferred Stock, in the Merger, that is different than
as contemplated hereby, the Company shall take such actions (including agreeing
to amend this Agreement if necessary), as ZIP reasonably requests, to effectuate
such agreement.
SECTION 5.18 Merger Preferred Stock. If, prior to the Effective Time, ZIP
requests that the Company authorize one or more new series of Preferred Stock to
be issued in connection with the Merger, the Company shall file a certificate of
designation or certificates of designation, in forms delivered by ZIP and, as to
form, reasonably acceptable to the Company, with respect to such new series of
Preferred Stock with the Delaware Secretary of State immediately prior to the
Effective Time and, if necessary, shall amend this Agreement to permit the
issuance of such Preferred Stock in the Merger.
SECTION 5.19 Consents. As soon as reasonably practicable following the
date hereof, ZIP shall provide the Company with a list of individuals who shall
have authority from ZIP to grant consent on behalf of ZIP under Articles IV and
V of this Agreement.
SECTION 5.20 Benefit Plans. (a) The Company and each other Commonly
Controlled Entity shall, if requested by ZIP, use commercially reasonable
efforts to cause any payment to an employee under any contract, Benefit Plan,
program, arrangement or understanding, to be delayed until after the Closing
Date to the extent that such delay would reduce or eliminate the portion of such
payment which otherwise would be disallowed as a deduction under Section 162(m)
of the Code; provided, however, that such delay shall occur only if not
otherwise legally inconsistent with the terms of any such contract, Benefit
Plan, program, arrangement or understanding. The Surviving Corporation shall
make any such delayed payments as soon as practicable after the Closing Date in
accordance with the terms of the applicable contract, Benefit Plan, program,
arrangement or understanding.
(b) For the one year period beginning on the Closing Date, the Surviving
Corporation shall continue to maintain each of the following Benefit Plans: (i)
all qualified "defined contribution" plans (as defined in Section 414(i) of the
Code), (ii) all supplemental plans, to the extent such plans provide benefits
which cannot otherwise be provided, as a result of applicable Code limitations,
under the aforementioned defined contribution plans and (iii) all "welfare
plans" (as defined in section 3(1) of ERISA); provided, however, that the
aforementioned clauses (ii) and (iii) shall only apply with respect to the
lesser of the level of benefits provided (A) on March 13, 1994 (except as
applied to employees of FKLA and with respect to the General Severance Program
included in the employee handbook first distributed on August 12, 1994, such
program as in effect on such date) and (B) immediately prior to the Effective
Time, under such plans (or any predecessor thereof) as then in effect on such
relevant date.
(c) As of the Effective Time, Continuing Employees then participating in
each of the aforementioned defined contribution plans shall have nonforfeitable
rights to receive the amounts then credited to their accounts thereunder, as
thereafter from time to time adjusted for subsequent investment gain and loss
experience thereon; provided, however, that the provisions of this subsection
(c) shall apply with respect to any such plan only to the extent that any
forfeitures thereunder would otherwise not be used to reduce future employer
contributions otherwise to be made thereto.
(d) Each Continuing Employee shall be given full credit for his or her
pre-Effective Time service with the Company and each of its subsidiaries and
predecessor employers, but only to the extent such service is recognized under
the terms of the specific Benefit Plan of the Company or Company subsidiary with
respect to which such service would be taken into account as of the Effective
Time (disregarding any amendment, board of director, benefit plan committee,
plan administrator or other action after the date hereof), for all purposes
(other than for benefit accrual, level of benefits or determination of the rate
or rates of contribution) under each Benefit Plan, program or arrangement
offered to Continuing Employees on or after the Effective Time
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which corresponds to the Company or Company subsidiary plan under which such
service was credited prior to the Effective Time.
(e) As used in this Section 5.20, "Continuing Employee" means each employee
of the Company or a subsidiary of the Company as of the Effective Time.
SECTION 5.21 Lumbermens Agreement. The Company shall keep ZIP informed of
all actions taken by the Company (and its affiliates) and/or, to the extent
known by the Company, Lumbermens (and its affiliates), and all material
communications between the Company and Lumbermens, pursuant to or in connection
with the Lumbermens Agreement or the transactions and events contemplated
thereby. If Lumbermens breaches any obligation under the Lumbermens Agreement,
the Company shall take all actions reasonably requested by ZIP with respect to
the enforcement of such obligation.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding Common Stock entitled to vote thereon.
(b) Governmental and Regulatory Consents. All filings required to be
made prior to the Effective Time with, and all consents, approvals, permits
and authorizations required to be obtained prior to the Effective Time
from, Governmental Entities, including, without limitation, those set forth
in Section 3.1(d)(vi) of the Disclosure Schedule in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (including, without limitation, the
consummation of the KFS Sale) will have been made or obtained, as the case
may be, and shall be in full force and effect without any term, condition
or restriction that is not reasonably satisfactory to ZIP, Zurich or
Insurance Partners or, if such term, condition or restriction would be
effective absent consummation of the Merger, the Company; provided,
however, that such consents, approvals, permits and authorizations may be
subject to terms, conditions and limitations (other than terms, conditions
or limitations that impose any restrictions (other than any restrictions
expressly set forth in applicable insurance statutes) on the payment of
dividends by any Regulated Insurance Company) that are set forth expressly
in applicable insurance statutes, rules, and regulations or are otherwise
authorized by such statutes, rules or regulations and are customarily
imposed by insurance regulatory authorities; and provided further, that in
the event Insurance Partners shall have breached its obligations under
either Section 5.3 or 5.9 in any material respect, neither Zurich nor ZIP
may invoke this condition unless Zurich and ZIP shall have used
commercially reasonable efforts in accordance with Sections 5.3 and 5.9 to
obtain such consents, approvals, permits or authorizations on terms and
conditions that do not require the cooperation of, or any action by,
Insurance Partners.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger and the KFS Sale under the HSR Act shall have been
terminated or shall have otherwise expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger and the KFS Sale shall be in effect;
provided, however, that the party invoking this condition shall use
commercially reasonable efforts to have any such order or injunction
vacated.
(e) Kemper Fund Approvals. In accordance with Section 15 of the 1940
Act, (i)(A) the respective boards of trustees/directors of the Kemper
Funds, including in each case a majority of trustees/directors who are not
parties to the investment advisory contracts of such Kemper Funds or
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"interested persons" (as such term is defined in the 1940 Act) of any such
party (the "Non-Interested Directors"), and (B) the holders of a majority
of the outstanding voting securities (as such term is defined in the 1940
Act) of the Kemper Funds (including KINF) which, as of April 30, 1995,
represented at least 90% of all of the net assets of all of the Kemper
Funds (including KINF) as of such date and the holders of a majority of the
outstanding voting securities (as such term is defined in the 1940 Act) of
KINF acting in accordance with voting instructions shall have approved new
investment advisory contracts with the Asset Management Subsidiaries acting
as investment advisers of such funds upon terms identical with those of
each such Kemper Fund (including KINF) (other than changes in the term of
the contract); and (ii) the board of trustees/directors, including a
majority of the Non-Interested Directors, of each of the Kemper Funds
(including KINF) which has approved a new investment advisory contract
shall have approved new underwriting, distribution or dealer contracts, if
any, with the applicable subsidiaries of the Company that are parties to
such agreements pursuant to Section 15 of the 1940 Act and any other
requirements applicable thereto contained in the 1940 Act.
(f) Advisory Client Approvals. The Company shall have obtained, in
accordance with Section 5.11, the consent of non-investment company
advisory clients of the Asset Management Subsidiaries who are not
affiliated with the Company and who, as of April 30, 1995, represent at
least 80% of all of the net assets under management as of such date for all
such advisory clients not affiliated with the Company.
(g) Compliance with Section 15(f) of the 1940 Act. At the time of the
Closing, (i) at least 75% of the members of the board of trustees/directors
of each Kemper Fund which has approved a new investment advisory contract
shall not be "interested persons" (as such term is defined in the 1940 Act)
of Zurich or an affiliate of Zurich that will act as investment adviser to
such Kemper Funds following the Effective Time, or of the Company or of any
affiliate of the Company that was the investment adviser of any such Kemper
Fund immediately preceding the Effective Time; and (ii) the requirements of
Section 15(f)(1)(B) of the 1940 Act shall have been complied with in that
no "unfair burden" shall have been imposed on any of the Kemper Funds as a
result of this Agreement or under the KFS Agreement, the transactions
contemplated hereunder, new investment advisory contracts or otherwise.
SECTION 6.2 Conditions to Obligations of ZIP, Zurich and Insurance
Partners. The obligations of ZIP, Zurich and Insurance Partners to effect the
Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in Section 3.1 of this Agreement and in
Article II of the KFS Agreement that are qualified as to materiality shall
be true and correct and the representations and warranties of the Company
set forth in Section 3.1 of this Agreement and Article II of the KFS
Agreement that are not so qualified shall be true and correct in all
material respects, in each case on the date of this Agreement (except to
the extent cured prior to the Closing Date) and on the Closing Date as
though made on the Closing Date, except to the extent such representations
and warranties speak as of an earlier date, and ZIP shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to the effect set forth in
this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations and covenants required
to be performed by it (i) under this Agreement at or prior to the Closing
Date and (ii) under the KFS Agreement, and ZIP shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect.
(c) Appraisal Rights. No appraisal rights shall have been asserted by
any holders of capital stock of the Company other than the holders of
Dissenting Common Shares representing no more than 5% of the Common Stock
outstanding on the date of this Agreement and Dissenting Preferred Shares
(other than Dissenting Preferred Shares that are shares of Series C
Preferred Stock) representing not more than 10% of the aggregate shares of
the Series A Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock outstanding on the date of this Agreement. No appraisal
rights shall have been asserted by any holders of Series C Preferred Stock.
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(d) Sale of the Asset Management Subsidiary. The KFS Sale shall have
been consummated in all material respects in accordance with the terms and
conditions set forth in the KFS Agreement, except that the failure to
consummate the KFS Sale shall not be a violation of this condition if (i)
such failure shall have been caused by a breach by Zurich or KFS
Acquisition Corp. of its representations, warranties, covenants and
agreements under the KFS Agreement or (ii) ZIP elects to have the KFS Sale
consummated after the Effective Time.
(e) ESOP Sale. The ESOP Sale and the other transactions contemplated
by the ESOP Agreements and the ESOP Credit Agreement shall have been
consummated in all material respects in accordance with the terms and
conditions set forth in Exhibit I to the Disclosure Schedule.
(f) New Material Litigation. After the date of this Agreement, no
suit, action, proceeding, arbitration or investigation shall have been
commenced or threatened against or affecting the Company or any of its
subsidiaries that is more likely than not to result, either individually or
in the aggregate with any similar newly commenced suits, actions,
proceedings, arbitrations or investigations, in liability to the Company or
any subsidiary that would have a Material Adverse Effect with respect to
the Company.
(g) No Material Adverse Change in Existing Litigation. There shall
have been no material adverse changes or developments arising out of or
relating to any suits, actions, proceedings, arbitrations or investigations
against or affecting the Company or any of its subsidiaries that were
outstanding on the date of this Agreement and described in Section 3.1(j)
of the Disclosure Schedule.
(h) No Material Adverse Change. Since December 31, 1994, there shall
have been no Material Adverse Change with respect to the Company; provided,
however, that the events set forth in Section 6.2(h) of the Disclosure
Schedule shall not constitute a Material Adverse Change for purposes of
this Section 6.2(h) or Section 3.1(g)(i).
(i) Lumbermens Agreement. The letter agreement dated the date hereof
among the Company, KFS, ZIP, Zurich, Insurance Partners and Lumbermens (the
"Lumbermens Agreement") shall be in full force and effect.
(j) No Event of Default. (i) No Event of Default shall have occurred
and be continuing, (ii) no event or condition shall exist that, with the
giving of notice or lapse of time, would become an Event of Default (other
than an Event of Default under Section 501(4) of each of the Chase
Indenture and the First Chicago Indenture) and (iii) no event or condition
exists that, with the giving of a valid notice and lapse of time, would
become an Event of Default under Section 501(4) of either of the Chase
Indenture and the First Chicago Indenture.
(k) Stock Options and Phantom Stock Rights. The Company shall have
obtained all necessary waivers, consents, releases and amendments in order
to implement the provisions of Section 2.2 (except for waivers, consents,
releases and amendments relating to Company Stock Options exercisable for
fewer than 50,000 shares of Common Stock in the aggregate, provided that
such options are held by fewer than twenty optionees) and to cancel the KFC
Stock Options effective as of the Effective Time, in each case, to the
reasonable satisfaction of ZIP. The Anti-Dilution Actions with respect to
all Company Stock Options and the Phantom Stock Rights shall be full force
and effect.
(l) Board of Directors and Officers. Prior to the Effective Time, the
directors and officers of the Company or its subsidiaries set forth in a
written notice delivered by ZIP to the Company at least 10 days prior to
the Closing Date, shall have provided their written resignations to the
Company and ZIP or, in the case of any officer of the Company or a
subsidiary or any director of a subsidiary of the Company shall have been
removed and the persons specified in such written notice shall have been
duly elected as directors and/or officers of the Company or any of the
subsidiaries in accordance with such written notice, in all cases effective
at the Effective Time.
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SECTION 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of ZIP and Zurich, as the case may be, set forth in Sections 3.2
and 3.3, as the case may be, that are qualified as to materiality shall be
true and correct and the representations and warranties set forth in
Sections 3.2 and 3.3 of this Agreement that are not so qualified shall be
true and correct in all material respects, in each case on the date of this
Agreement (except to the extent cured prior to the Closing Date) and on the
Closing Date as though made on the Closing Date, except to the extent such
representations and warranties speak as of an earlier date, and the Company
shall have received certificates signed on behalf of each of ZIP and Zurich
by the chief executive officer and the chief financial officer of each of
ZIP and Zurich to the effect set forth in this paragraph.
(b) Performance of Obligations of ZIP, Zurich and Insurance
Partners. ZIP, Zurich and Insurance Partners shall have performed in all
material respects all obligations and covenants required to be performed by
them under this Agreement at or prior to the Closing Date, and the Company
shall have received certificates signed on behalf of each of ZIP, Zurich
and Insurance Partners by the chief executive officer and the chief
financial officer of each of ZIP and Zurich and the general partners of
Insurance Partners to such effect; provided, however, that this condition
shall be deemed satisfied if Insurance Partners shall have breached the
covenants set forth in Sections 5.3 and 5.9 and the condition to closing
set forth in Section 6.1(b) shall nevertheless have been satisfied.
SECTION 6.4 Satisfaction of Closing Conditions. (a) The conditions to the
obligations of ZIP, Zurich and Insurance Partners to effect the Merger set forth
in Sections 6.1 and 6.2 of this Agreement shall be deemed to be satisfied on the
Closing Date if the KFS Sale shall have been consummated prior to the Closing
Date.
(b) If ZIP makes an election by written notice as described in Section
1.2(b) hereof (the "Section 1.2(b) Notice"), then, on a business day specified
in the Section 1.2(b) Notice, which shall be not more than five business days
after the date on which ZIP delivers the Section 1.2(b) Notice (the "Preliminary
Closing Date"), a preliminary closing shall take place at the offices of Willkie
Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York,
at 10:00 a.m., at which the Company shall seek to fulfill all conditions to the
obligation of ZIP to effect the Merger set forth in Sections 6.1 and 6.2 (other
than Sections 6.2(d) and (l) but including, without limitation, the delivery of
the officers' certificates under Sections 6.2(a) and (b)) (the "Preliminary
Closing Conditions"). If the Company shall fulfill all of the Preliminary
Closing Conditions on the Preliminary Closing Date, then on the Closing Date (i)
the Company's obligation to effect the Merger shall be subject to the
satisfaction or waiver on such date of each of the conditions set forth in
Sections 6.1 and 6.3 and (ii) ZIP, Zurich and Insurance Partners' obligation to
effect the Merger shall be subject to the satisfaction or waiver on such date of
each of the conditions set forth in Sections 6.1 and 6.2; provided, however,
that (A) the conditions to the obligation of ZIP, Zurich and Insurance Partners
to effect the Merger set forth in Sections 6.2(c), (e), (f), (g) and (h) shall
be deemed to have been satisfied on the Closing Date and (B) the condition set
forth in Section 6.2(a) must be satisfied or waived on the Closing Date, except
that such condition to the extent it applies to the truth and correctness as of
the Closing Date of the representations and warranties set forth in Sections
3.1(e) through (l), (n), (p) through (u), and (x) through (bb) of this Agreement
and Sections 2.5 through 2.11 and 2.13 through 2.17 of the KFS Agreement and
Section 2.18 of the KFS Agreement, to the extent that such Section 2.18
incorporates by reference Sections 3.1(e) through (l), (n), (p) through (u) and
(x) through (bb) of this Agreement, shall be deemed to be satisfied on the
Closing Date unless the failure to satisfy such condition is a result of any
willful action or willful inaction by the Company, any of its subsidiaries or
any officers or directors thereof. If the Company shall fulfill the Preliminary
Closing Conditions, then the Closing shall occur on a business day specified in
a written notice from ZIP to the Company, which shall be not fewer than three
business days after the date on which ZIP delivers such notice and shall be no
later than January 4, 1996. If the Company shall not fulfill all of the
Preliminary Closing Conditions on the Preliminary Closing Date, the Company must
fulfill all of the conditions set forth in Sections 6.1 and 6.2 on the Closing
Date as if no preliminary closing occurred.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time, whether before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company and/or ZIP:
(a) by either ZIP or the Company, if the Stockholders Meeting is held
and the required approval of the stockholders of the Company described in
Section 6.1(a) shall not have been obtained;
(b) by ZIP, if the Board of Directors of the Company shall have taken
any of the actions specified in Sections 5.8(i), (ii) or (iii) of this
Agreement;
(c) by the Company, if the Board of Directors of the Company shall
have taken any of the actions specified in Sections 5.8(i), (ii) or (iii)
of this Agreement, the taking of such actions was permitted by Section 5.8
of this Agreement and the Section 5.12 Fee and the Transaction Expenses of
ZIP, Zurich and Insurance Partners shall have been paid in accordance with
Section 5.8;
(d) by ZIP, if (i) a tender offer or exchange offer for shares of
capital stock of the Company (including a self-tender offer by the
Company), which would result in the beneficial ownership by any person or
any "group" (as defined in Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) of more than 20% of the outstanding
shares of Common Stock, is commenced, and the Board of Directors of the
Company either (a) recommends that the stockholders of the Company tender
their shares in such tender or exchange offer or (b) states that it is
neutral with respect to such tender or exchange offer, (ii) any person
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" shall have been formed which beneficially
owns, or has the right to acquire "beneficial ownership" of, more than 20%
of the then outstanding shares of the Common Stock or (iii) the Board of
Directors of the Company approves any transaction pursuant to Section
11(a)(ii)(B) or 13(d) of the Rights Agreement or amends or waives any
provision of the Rights Agreement or redeems the Rights issued thereunder
other than as contemplated under Section 3.1(w);
(e) by ZIP, if there has been any material breach of any
representation, warranty, covenant or agreement on the part of Company set
forth in this Agreement or in the KFS Agreement which breach, if not a
willful breach, has not been cured within 15 days following receipt by the
Company of notice of such breach; provided, however, that if the breach by
the Company may be cured and the Company is taking reasonable steps to cure
such breach, then ZIP may not terminate this Agreement until the earlier of
(i) the 45th day following the receipt by the Company of the notice of such
breach and (ii) February 28, 1996.
(f) by the Company, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the Zurich,
Insurance Partners or ZIP set forth in this Agreement which breach, if not
a willful breach, has not been cured within 15 days following receipt by
the breaching party of notice of such breach; provided, however, that if
the breach by Zurich, Insurance Partners or ZIP may be cured and Zurich,
Insurance Partners or ZIP, as the case may be, is taking reasonable steps
to cure such breach, then the Company may not terminate this Agreement
until the earlier of (i) the 45th day following the receipt by the
breaching party of the notice of such breach and (ii) February 28, 1996;
provided, further, however, that the Company may not terminate this
Agreement under this Section 7.1(f) if Insurance Partners has breached the
covenants set forth in Sections 5.3 and 5.9 and ZIP and Zurich are in
compliance therewith;
(g) by either ZIP or the Company, if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger or
the KFS Sale and such order, decree, ruling or other action shall have
become final and nonappealable;
(h) by ZIP, if the conditions set forth in Sections 6.1 and 6.2 of
this Agreement shall not have been satisfied or waived and the Merger shall
not have been consummated on or before February 29, 1996,
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<PAGE> 100
unless the failure to consummate the Merger is the result of a willful and
material breach of this Agreement by the party seeking to terminate this
Agreement;
(i) by the Company, if the conditions set forth in Sections 6.1 and
6.3 of this Agreement shall not have been satisfied or waived and the
Merger shall not have been consummated on or before February 29, 1996,
unless the failure to consummate the Merger is the result of a willful and
material breach of this Agreement by the party seeking to terminate this
Agreement;
(j) by ZIP, (i) if the consents, approvals, permits or authorizations
required to be obtained from Governmental Entities pursuant to Section
6.1(b) shall have been sought and have been denied, (ii) if the approval of
the contracts required to be obtained pursuant to Section 6.1(e) shall have
been sought and shall have been refused or (iii) if the consents required
to be obtained pursuant to Section 6.1(f) shall have been sought and shall
have been refused; provided, however, that ZIP may not exercise its rights
under this Section 7.1(j) to terminate this Agreement if ZIP, Zurich or
Insurance Partners shall have willfully and materially breached its
obligations under either Section 5.3 or 5.9 of this Agreement; or
(k) by mutual written consent of ZIP and the Company.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either ZIP or the Company as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Zurich, Insurance Partners, ZIP or the Company,
other than the last sentence of Section 5.4 and Sections 3.1(x), 3.2(g), 3.3(f),
3.4(e), 5.6, 5.8, 5.12, 7.2, 8.8 and 8.12. Nothing contained in this Section
shall relieve any party from any liability resulting from any wilful and
material breach of the representations, warranties, covenants or agreements set
forth in this Agreement.
SECTION 7.3 Amendment. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
this Agreement by the stockholders of the Company, no amendment shall be made
which under applicable law requires the approval of such stockholders unless
such further stockholder approval shall have been obtained. This Agreement may
not be amended contraventions, except by an instrument in writing signed on
behalf of each of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) waive
compliance with any of the agreements or conditions of the other parties
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
SECTION 8.2 Guaranty. Zurich hereby irrevocably and unconditionally
guaranties the obligations of Insurance Partners and ZIP to consummate the
Merger.
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except as otherwise indicated in this Agreement, an "affiliate" of
any specified person means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the person specified;
A1-48
<PAGE> 101
(b) "Excluded Real Estate Subsidiary" means any Real Estate Subsidiary
with respect to which the Company, directly or indirectly, owns less than
80% of the equity interest;
(c) "Material Adverse Change with respect to the Company" or "Material
Adverse Effect with respect to the Company" means any change or effect
that, either individually or in aggregate with all other changes or
effects, is or would be materially adverse to the business, financial
condition or operations of the Company and its subsidiaries taken as a
whole or any Significant Subsidiary, or adversely affects the ability of
the Company or its affiliates to consummate the transactions contemplated
by this Agreement in any material respect;
(d) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(e) "real estate asset" means any direct or indirect debt or equity
interest in land, buildings, improvements or other real property other than
readily marketable securities;
(f) "Real Estate Subsidiaries" means (i) any subsidiary of the Company
that is primarily engaged, directly or indirectly, in the business of real
estate development, management or ownership and (ii) for the purposes of
Articles IV and V only, any partnership of which a Real Estate Subsidiary
described in clause (i) above is a general partner (the parties hereto
acknowledge that any Real Estate Subsidiary described in this clause (ii)
shall be an Excluded Real Estate Subsidiary notwithstanding not being
listed on Section 3.1(a) of the Disclosure Schedule);
(g) a "subsidiary" of any specified person means (i) a person of which
50% of the total combined voting power of all classes of voting stock or
other ownership interests is owned directly or indirectly by such specified
person and (ii) any Real Estate Subsidiary; and
(h) "transactions contemplated by this Agreement" or "transactions
contemplated hereby" shall mean the Merger, the KFS Sale, the ESOP Sale,
the Venture Capital Portfolio Sale, the sale of common stock of State
Street Boston Corporation in accordance with Section 4.4, the real estate
sales contemplated by Section 4.6 and Schedule I to this Agreement and any
other transactions contemplated by this Agreement, the KFS Agreement, the
ESOP Agreement and the ESOP Credit Agreement.
SECTION 8.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered personally, upon receipt of a transmittal confirmation if
sent by facsimile or like transmission, and upon receipt of proof of delivery
when sent by overnight mail or overnight courier to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Zurich, to:
Zurich Insurance Company
Mythenquai 2, P.O. Box Ch-8022
Zurich, Switzerland
Fax: 011-41-1-201-4790
Attention: Mr. Rolf Hueppi, President and Chief Executive Officer
with copies to:
Zurich Insurance Company
Mythenquai 2, P.O. Box Ch-8022
Zurich, Switzerland
Fax: 011-41-1-201-4790
Attention: Dr. Kaspar Hotz
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<PAGE> 102
Centre ReSource Limited
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-5002
Attention: Mr. Steven M. Gluckstern
Willkie Farr & Gallagher
53 East 53rd Street
New York, NY 10022
Fax: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
(b) if to Insurance Partners, to:
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, TX 76102
Fax: (817) 338-2047
Attention: Mr. Charles Irwin
and
Insurance Partners Offshore
(Bermuda), L.P.
Cedar House,
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM-EX, Bermuda
Fax: (809) 295-7768
Attention: Kenneth E.T. Robinson, Esq.
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax: (212) 757-3990
Attention: Matthew Nimetz, Esq.
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Mr. Daniel L. Doctoroff
A1-50
<PAGE> 103
(c) if to ZIP or the Surviving Corporation, to:
ZIP Acquisition Corp.
Zurich Towers
1400 America Lane
Schaumburg, IL 60196
Fax: (708) 605-6124
Attention: David Bowers, Esq.
with copies to:
Zurich Insurance Company
Mythenquai 2, P.O. Box Ch-8022
Zurich, Switzerland
Fax: 011-41-1-201-4790
Attention: Mr. Rolf Hueppi, President and Chief Executive Officer
Zurich Insurance Company
Mythenquai 2, P.O. Box Ch-8022
Zurich, Switzerland
Fax: 011-41-1-201-4790
Attention: Dr. Kaspar Hotz
Centre ReSource Limited
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-5002
Attention: Mr. Steven M. Gluckstern
Insurance Partners, L.P.
201 Main Street
Fort Worth, TX 76102
Fax: (817) 338-2047
Attention: Mr. Charles Irwin
Insurance Partners Offshore
(Bermuda), L.P.
Cedar House,
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM-EX, Bermuda
Fax: (809) 295-7768
Attention: Kenneth E.T. Robinson, Esq.
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Fax: (212) 898-8720
Attention: Mr. Daniel L. Doctoroff
A1-51
<PAGE> 104
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Fax: (212) 757-3990
Attention: Matthew Nimetz, Esq.
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Fax: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
(d) if to the Company prior to the Effective Time, to:
Kemper Corporation
One Kemper Drive
Long Grove, Illinois 60049
Fax: (708) 320-4363
Attention: Mr. David B. Mathis,
Chairman of the Board and Chief Executive Officer
with copies to:
Kemper Corporation
One Kemper Drive
Long Grove, Illinois 60049
Fax: (708) 320-4692
Attention: Kathleen A. Gallichio, Esq.,
Senior Vice President, General Counsel and Corporate
Secretary
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Charles I. Cogut, Esq.
SECTION 8.5 Interpretation. When a reference is made in this Agreement to
a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used by this Agreement, they
shall be deemed to be followed by the words "without limitation".
SECTION 8.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.7 Entire Agreement; Third-Party Beneficiaries. This Agreement
(including the exhibits and Schedules attached hereto) and the other agreements
referred to herein constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement. This Agreement is not intended
to confer upon any person other than the parties hereto and the third party
beneficiaries referred to in the following sentence any rights or remedies. The
parties hereto expressly intend the provisions of Section 5.5 to confer a
benefit upon and be enforceable by, as third party beneficiaries of this
Agreement, the directors, officers and employees referred to in, or intended to
be benefitted by, such provisions.
SECTION 8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
conflicts of law principles thereof.
A1-52
<PAGE> 105
SECTION 8.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operations of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void; provided, however, that Zurich shall have
the unrestricted right to assign this Agreement and to delegate all or any part
of its obligations hereunder to any majority-owned affiliate of Zurich, but in
such event Zurich shall remain fully liable for the performance of all of such
obligations in the manner prescribed in this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 8.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of Delaware
or any court of the United States located in the State of Delaware, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any court of the State of Delaware or any Federal court
located in the State of Delaware in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction or venue
by motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a court of the State of
Delaware or a Federal court sitting in the State of Delaware.
SECTION 8.11 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
SECTION 8.12 Fees and Expenses. The costs of preparing and distributing
proxy materials to and of holding the meetings of the Kemper Funds' stockholders
will be shared equally by ZIP and the Company.
A1-53
<PAGE> 106
IN WITNESS WHEREOF, each of Zurich, IP, IP Bermuda, ZIP and the Company has
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
ZURICH INSURANCE COMPANY
By: /s/ ROLF HUPPI
----------------------------------
Name: Rolf Huppi
Title: President and Chief
Executive Officer
By: /s/ KASPAR HOTZ
----------------------------------
Name: Kaspar Hotz
Title: Corporate Secretary and
General Counsel
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P., its
general partner
By: Insurance GenPar MGP, L.P., its
general partner
By: Insurance GenPar MGP, Inc., its
general partner
By: /s/ DANIEL L. DOCTOROFF
----------------------------------
Name: Daniel L. Doctoroff
Title: Managing Director INSURANCE PARTNERS OFFSHORE
(Bermuda), L.P.
By: Insurance GenPar (Bermuda),
L.P., its general partner
By: Insurance GenPar (Bermuda)
MGP, L.P., its general partner
By: Insurance GenPar (Bermuda)
MGP, Ltd., its general partner
By: /s/ DANIEL L. DOCTOROFF
----------------------------------
Name: Daniel L. Doctoroff
Title: Managing Director
ZIP ACQUISITION CORP.
By: /s/ DANIEL L. DOCTOROFF
----------------------------------
Name: Daniel L. Doctoroff
Title: Vice President
KEMPER CORPORATION
By: /s/ DAVID B. MATHIS
----------------------------------
Name: David B. Mathis
Title: Chairman of the Board and
Chief Executive Officer
<PAGE> 107
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of September 6, 1995, among Zurich Insurance
Company, a corporation organized under the laws of Switzerland ("Zurich"),
Insurance Partners, L.P., a Delaware limited partnership ("IP"), Insurance
Partners Offshore (Bermuda), L.P., a Bermuda limited partnership ("IP Bermuda"
and, together with IP, "Insurance Partners"), ZIP Acquisition Corp., a Delaware
corporation ("ZIP"), and Kemper Corporation, a Delaware corporation (the
"Company").
WHEREAS, the parties have entered into an Agreement and Plan of Merger
dated as of May 15, 1995 (the "Agreement");
WHEREAS, the parties wish to amend certain provisions of the Agreement; and
WHEREAS, Section 7.3 of the Agreement provides in relevant part that at any
time prior to the Effective Time, the parties may modify or amend the Agreement,
by written agreement executed and delivered by duly authorized officers of the
respective parties.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, Zurich,
Insurance Partners, ZIP and the Company hereby agree as follows:
1. Terms not specifically defined herein shall have the meanings set
forth in the Agreement.
2. The parties agree that the Merger Consideration to be (i) received
for each share of Common Stock and (ii) used in the calculation of the cash
payment to holders of Company Stock Options and Phantom Stock Rights in the
Merger shall be $49.80 without interest. Accordingly, all references in the
Agreement to "$49.50 per share" shall be amended to read "$49.80 per share"
for all intents and purposes under the Agreement.
3. References in the Agreement to the ESOP Sale shall be deemed to be
references to (i) a sale by KFC to the ESOP of approximately 96% of the
Newco Common Stock for $71.4 million, (ii) the issuance of approximately 4%
of the Newco Common Stock to the management of KSI, (iii) the issuance of
Newco non-voting common stock to the management of KSI representing
approximately a 1% common equity interest in Newco, (iv) the sale of
approximately $30 million aggregate liquidation preference of Series A
Exchangeable Preferred Stock of Newco (the "Newco Preferred Stock") by KFC
to the Company as payment for intercompany indebtedness and (v) the
distribution of approximately $30 million aggregate liquidation preference
of Newco Preferred Stock by the Company to its stockholders. Each of the
transactions in clauses (i)-(v) shall be effected pursuant to the terms and
conditions set forth in Annex A attached hereto. In furtherance thereof,
Schedule I of the Disclosure Schedule is amended and replaced in its
entirety by Annex A attached hereto.
A1-55
<PAGE> 108
4. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same Agreement and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
5. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to conflicts of law
principles thereof.
IN WITNESS WHEREOF, each of Zurich, IP, IP Bermuda, ZIP and the Company has
caused this agreement to be signed by its respective officers thereunto duly
authorized, all as of the date first written above.
ZURICH INSURANCE COMPANY
By: /S/ ROLF HUPPI
----------------------------------
Name: Rolf Huppi
Title: President and Chief
Executive Officer
By: /S/ KASPAR HOTZ
----------------------------------
Name: Kaspar Hotz
Title: Corporate Secretary and
General Counsel
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P.,
its general partner
By: Insurance GenPar MGP, L.P.,
its general partner
By: Insurance GenPar MGP, Inc.,
its general partner
By: /s/ STEVEN B. GRUBER
----------------------------------
Name: Steven B. Gruber
Title: Vice President and
Assistant Secretary INSURANCE PARTNERS OFFSHORE
(BERMUDA), L.P.
By: Insurance GenPar (Bermuda),
L.P.,
its general partner
By: Insurance GenPar (Bermuda) MGP,
L.P.,
its general partner
By: Insurance GenPar (Bermuda) MGP,
Ltd.,
its general partner
By: /s/ DANIEL DOCTOROFF
----------------------------------
Name: Daniel Doctoroff
Title: Vice President and
Assistant Secretary
ZIP ACQUISITION CORP.
By: /s/ DANIEL DOCTOROFF
----------------------------------
Name: Daniel Doctoroff
Title: Vice President
KEMPER CORPORATION
By: /s/ DAVID B. MATHIS
----------------------------------
Name: David B. Mathis
Title: Chairman of the Board and
Chief Executive Officer
<PAGE> 109
ANNEX 2
FAIRNESS OPINION OF GOLDMAN, SACHS & CO.
A2-1
<PAGE> 110
October 17, 1995
Board of Directors
Kemper Corporation
One Kemper Drive
Long Grove, Illinois 60049-0001
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $5.00 per share (the "Shares"),
of Kemper Corporation (the "Company") of the $49.80 per Share in cash to be
received by such holders pursuant to the Agreement and Plan of Merger dated as
of May 15, 1995, as amended on September 6, 1995, among Zurich Insurance
Company ("Zurich"), Insurance Partners L.P. ("IP"), Insurance Partners Offshore
(Bermuda), L.P. ("IP Bermuda" and, together with IP, "Insurance Partners"), ZIP
Acquisition Corp., and the Company (the "Agreement"). We understand that the
Company, as contemplated by the Agreement, has distributed to stockholders all
of its ownership in the securities brokerage business.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company and its affiliates from time to time including, among others,
having acted as managing underwriter for the issuance of $260 million of
preferred stock and $200 million of long-term debt of the Company in 1993,
having acted as its financial advisor in the Company's divestiture of its
reinsurance and risk management operations in 1993, and having acted as its
financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement. We have been separately retained by
the Company as financial advisor with respect to the sale of all or a part of
the Company's real estate portfolio.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1994; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q of the Company; the Proxy
Statement relating to the Special Meeting of Stockholders of the Company to be
held in connection with the Agreement; certain other communications from the
Company to its stockholders; and certain internal financial analyses and
forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company regarding the
past and current business operations, financial condition and future prospects
of the Company. In addition, we have reviewed the reported price and trading
activity for
<PAGE> 111
Kemper Corporation
October 17, 1995
Page Two
the Shares and compared certain financial and stock market information for the
Company with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the insurance and investment management industries
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries, and we have not been furnished with any such evaluation or
appraisal.
Based upon the foregoing and such other matters as we consider relevant, it is
our opinion that as of the date hereof the $49.80 per Share in cash to be
received by the holders of Shares pursuant to the Agreement is fair to such
holders.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE> 112
ANNEX 3
GENERAL CORPORATION LAW OF DELAWARE
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the vote
of the holders of the surviving corporation as provided in subsection (f)
of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale
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of all or substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
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<PAGE> 114
on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE> 115
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
NOVEMBER 15, 1995
AND
PROXY STATEMENT
KEMPER CORPORATION
LONG GROVE, ILLINOIS 60049
LOGO
<PAGE> 116
P R O X Y KEMPER CORPORATION P R O X Y
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
NOVEMBER 15, 1995
The undersigned hereby appoints each of Peter B. Hamilton, George D.
Kennedy and David B. Mathis proxies, with full power of substitution, with the
powers (each having full power to act without the others, and if two or more of
them act together, by action of a majority of them) the undersigned would
possess if personally present, to vote, as designated below, all shares of the
$5.00 par value Common Stock of Kemper Corporation (the "Company") owned by the
undersigned at the Special Meeting of Stockholders to be held on November 15,
1995 (the "Special Meeting"), and at any adjournments or postponements thereof.
This proxy is solicited on behalf of the Board of Directors of the
Company and will be voted FOR proposal 1 unless otherwise indicated.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 117
KEMPER CORPORATION
1. The approval and adoption of the Agreement and Plan of Merger,
dated as of May 15, 1995 and amended as of September 6, 1995,
among Zurich Insurance Company, Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda) L.P., ZIP Acquisition
Corp. and the Company.
/ / FOR / / WITHHELD / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon
any other matter that properly may come before the Special
Meeting or any adjournments or postponements thereof.
This Proxy, if properly executed, will be voted in accordance with the
undersigned's direction as set forth herein. If no direction is made, this
Proxy will be voted FOR Proposal 1. This Proxy may be revoked in writing prior
to its exercise.
Please sign your name exactly as it appears below. If shares are held
jointly, all joint owners should sign. If shares are held by a corporation,
please sign the full corporate name by the president or any other authorized
corporate officer. If shares are held by a partnership, please sign the full
partnership name by an authorized person. If you are signing as an attorney,
executor, administrator, trustee or guardian, please set forth your full title
as such.
The undersigned hereby revokes any proxies
heretofore given to vote upon or act with
respect to such shares and hereby ratifies and
confirms all that said attorneys, agents,
proxies, the substitutes or any of them may
lawfully do by virtue hereof.
Dated: ________________________________, 1995
Signature(s) ________________________________
Signature(s) ________________________________
(When signing as an attorney, executor,
administrator, trustee, guardian, etc., give
title as such. If joint account, each joint
owner should sign.)
<PAGE> 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Kemper Corporation:
We have audited the consolidated balance sheet of Kemper Corporation and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994. In connection with our
audits of the consolidated financial statements, we have also audited the
supplementary schedules as listed in the accompanying index. These consolidated
financial statements and supplementary schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and supplementary schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kemper Corporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related supplementary schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
As discussed in the notes to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investment
securities to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Also, as discussed in
the notes, effective January 1, 1993, the Company changed its method of
accounting for impairment of loans receivable to adopt the provisions of SFAS
114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and changed its method
of accounting for income taxes to adopt the provisions of SFAS 109, ACCOUNTING
FOR INCOME TAXES. Further, as discussed in the notes, the Company adopted the
provisions of SFAS 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS in 1992.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 3, 1995
