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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 15, 1995
KEMPER CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 1-10242 36-6169781
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or organization) Identification Number)
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One Kemper Drive 60049
Long Grove, Illinois (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (708) 320-4700
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Item 5. Other Events
MERGER AGREEMENT
On May 15, 1995, Kemper Corporation ("Kemper"), Zurich Insurance Company
("Zurich") and Insurance Partners, L.P. and Insurance Partners Offshore
(Bermuda), L.P. (collectively, "Insurance Partners," and together with Zurich,
the "Investor Group") entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Kemper would be acquired in a merger transaction.
A copy of Kemper's and the Investor Group's joint press release dated May 16,
1995 is attached hereto as Exhibit 20 and is incorporated herein by reference.
A copy of the Merger Agreement and copies of two related agreements are attached
hereto as Exhibits Nos. 2.1, 2.2 and 2.3, respectively, and are incorporated
herein by reference.
Item 7. Financial Statements and Exhibits
(b) Exhibits.
2.1 - Agreement and Plan of Merger dated May 15, 1995 between Zurich
Insurance Company, Insurance Partners, L.P., Insurance Partners Offshore
(Bermuda), L.P., ZIP Acquisition Corp. and Kemper Corporation.
2.2 - Agreement and Plan of Merger dated May 15, 1995 between Zurich
Insurance Company, KFS Acquisition Corp., Kemper Financial Services, Inc.,
Kemper Financial Companies, Inc. and Kemper Corporation.
2.3 - Letter Agreement dated May 15, 1995 between Zurich Insurance
Company, Insurance Partners, L.P., Insurance Partners Offshore (Bermuda), L.P.,
Lumbermens Mutual Casualty Company, Kemper Corporation and Kemper Financial
Services, Inc.
4 - Second Amendment to Rights Agreement dated as of May 15, 1995
between Kemper Corporation and Harris Trust and Savings Bank.
20 - Joint Press Release dated May 16, 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEMPER CORPORATION
BY: /s/ JOHN H. FITZPATRICK
-------------------------------
John H. Fitzpatrick
Executive Vice President
and Chief Financial Officer
May 22, 1995
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EXHIBIT 2.1
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
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger.............................................................
SECTION 1.2 Closing................................................................
SECTION 1.3 Effective Time.........................................................
SECTION 1.4 Effects of the Merger..................................................
SECTION 1.5 Certificate of Incorporation; By-laws..................................
SECTION 1.6 Directors..............................................................
SECTION 1.7 Officers...............................................................
ARTICLE II
EFFECT OF THE MERGER ON THE SECURITIES
OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock and Preferred Stock............................
(a) Common Stock of ZIP....................................................
(b) Cancellation of Treasury Stock.........................................
(c) Conversion of Common Stock.............................................
(d) Company Preferred Stock................................................
(e) Dissenting Shares......................................................
(f) Cancellation and Retirement of Common Stock............................
SECTION 2.2 Stock Options and Phantom Stock Units..................................
SECTION 2.3 Exchange of Certificates...............................................
(a) Paying Agent...........................................................
(b) Exchange Procedures....................................................
(c) No Further Ownership Rights in Common Stock............................
(d) Termination of Payment Fund............................................
(e) No Liability...........................................................
(f) Investment of Payment Fund.............................................
(g) Conversion of the Convertible Preferred Stock..........................
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company..........................
(a) Organization, Standing and Corporate Power; Subsidiaries...............
(b) Capital Structure......................................................
(c) Authority; Noncontravention; Binding Effect............................
(d) Government Approvals; Required Consents................................
(e) SEC Documents..........................................................
(f) Information Supplied...................................................
(g) Absence of Certain Changes or Events...................................
(h) Absence of Changes in Benefit Plans....................................
(i) Employee Benefits......................................................
(j) Litigation.............................................................
(k) Taxes..................................................................
(l) No Excess Parachute Payments; Section 162(m) of the Code...............
(m) Voting Requirements....................................................
(n) Compliance with Applicable Laws........................................
(o) Fair Value of KFS Sale.................................................
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(p) ESOP Sale..............................................................
(q) Dividends..............................................................
(r) Intercompany Indebtedness..............................................
(s) Transfer of Real Estate Assets.........................................
(t) State Street Boston Corporation Common Stock...........................
(u) Opinion of Financial Advisor...........................................
(v) Article Fifteenth of the Charter.......................................
(w) Rights Agreement.......................................................
(x) Brokers................................................................
(y) Ineligible Persons.....................................................
(z) Insurance Business.....................................................
(aa) Reinsurance............................................................
(bb) Full Disclosure........................................................
SECTION 3.2 Representations and Warranties as to ZIP of Zurich, IP,
IP Bermuda and ZIP.....................................................
(a) Organization, Standing and Corporate Power.............................
(b) Capital Structure......................................................
(c) No Prior Activities....................................................
(d) Authority; Noncontravention; Binding Effect............................
(e) Governmental Approvals.................................................
(f) Information Supplied...................................................
(g) Brokers................................................................
SECTION 3.3 Representations and Warranties of Zurich...............................
(a) Organization, Standing and Corporate Power.............................
(b) Authority; Noncontravention; Binding Effect............................
(c) Governmental Approvals.................................................
(d) Information Supplied...................................................
(e) Ineligible Persons; Compliance with Section 15(f) of the 1940 Act......
SECTION 3.4 Representations and Warranties of Insurance Partners...................
(a) Organization, Standing and Power.......................................
(b) Authority; Noncontravention; Binding Effect............................
(c) Governmental Approvals.................................................
(d) Information Supplied...................................................
(e) Brokers................................................................
ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PRIOR TO MERGER
SECTION 4.1 Conduct of Business of the Company.....................................
SECTION 4.2 Payment of Dividends; Advances and Cash Proceeds.......................
SECTION 4.3 KFC Obligations........................................................
SECTION 4.4 Sale of State Street Boston Corporation Common Stock...................
SECTION 4.5 ESOP Sale..............................................................
SECTION 4.6 Real Estate............................................................
SECTION 4.7 KFS Sale...............................................................
SECTION 4.8 Sale of Venture Capital Portfolio......................................
SECTION 4.9 Tax Returns............................................................
SECTION 4.10 Dividend Reinvestment Plan.............................................
SECTION 4.11 Subsidiaries...........................................................
SECTION 4.12 Other Actions..........................................................
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ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1 Preparation of Newco Form S-1 and the Proxy Statement..................
SECTION 5.2 Meeting of Stockholders................................................
SECTION 5.3 Reasonable Efforts.....................................................
SECTION 5.4 Access to Information; Confidentiality.................................
SECTION 5.5 Indemnification and Insurance..........................................
SECTION 5.6 Public Announcements...................................................
SECTION 5.7 No Solicitation........................................................
SECTION 5.8 Fiduciary Duties.......................................................
SECTION 5.9 Consents, Approvals and Filings........................................
SECTION 5.10 Company Satisfaction of the Conditions of Section 15 of the 1940 Act...
SECTION 5.11 Advisory Contract Consents.............................................
SECTION 5.12 Certain Fees and Expenses..............................................
SECTION 5.13 Compliance with Section 15(f) of the 1940 Act by Zurich................
SECTION 5.14 Financing..............................................................
SECTION 5.15 Certain Information Regarding Pension Plan Terminations................
SECTION 5.16 Board Action Relating to Stock Options and Phantom Stock Rights........
SECTION 5.17 Lumbermens Series C Preferred Stock....................................
SECTION 5.18 Merger Preferred Stock.................................................
SECTION 5.19 Consents...............................................................
SECTION 5.20 Benefit Plans..........................................................
SECTION 5.21 Lumbermens Agreement...................................................
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.............
(a) Stockholder Approval...................................................
(b) Governmental and Regulatory Consents...................................
(c) HSR Act................................................................
(d) No Injunctions or Restraints...........................................
(e) Kemper Fund Approvals..................................................
(f) Advisory Client Approvals..............................................
(g) Compliance with Section 15(f) of the 1940 Act..........................
SECTION 6.2 Conditions to Obligations of ZIP, Zurich and Insurance Partners........
(a) Representations and Warranties.........................................
(b) Performance of Obligations of the Company..............................
(c) Appraisal Rights.......................................................
(d) Sale of the Asset Management Subsidiary................................
(e) ESOP Sale..............................................................
(f) New Material Litigation................................................
(g) No Material Adverse Change in Existing Litigation......................
(h) No Material Adverse Change.............................................
(i) Lumbermens Agreement...................................................
(j) No Event of Default....................................................
(k) Stock Options and Phantom Stock Rights.................................
(l) Board of Directors and Officers........................................
SECTION 6.3 Conditions to Obligation of the Company................................
(a) Representations and Warranties.........................................
(b) Performance of Obligations of ZIP, Zurich and Insurance Partners.......
SECTION 6.4 Satisfaction of Closing Conditions.....................................
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination............................................................
SECTION 7.2 Effect of Termination..................................................
SECTION 7.3 Amendment..............................................................
SECTION 7.4 Extension; Waiver......................................................
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties..........................
SECTION 8.2 Guaranty...............................................................
SECTION 8.3 Definitions............................................................
SECTION 8.4 Notices................................................................
SECTION 8.5 Interpretation.........................................................
SECTION 8.6 Counterparts...........................................................
SECTION 8.7 Entire Agreement; Third-Party Beneficiaries............................
SECTION 8.8 Governing Law..........................................................
SECTION 8.9 Assignment.............................................................
SECTION 8.10 Enforcement............................................................
SECTION 8.11 Severability...........................................................
SECTION 8.12 Fees and Expenses......................................................
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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
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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 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
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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."
(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
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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 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
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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 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
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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 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.
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(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
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
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<PAGE> 13
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 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
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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 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
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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, 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");
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(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 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
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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 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
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<PAGE> 18
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 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
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<PAGE> 19
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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<PAGE> 20
(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.
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<PAGE> 21
(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.
(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
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<PAGE> 22
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
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
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<PAGE> 23
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 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,
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<PAGE> 24
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
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.
(g) 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.
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(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 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
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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.
(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).
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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 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,
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<PAGE> 28
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, 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
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<PAGE> 29
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.
(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
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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 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.
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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 (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
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<PAGE> 32
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 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;
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(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
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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
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
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(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 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.
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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., 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
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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.
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.
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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 $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
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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, 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
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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 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.
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(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 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.
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(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 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
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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 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,
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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 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.
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(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
"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.
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(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.
(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
42
<PAGE> 48
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.
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
43
<PAGE> 49
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.
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;
44
<PAGE> 50
(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, 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;
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<PAGE> 51
(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;
(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
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<PAGE> 52
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> 53
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
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<PAGE> 54
(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
49
<PAGE> 55
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.
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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.
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.
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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:
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
52
<PAGE> 58
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 & CEO
53
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--------------------------------------------------------------------------------
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
AMONG
ZURICH INSURANCE COMPANY,
KFS ACQUISITION CORP.,
KEMPER FINANCIAL SERVICES, INC.,
KEMPER FINANCIAL COMPANIES, INC.
AND
KEMPER CORPORATION
DATED AS OF MAY 15, 1995
--------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.1. The Merger............................................................
SECTION 1.2. Closing...............................................................
SECTION 1.3. Effective Time........................................................
SECTION 1.4. Effects of the Merger.................................................
SECTION 1.5. Certificate of Incorporation; By-laws.................................
SECTION 1.6. Directors.............................................................
SECTION 1.7. Officers..............................................................
SECTION 1.8. Effect on Capital Stock...............................................
SECTION 1.9. Subsequent Actions....................................................
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY, KFC AND KEMPER
SECTION 2.1. Organization, Standing and Corporate Power............................
SECTION 2.2. Capital Structure.....................................................
SECTION 2.3. Authority; Noncontravention; Binding Effect...........................
SECTION 2.4. Governmental Approvals; Required Consents.............................
SECTION 2.5. SEC Documents; Financial Statements; Information Supplied.............
SECTION 2.6. Absence of Certain Changes or Events..................................
SECTION 2.7. Absence of Changes in Benefit Plans...................................
SECTION 2.8. Employee Benefits.....................................................
SECTION 2.9. Litigation............................................................
SECTION 2.10. Taxes.................................................................
SECTION 2.11. No Excess Parachute Payments; Section 162(m) of the Code..............
SECTION 2.12. Voting Requirements...................................................
SECTION 2.13. Compliance with Applicable Laws.......................................
SECTION 2.14. Intercompany Agreements...............................................
SECTION 2.15. Dreman Value Management, L.P..........................................
SECTION 2.16. Brokers...............................................................
SECTION 2.17. Ineligible Persons....................................................
SECTION 2.18. Kemper Merger Agreement Representations...............................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
ZURICH AND MERGER SUB
SECTION 3.1. Organization, Standing and Corporate Power............................
SECTION 3.2. Capital Structure.....................................................
SECTION 3.3. No Prior Activities...................................................
SECTION 3.4. Authority; Noncontravention; Binding Effect...........................
SECTION 3.5. Governmental Approvals; Required Consents.............................
SECTION 3.6. Information Supplied..................................................
SECTION 3.7. Ineligible Persons; Compliance with Section 15(f) of the 1940 Act.....
SECTION 3.8. Brokers...............................................................
</TABLE>
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ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PRIOR TO MERGER
SECTION 4.1. Conduct of Business of the Company....................................
SECTION 4.2. Other Actions.........................................................
ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1. Subsidiary Mergers; Registration......................................
SECTION 5.2. Employee Benefits.....................................................
SECTION 5.3. Other Covenants.......................................................
SECTION 5.4. Preparation of Information Statement; Kemper Approval.................
SECTION 5.5. Merger Consideration..................................................
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger............
SECTION 6.2. Conditions to Obligations of Zurich and Merger Sub....................
SECTION 6.3. Conditions to Obligations of Kemper, KFC and the Company..............
SECTION 6.4. Satisfaction of Closing Conditions....................................
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination...........................................................
SECTION 7.2. Effect of Termination.................................................
SECTION 7.3. Amendment.............................................................
SECTION 7.4. Extension; Waiver.....................................................
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties.........................
SECTION 8.2. Guaranty..............................................................
SECTION 8.3. Definitions...........................................................
SECTION 8.4. Notices...............................................................
SECTION 8.5. Interpretation........................................................
SECTION 8.6. Counterparts..........................................................
SECTION 8.7. Entire Agreement; Third-Party Beneficiaries...........................
SECTION 8.8. Governing Law.........................................................
SECTION 8.9. Assignment............................................................
SECTION 8.10. Enforcement...........................................................
SECTION 8.11. Severability..........................................................
</TABLE>
EXHIBITS
EXHIBIT A
Form of Agreement and Plan of Merger for Subsidiary Merger
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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"), KFS ACQUISITION CORP., a Delaware corporation ("Merger
Sub"), KEMPER FINANCIAL SERVICES, INC., a Delaware corporation (the "Company"),
KEMPER FINANCIAL COMPANIES, INC., a Delaware corporation ("KFC"), and KEMPER
CORPORATION, a Delaware corporation ("Kemper").
W I T N E S S E T H :
WHEREAS, the Company is a wholly owned subsidiary of KFC, and KFC is a
majority owned subsidiary of Kemper;
WHEREAS, the Company is engaged in the asset management business and acts,
directly or through one of its subsidiaries, as investment adviser or
sub-adviser to certain registered investment companies (the "Funds");
WHEREAS, Zurich, Insurance Partners, L.P., Insurance Partners Offshore
(Bermuda), L.P. (collectively, the "Investor Group"), ZIP Acquisition Corp., a
Delaware corporation owned by the Investor Group ("ZIP"), and Kemper are,
concurrently with the execution of this Agreement, entering into an Agreement
and Plan of Merger (the "Kemper Merger Agreement") providing for the merger (the
"Kemper Merger") of ZIP with and into Kemper;
WHEREAS, it is a condition precedent to the consummation of the Kemper
Merger that the transactions contemplated by this Agreement shall have occurred;
WHEREAS, the respective Board of Directors of each of Zurich, Merger Sub,
the Company, KFC and Kemper has adopted resolutions approving this Agreement,
pursuant to which the Company shall be merged with and into Merger Sub thereby
becoming a wholly owned direct subsidiary of Zurich (the "Merger"); and
WHEREAS, Zurich, Merger Sub, the Company, KFC and Kemper desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, Zurich, Merger Sub, the
Company, KFC and Kemper 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 Delaware General Corporation
Law (the "DGCL"), the Company shall be merged with and into Merger Sub at the
Effective Time (as hereinafter defined). Upon the Effective Time, the separate
existence of the Company shall cease, and Merger Sub 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 9:00 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(b) and (c)) 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, Merger Sub
elects
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to delay the Closing (i) until another later date (which shall not be later than
January 4, 1996) or (ii) until a date after the consummation of the Kemper
Merger (such third business day or such other date being the "Closing Date").
SECTION 1.3. Effective Time. Merger Sub 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 Merger Sub 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; Bylaws. (a) The Certificate of
Incorporation of Merger Sub (the "Charter"), as in effect immediately prior to
the Effective Time, shall be amended as of the Effective Time so that paragraph
1 of the Charter shall read in its entirety as follows: "1. The name of the
corporation (the "Corporation") is Kemper Financial Services, Inc." and, as so
amended, the Charter shall, from and after the Effective Time, be the
Certificate of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The By-laws of Merger Sub 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 Merger Sub 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 Merger Sub 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.
SECTION 1.8. Effect on Capital 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 $10.00 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 Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par value
$.01 per share, of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall remain
outstanding after the Merger.
(b) Cancellation of Treasury Stock. Each share of Common Stock issued
and outstanding immediately prior to the Effective Time that is owned by
the Company or by any subsidiary of the Company 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 1.8(b)) shall be converted into the
right to receive $900,000 per share, without interest (the "Merger
Consideration").
(d) Cancellation and Retirement of Common Stock. As of the Effective
Time, all certificates representing shares of Common Stock, other than
certificates representing shares to be cancelled in accordance with Section
1.8(b), issued and outstanding immediately prior to the Effective Time,
shall no longer be outstanding and shall automatically be cancelled and
retired and shall
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cease to exist, 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.
(e) Payment of Merger Consideration. Within two business days after
the Effective Time, upon surrender to the Surviving Corporation of all
certificates previously representing outstanding shares of Common Stock,
the Surviving Corporation shall pay the Merger Consideration to the holder
of such certificates.
SECTION 1.9. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Merger Sub, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY, KFC AND KEMPER
Each of the Company, KFC and Kemper hereby represents and warrants to
Zurich and Merger Sub as follows:
SECTION 2.1. Organization, Standing and Corporate Power. Each of Kemper,
KFC, the Company and each material subsidiary of the Company 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 material 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 complete and correct copies of its
Certificate of Incorporation and By-laws, as amended to the date of this
Agreement.
SECTION 2.2. Capital Structure. The authorized capital stock of the
Company consists of 1,250 shares of Common Stock of which 1,000 shares are
outstanding. Except as set forth above, no shares of capital stock or other
equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in Section 2.2 of the disclosure schedule
delivered to Zurich by the Company on the date hereof (the "Disclosure
Schedule"), no bonds, debentures, notes or other indebtedness of the Company or
any material 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 material subsidiary of the
Company may vote are issued or outstanding. Except as disclosed in Section 2.2
of the Disclosure Schedule, all the outstanding shares of capital stock of each
material 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,
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encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"). Except as set forth above or in Section 2.2 of the
Disclosure Schedule, neither the Company nor any material subsidiary of the
Company has any outstanding option, warrant, subscription or other right,
agreement or commitment which either (i) obligates the Company or any material
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
material subsidiary of the Company or (ii) restricts the transfer of Common
Stock.
SECTION 2.3. Authority; Noncontravention; Binding Effect. Each of Kemper,
KFC and the Company has the requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement, subject, in the case of KFC, to the approval of the stockholders of
KFC. The execution and delivery of this Agreement by Kemper, KFC and the Company
and the consummation by Kemper, KFC and the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Kemper, KFC and the Company and by KFC as the sole stockholder of
the Company, subject, in the case of KFC, to the approval of the stockholders of
KFC. This Agreement has been duly executed and delivered by Kemper, KFC and the
Company and constitutes a valid and binding obligation of each of Kemper, KFC
and the Company, enforceable against each of Kemper, KFC and the Company 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. Except as disclosed in Section
2.3 of the Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Second Restated Certificate of Incorporation of Kemper (the
"Kemper Charter") or the By-laws of Kemper, the Certificate of Incorporation or
By-laws of KFC, the Certificate of Incorporation or By-laws of the Company or
the equivalent documents of any material subsidiary of the Company, (ii) subject
to the consents, approvals, authorizations, declarations and filings referred to
in Section 2.4, 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
Kemper, KFC or the Company or any of their subsidiaries is a party or by which
Kemper, KFC or the Company or any of their 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 2.4, 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 case
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 Zurich
and its affiliates and associates do not own beneficially 15% or more of the
outstanding 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 transactions
contemplated by this Agreement.
SECTION 2.4. Governmental 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 Kemper, KFC, the
Company or any of their subsidiaries in connection with the execution and
delivery of this Agreement by Kemper, KFC and the Company or the consummation by
Kemper, KFC and the Company, 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 Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") with respect to the Merger, (ii) the
filing with the Securities and Exchange Commission (the "SEC") of (x) an
information statement relating to the Merger to be transmitted to the
stockholders of KFC if at the Effective Time KFC has a class of securities
registered pursuant to Section 12 of the Exchange Act (such information
statement (including the exhibits thereto and the documents incorporated by
reference therein), as amended or
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supplemented from time to time, the "Information Statement") and (y) such
reports under the Securities Exchange Act of 1934 (the "Exchange Act") as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (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) the
consents, approvals and notices as are set forth in Sections 5.10 and 5.11 of
the Kemper Merger 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"), (v) such other consents, approvals, authorizations,
filings or notices as are set forth in Section 2.4(v) of the Disclosure
Schedule, (vi) any applicable filings under state anti-takeover laws and (vii)
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.
SECTION 2.5. SEC Documents; Financial Statements; Information
Supplied. (a) Kemper has filed all required reports, schedules, forms,
statements and other documents relating to the Company and its business with the
SEC since January 1, 1994 (such reports, schedules, forms, statements and other
documents are hereinafter referred to as the "SEC" Documents").
(b) As of their respective dates, the SEC Documents as they relate to the
Company 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.
(c) Kemper and KFC have heretofore furnished to Zurich (a) copies of the
audited consolidated balance sheets of the Company as of December 31, 1993 and
1994 audited by KPMG Peat Marwick LLP, together with the related audited
consolidated statements of income, stockholders' equity and cash flow for such
fiscal years and the notes thereto, accompanied by the reports thereon of such
public accountants, and (b) copies of the unaudited consolidated balance sheet
of the Company as of March 31, 1995 together with the related unaudited
consolidated statements of income, stockholders's equity and cash flow for the
three months then ended, and the notes thereto, (the later of such audited
financial statements listed in clause (a) above being hereinafter referred to as
the "1994 Company Audited Financial Statements"; and all the financial
statements referred to in clauses (a) and (b) above being hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements, including the notes thereto, (i) were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered thereby and (ii) present fairly the consolidated
financial position, results of operations and changes in financial position of
the Company and its consolidated subsidiaries as of such dates and for the
periods then ended (subject, in the case of the unaudited interim Financial
Statements, to normal year-end audit adjustments).
(d) If KFC is required under applicable law to mail the Information
Statement to its stockholders, the Information Statement will not, at the time
it is first mailed to the stockholders of KFC, at the time of the taking of
action to approve the Merger by the stockholders of KFC 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 to the stockholders of KFC with respect to the Merger that has
become false or misleading; provided, however, that no representation or
warranty is made by Kemper, KFC or the Company with respect to statements made
in the Information Statement based on information supplied in writing by Zurich
or Merger Sub specifically for inclusion in the Information Statement. The
Information Statement will, if required under applicable law to be mailed to
stockholders of KFC, comply as to form in all material respects with the
requirements of the Exchange Act and the rules and
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regulations promulgated thereunder, except that no representation or warranty is
made by Kemper, KFC or the Company with respect to statements made therein based
on information supplied in writing by Zurich or Merger Sub specifically for
inclusion in the Information Statement.
SECTION 2.6. Absence of Certain Changes or Events. (a) 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 2.6 of the Disclosure
Schedule, (x) since the date of the 1994 Company Audited Financial Statements
with respect to clause (i) hereof and (y) from the date of the 1994 Company
Audited Financial Statements 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 (x) the transfers contemplated by Section 4.2 of
the Kemper Merger Agreement and (y) the transfer of the shares of common
stock of State Street Boston Corporation or proceeds from the sale thereof
as contemplated by Section 4.4 of the Kemper Merger Agreement), (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), (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 of any increase in
compensation, except as was required under employment agreements in effect
as of the date of the 1994 Company Audited Financial Statements 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 to any such director, executive officer or other employee of
the Company 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 1994 Company Audited Financial Statements or
(z) any adoption by the Company or any of 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 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 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 and except for changes in crediting rates in the
ordinary course of business.
(b) Except for liability arising out of or in connection with the Letter of
Credit Agreement dated as of January 16, 1995 among Kemper Asset Holdings, Inc.
("KAHI"), the banks party thereto and The Bank of New York, as administrative
agent and issuing bank (the "Agent"), the First Amendment to Letter of Credit
Agreement dated as of February 27, 1995 among KAHI, the banks party thereto and
the Agent, and a Guaranty Agreement dated as of January 26, 1995 made by Kemper
in favor of the banks, and except as disclosed in Section 2.6(b) of the
Disclosure Schedule, there does not exist any liability of Kemper, KFC or the
Company related to or in connection with the $198 million principal amount of
notes issued by Orange County, California and held by certain of the Funds.
SECTION 2.7. Absence of Changes in Benefit Plans. Except as disclosed in
the Filed SEC Documents or in Section 2.7 of the Disclosure Schedule, since the
date of the 1994 Company Audited
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Financial Statements, there has not been any adoption or amendment in any
material respect by the Company or any of its subsidiaries of any collective
bargaining agreement or any Benefit Plan (as defined in Section 2.8). Except as
disclosed in the Filed SEC Documents or in Section 2.7 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 or any of its subsidiaries other than any such
agreements, arrangements or understandings 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.
SECTION 2.8. Employee Benefits. (a) Except as set forth in Section 2.8(a)
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 2.8(a)
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)).
(b) With respect to each Benefit Plan (where applicable): the Company has
delivered to Zurich complete and accurate copies of (i) all plan and trust texts
and agreements which govern the payment of benefits to current or former
employees or directors and all applicable amendments; (ii) all material employee
and former employee communications (including the most recent summary plan
descriptions); (iii) the most recent annual report; (iv) the most recent annual
and periodic accounting of plan assets; (v) the most recent determination letter
received from the Internal Revenue Service (or determination application); (vi)
the most recent actuarial valuation; and (vii) all related funding contracts.
(c) With respect to each Benefit Plan: except as set forth in Section
2.8(c) of the Disclosure Schedule or except as not applicable, (i) 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); (ii)
such Benefit Plan has been maintained and administered at all times in
compliance with its terms and applicable laws and regulations; (iii) 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); (iv) 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
against the assets of any Benefit Plan; (v) no "accumulated funding deficiency"
(as defined in ERISA Section 302) has occurred; (vi) no "prohibited transaction"
(as defined in ERISA Section 406 or in Code Section 4975) which is not covered
by an applicable exemption has occurred; (vii) no "reportable event" (as defined
in ERISA Section 4043) has occurred; (viii) all contributions and premiums due
have been made on a timely basis; (ix) all contributions made under any Benefit
Plan intended to be tax deductible meet the requirements for deductibility under
the Code; (x) records pertaining to each participant and beneficiary are
accurate in all material respects; and (xi) the actuarial assumptions used to
calculate all liabilities have been communicated to Zurich, 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
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<PAGE> 11
where the failure thereof, either individually or in the aggregate, would not
have a Material Adverse Effect with respect to the Company.
(d) With respect to each Benefit Plan that is subject to Title IV of ERISA:
except as set forth in Section 2.8(d) of the Disclosure Schedule, (i) 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); (ii) 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); (iii) 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 (iv) the Company has taken all commercially reasonable actions
to insulate assets of any such Benefit Plan from depreciating in value 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.
(e) Except as set forth in Section 2.8(e) 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.
(f) Except as set forth in Section 2.8(f) of the Disclosure Schedule,
neither the approval or execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (i) entitle any individual to
severance pay or (ii) 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.
(g) Except as disclosed in Section 2.8(g) 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,
(i) there is no labor strike, slowdown or work stoppage or lockout pending or,
to the best knowledge of Kemper, KFC or 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, slowdown or work
stoppage, lockout or other collective labor action within the last three years,
(ii) 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 (iii) 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.
(h) No circumstance described in Part I, Section (g) of Prohibited
Transaction Class Exemption 84-14, as published as amended at 50 Fed. Reg. 41430
(October 10, 1995) has occurred that would prevent the Company from acting as a
"qualified professional asset manager" (as defined in such class exemption).
(i) 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.
(j) 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
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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.
SECTION 2.9. Litigation. As of the date of this Agreement, except as
disclosed in Section 2.9 of the Disclosure Schedule or the Filed SEC Documents,
there is no suit, action, proceeding, arbitration or investigation pending or,
to the knowledge of Kemper, KFC or 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 judgement, 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.
SECTION 2.10. Taxes. (a) Kemper is the common parent of an affiliated
group of corporations (within the meaning of Section 1504(a) of the Code)
eligible to file consolidated federal income tax returns, of which the Company
and each of its subsidiaries is a member. From January 1, 1987 through the
Closing Date, Kemper has included (or, with respect to the taxable year ending
on the Closing Date, will include) the Company and each of its subsidiaries in
its consolidated federal income tax return as a member of the affiliated group
of which Kemper is the common parent.
(b) Except as set forth on Section 2.10(b) of the Disclosure Schedule, each
of the Company and each of its subsidiaries has filed (or joined in the filing
of) 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 (or in which the Company and each of its subsidiaries has joined)
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 has paid (or Kemper has paid
on behalf of the Company and its subsidiaries) all taxes shown as due on such
returns, and the 1994 Company Audited Financial Statements reflect, in
management's best judgment, an adequate reserve for all taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements.
(c) Except as set forth on Section 2.10(c) of the Disclosure Schedule, no
deficiencies for any taxes have been proposed, asserted or assessed against the
Company or any of its subsidiaries (or against Kemper in respect of the Company
or any of its 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 Kemper and each of its subsidiaries (including the Company and
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 Kemper or any of its
subsidiaries (including the Company and its subsidiaries) has expired, for all
taxable years of Kemper or any of its subsidiaries (including the Company and
its subsidiaries) through the taxable year ended December 31, (a) 1986 for
federal income taxes and (b) 1987 for Illinois non-insurance unitary income
taxes. None of the Company or any of its 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, there is no material deferred inter-company
gain within the meaning of the Treasury Regulations promulgated under Section
1502 of the Code.
(d) Each of the Funds 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 Funds that has been closed and for which the
statute of limitations for assessment has expired, qualified as a RIC.
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(e) 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.
SECTION 2.11. No Excess Parachute Payments; Section 162(m) of the
Code. (a) Except as disclosed in Section 2.11 of the Disclosure Schedule, no
payment, either individually or in combination with any other 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).
(b) Except as disclosed in Section 2.11 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 of the Company under any contract, Benefit Plan, program, arrangement
or understanding currently in effect.
SECTION 2.12. Voting Requirements. (a) The Merger, whether considered
alone or together with any other transactions required under applicable law to
be integrated therewith, does not constitute a sale, lease or exchange of all or
substantially all of the property and assets of Kemper for purposes of Section
271 of the DGCL. The Board of Directors of Kemper (including a majority of the
"Continuing Directors," as defined in the Kemper Charter) has approved the
execution and delivery by Kemper 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 Kemper Charter.
(b) The affirmative vote of the holders of a majority of the outstanding
shares of common stock of KFC entitled to vote thereon with respect to the
approval of the Merger is the only vote of the holders of any class or series of
the capital stock of KFC necessary to approve this agreement and the
transactions contemplated by this Agreement.
(c) The affirmative vote of the holders of a majority of the outstanding
shares of common stock of the Company entitled to vote thereon 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.
SECTION 2.13. Compliance with Applicable Laws. (a) Each of the Company and
its subsidiaries and the Funds 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 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, on the date of this
Agreement, to the knowledge of Kemper, KFC and the Company, no investigation by
any Governmental Entity with respect to the Company or any of its subsidiaries
or any of the Funds is pending or threatened, other than, in each case, those
that would not have a Material Adverse Effect with respect to the Company.
(b) Section 2.13(b) of the Disclosure Schedule contains a complete list of
all of the Funds as of the date of this Agreement. The Company or one of its
subsidiaries acts as investment adviser
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pursuant to valid, binding and enforceable investment advisory agreements for
all the Funds listed in Section 2.13(b) of the Disclosure Schedule (which
agreements will terminate upon the consummation of the transactions contemplated
hereby). Except as set forth on Section 2.13(b) 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.
(c) Since January 1, 1994, each of the 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 Fund in connection with
the underwriting, distribution or sale of any 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 Kemper or an
affiliate of Kemper if Kemper 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. Kemper has made available
to Zurich true and complete copies of all Fund Filings. The Fund Filings (i)
complied in all material respects with the requirements of applicable law and
(ii) 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 light
of the circumstances under which they were made, not misleading.
(d) All proxy statements to be prepared for use by the Funds in connection
with the transactions contemplated by this Agreement (including, without
limitation, the proxy statements to be used for the purpose of soliciting voting
instructions from the holders of variable life insurance policies or variable
annuity contracts (collectively, "Variable Contracts") issued by Federal Kemper
Life Assurance Company or Kemper Investors Life Insurance Company (collectively,
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 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 Zurich or Merger Sub in writing relating to Zurich
or Merger Sub or their affiliates expressly for use therein), in each case, will
be accurate and complete in all material respects and will not contain any
untrue statement of 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.
(e) Each of the Company and each of its 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 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.
(f) 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 Funds
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<PAGE> 15
as a result of the Merger or the transactions contemplated thereby or any
express or implied terms, conditions or understandings applicable thereto.
SECTION 2.14. Intercompany Agreements. Except as disclosed on Section 2.14
of the Disclosure Schedule, there are no agreements, contracts or arrangements
pursuant to which the Company provides services to, or receives services from,
Kemper, KFC or any of their subsidiaries.
SECTION 2.15. Dreman Value Management, L.P. The Company has delivered to
Zurich and Merger Sub true, correct and complete copies of the Asset Purchase
Agreement dated April 28, 1995 between Kemper Advisors, Inc. and Dreman Value
Management, L.P. ("Dreman"), the Employment Agreement dated April 28, 1995
between the Company, Kemper Advisors, Inc. and David N. Dreman and the Licensing
and Non-Competition Agreement dated April 28, 1995 between the Company, Kemper
Advisors, Inc. and Dit-Mer Enterprises, L.L.C. (collectively, the "Dreman
Documents"). Other than the Dreman Documents, the Company has not entered into
any other agreements or arrangements relating to the acquisition of Dreman or
its business, assets, contracts or agreements.
SECTION 2.16. 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 Zurich and Merger Sub and which will be paid
by Kemper, 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 Kemper, KFC or
the Company.
Section 2.17. 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 on Schedule 2.17 of the Disclosure Schedule, to the
knowledge of senior officers of Kemper, KFC and the Company 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 the Company or any of
its affiliates as an investment adviser.
SECTION 2.18 Kemper Merger Agreement Representations. The representations
and warranties made by Kemper in Section 3.1 of the Kemper Merger Agreement
relating to the Company are true and correct, incorporated by reference herein
and apply with the same force and effect as if they were set forth and made in
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ZURICH AND MERGER SUB
Each of Zurich and Merger Sub hereby represents and warrants to Kemper, KFC
and the Company as follows:
SECTION 3.1. Organization, Standing and Corporate Power. Each of Zurich
and Merger Sub 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.
SECTION 3.2. Capital Structure. As of the date hereof, the authorized
capital stock of Merger Sub consists of (i) 1,000 shares of Merger Sub Common
Stock and (ii) 1,000 shares of preferred stock, par value $.01 per share. All of
the outstanding shares of Merger Sub Common Stock have been validly issued and
are fully paid and nonassessable and, as of the date hereof, are owned, directly
or indirectly, by Zurich, free and clear of all Liens. As of the date hereof, no
shares of preferred stock of Merger Sub are outstanding. As of the date hereof,
Merger Sub has no indebtedness for borrowed money outstanding, and at the
Effective Time Merger Sub will have no indebtedness for borrowed money
outstanding, except for indebtedness incurred in connection with the financing
of the Merger.
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SECTION 3.3. No Prior Activities. Merger Sub is a newly formed corporation
and, except for activities incident to the Merger and as contemplated by this
Agreement, Merger Sub (i) has not engaged in any business activities of any type
or kind whatsoever, (ii) has not entered into any agreement or arrangements with
any person or entity and (iii) is not subject to or bound by any obligation or
undertaking.
SECTION 3.4. Authority; Noncontravention; Binding Effect. Each of Zurich
and Merger Sub has the 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 Merger Sub
and the consummation by Zurich and Merger Sub of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Zurich and Merger Sub and by Zurich as the sole stockholder of Merger Sub.
This Agreement has been duly executed and delivered by Zurich and Merger Sub and
constitutes a valid and binding obligation of each of Zurich and Merger Sub,
enforceable against each of Zurich and Merger Sub 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 do not, and
the consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Articles of Incorporation of Zurich or the Certificate of
Incorporation or By-laws of Merger Sub, (ii) subject to the consents, approvals,
authorizations, declarations and filings referred to in Section 3.5, 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 3.5, 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 or Merger Sub, and would not adversely affect the ability
of Zurich or Merger Sub to consummate the transactions contemplated by this
Agreement in any material respect.
SECTION 3.5. Governmental Approvals; Required Consents. 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 or Merger Sub in connection with the execution and delivery of
this Agreement by Zurich or Merger Sub or the consummation by Zurich or Merger
Sub, 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 with respect to the Merger, (ii) 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, (iii) the approval of the Federal Office of Supervision of Private
Insurance of Switzerland, if necessary, (iv) filings required by the
International Investment and Trade in Services Survey Act of 1976, (v) such
other consents, approvals, authorizations, filings or notices as are set forth
in Section 2.4 of the Disclosure Schedule, (vi) filings with federal and state
regulatory authorities and agencies in connection with the registration or
qualification of Merger Sub and its subsidiaries as necessary as a
broker-dealer, investment adviser, transfer agent, commodities trading advisor
or commodity pool operator, (vii) any applicable filings under state
antitakeover laws, (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 or Merger Sub and (ix) filings, authorizations, consents or approvals the
failure to make or obtain which, in the aggregate, would not adversely affect
the ability of Zurich or Merger Sub to consummate the transactions contemplated
by this Agreement in any material respect.
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SECTION 3.6. Information Supplied. If KFC is required under applicable law
to mail the Information Statement to its stockholders, none of the information
supplied or to be supplied by Zurich or Merger Sub to KFC in writing
specifically for inclusion in the Information Statement will, at the date the
Information Statement is first mailed to the stockholders of KFC or at the time
of the taking of action to approve the Merger by the stockholders of KFC,
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.
SECTION 3.7. Ineligible Persons; Compliance with Section 15(f) of the 1940
Act. (a) None of Zurich or any "affiliated person" (as defined in the 1940 Act)
thereof (i) is ineligible pursuant to Section 9(a) or 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) to the knowledge of senior officers of
Zurich and Merger Sub 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.
(b) 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 Funds as a
result of the Merger or the transactions contemplated thereby or any express or
implied terms, conditions or understandings applicable thereto.
SECTION 3.8. Brokers. No broker, investment banker, financial advisor or
other person, other than such persons who were disclosed by Zurich in writing to
Kemper prior to the date hereof, the fees and expenses of which will be paid by
Merger Sub, 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 or Merger
Sub.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 4.1. Conduct of Business of the Company. Except as otherwise
provided in the Kemper Merger Agreement, the agreements and covenants made by
Kemper in Section 4.1 of the Kemper Merger Agreement are incorporated by
reference herein and apply with the same force and effect as if they were set
forth in this Agreement and made by the Company with respect to the asset
management business of Kemper, and Kemper and KFC shall cause the Company to
comply with such agreements and covenants as incorporated by reference herein.
SECTION 4.2. Other Actions. Kemper, KFC and the Company, on the one hand,
and Zurich and Merger Sub, on the other hand, shall not, and shall not permit
any of their 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.
ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1. Subsidiary Mergers; Registration. (a) Immediately prior to
the Effective Time, subject to the satisfaction or waiver by Zurich and Merger
Sub of the conditions set forth in Sections 6.1 and 6.2 of this Agreement, the
Company shall cause those of its wholly owned subsidiaries designated by Zurich
to be merged with and into, direct or indirect, wholly owned subsidiaries of
Merger Sub (each, a "Mirror Sub"), each such merger (a "Subsidiary Merger") to
be
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effected pursuant to an Agreement and Plan of Merger, a form of which is
attached hereto as Exhibit A, and for consideration to be designated by Zurich.
(b) The Company shall cooperate with Zurich and Merger Sub in order to
effect the registration, prior to the Merger, of Merger Sub as an investment
adviser. If a subsidiary to be merged pursuant to a Subsidiary Merger is a
registered broker-dealer or a registered investment adviser, the Company shall
cooperate with Zurich and Merger Sub in order to effect the registration, prior
to the consummation of the Subsidiary Merger, of the Mirror Sub as a
broker-dealer or investment adviser, as the case may be.
SECTION 5.2. Employee Benefits. (a) Kemper and each other Commonly
Controlled Entity shall, if requested by Zurich, use commercially reasonable
efforts to cause any payment to any 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 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 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 5.2, "Continuing Employee" means each employee
of the Company or a subsidiary of the Company as of the Effective Time.
SECTION 5.3. Other Covenants. (a) The agreements and covenants made by
Kemper in Sections 5.3, 5.4, 5.6, 5.9, 5.10 and 5.11 of the Kemper Merger
Agreement are incorporated by reference herein and apply with the same force and
effect as if they were set forth in this Agreement and made by the Company, and
Kemper and KFC shall cause the Company to comply with such agreements and
covenants as incorporated by reference herein.
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<PAGE> 19
(b) The agreements and covenants made by Zurich in Sections 5.3, 5.4, 5.6,
5.9 and 5.13 of the Kemper Merger Agreement are incorporated by reference herein
and apply with the same force and effect as if they were set forth in this
Agreement.
SECTION 5.4. Preparation of Information Statement; Kemper Approval. As
soon as practicable following the date of this Agreement, Kemper and KFC shall,
if required under applicable law, prepare and file with the SEC the Information
Statement. Kemper and KFC will use commercially reasonable efforts to cause the
Information Statement to be cleared by the SEC and shall thereafter mail the
Information Statement to the stockholders of KFC as promptly as practicable.
Zurich and Merger Sub shall furnish all information concerning Zurich and Merger
Sub as may be reasonably requested by Kemper and KFC in connection with any of
the actions to be taken by Kemper and KFC pursuant to this Section 5.4. Kemper
and KFC shall make available to Zurich and Merger Sub and its counsel prior to
filing thereof with the SEC copies of the Information Statement and any
amendments or supplements thereto and shall make any changes therein reasonable
requested by Zurich and Merger Sub insofar as such changes relate to such party
or its affiliates or the description of the transactions contemplated by this
Agreement. Kemper shall, to the extent required by applicable law, take all
requisite action as a stockholder of KFC to approve this Agreement and the
Merger.
SECTION 5.5. Merger Consideration. The Company agrees that Zurich and
Merger Sub may elect, in their sole discretion, to increase the Merger
Consideration, and, in such event, the Company agrees to amend this Agreement to
reflect such increase.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the
Merger. If the Closing Date is on or prior to the closing date of the Kemper
Merger (the "Kemper Merger Closing Date"), the respective obligation of Zurich
and Merger Sub, on the one hand, and Kemper, KFC and the Company, on the other
hand, to effect the Merger is subject to the satisfaction or waiver on or prior
to the Closing Date of the conditions set forth in Section 6.1 of the Kemper
Merger Agreement.
SECTION 6.2. Conditions to Obligations of Zurich and Merger Sub. The
obligations of Zurich and Merger Sub to effect the Merger are further subject to
the following conditions:
(a) Kemper Merger Agreement Conditions. If the Closing Date is on or
prior to the Kemper Merger Closing Date, the satisfaction or waiver on or
prior to the Closing Date of the conditions set forth in Section 6.2 of the
Kemper Merger Agreement (other than the condition set forth in Section
6.2(d) of the Kemper Merger Agreement).
(b) Representations and Warranties. The representations and
warranties of Kemper, KFC and the Company set forth in Article II of this
Agreement and the representations and warranties of Kemper set forth in
Section 3.1 of the Kemper Merger Agreement that are qualified as to
materiality shall be true and correct and the representations and
warranties of Kemper, KFC and the Company set forth in Article II of this
Agreement and the representations and warranties of Kemper set forth in
Section 3.1 of the Kemper Merger 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,
if the Closing Date is on or prior to the Kemper Merger Closing Date, on
the Closing Date as though made on the Closing Date, and, if the Closing
Date is after the Kemper Merger Closing Date, on the Kemper Merger Closing
Date as though made on the Kemper Merger Closing Date, except to the extent
such representations and warranties speak as of an earlier date, and Zurich
and Merger Sub shall have received a certificate signed on behalf of each
of Kemper, KFC and the Company by the chief executive officer and the chief
financial officer of each of Kemper, KFC and the Company to the effect set
forth in this paragraph.
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<PAGE> 20
(c) Performance of Obligations of Kemper, KFC and the Company. Each
of Kemper, KFC and the Company shall have performed in all material
respects all obligations and covenants required to be performed by it (i)
under this Agreement and (ii) under the Kemper Merger Agreement at or prior
to the Closing Date, and Zurich and Merger Sub shall have received a
certificate signed on behalf of each of Kemper, KFC and the Company by the
chief executive officer and the chief financial officer of each of Kemper,
KFC and the Company to such effect.
SECTION 6.3. Conditions to Obligations of Kemper, KFC and the Company. The
obligations of Kemper, KFC and the Company to effect the Merger are further
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Zurich and Merger Sub set forth in Article III of this
Agreement that are qualified as to materiality shall be true and correct
and the representations and warranties of Zurich and Merger Sub set forth
in Article III 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, if
the Closing Date is on or prior to the Kemper Merger Closing Date, on the
Closing Date as though made on and as of the Closing Date, and, if the
Closing Date is after the Kemper Merger Closing Date, on the Kemper Merger
Closing Date as though made on the Kemper Merger Closing Date, except to
the extent such representations and warranties speak as of an earlier date,
and Kemper and KFC shall have received a certificate signed on behalf of
each of Zurich and Merger Sub by the chief executive officer and the chief
financial officer of each of Zurich and Merger Sub to the effect set forth
in this paragraph.
(b) Performance of Obligations of Zurich and Merger Sub. Each of
Zurich and Merger Sub shall have performed in all material respects all
obligations and covenants required to be performed by it under this
Agreement at or prior to the Closing Date, and Kemper and KFC shall have
received a certificate signed by the chief executive officer and the chief
financial officer of each of Zurich and Merger Sub to such effect.
Section 6.4. Satisfaction of Closing Conditions. If Merger Sub makes an
election by written notice as described in Section 1.2(b)(i) hereof (the
"Section 1.2(b)(i) Notice"), then, on a business day specified in the Section
1.2(b)(i) Notice, which shall be not more than five business days after the date
on which Merger Sub delivers the Section 1.2(b)(i) 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 9:00 a.m., at which Kemper, KFC and the Company shall seek to fulfill all
conditions to the obligations of Zurich and Merger Sub to effect the Merger set
forth in Sections 6.1 and 6.2, (other than Section 6.2(l) of the Kemper Merger
Agreement (which is incorporated by reference pursuant to Section 6.2(a) of this
Agreement) but including, without limitation, the delivery of the officers'
certificates under Sections 6.2(b) and (c)) (the "Preliminary Closing
Conditions"). If Kemper, KFC and the Company shall fulfill all of the
Preliminary Closing Conditions on the Preliminary Closing Date, then on the
Closing Date (i) the obligation of Kemper, KFC and the Company 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) the obligation of
Zurich and Merger Sub 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 Zurich and
Merger Sub to effect the Merger set forth in Sections 6.2(c), (e), (f), (g) and
(h) of the Kemper Merger Agreement (which are incorporated by reference in this
Agreement pursuant to Section 6.2(a) of this Agreement) shall be deemed to have
been satisfied on the Closing Date and (B) the conditions set forth in Section
6.2(a) of the Kemper Merger Agreement (which is incorporated by reference in
this Agreement pursuant to Section 6.2(a) of this Agreement) and in Section
6.2(b) of this Agreement must be satisfied or waived on the Closing Date, except
that such conditions to the extent they apply 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 the Kemper
Merger Agreement and Sections 2.5 through 2.11 and 2.13 through 2.17 of this
Agreement and Section 2.18 of this Agreement, to the extent that
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<PAGE> 21
such Section 2.18 incorporates by reference Sections 3.1(e) through (l), (n),
(p) through (u), and (x) through (bb) of the Kemper Merger Agreement, shall be
deemed to be satisfied on the Closing Date unless the failure to satisfy such
condition is as a result of any willful action or willful inaction by Kemper,
KFC or the Company, any of their subsidiaries or any officers or directors
thereof. If Kemper, KFC and the Company shall fulfill the Preliminary closing
Conditions, then the closing shall occur on a business day specified in a
written notice from Merger Sub to the Company, which shall be not fewer than
three business days after the date on which Merger Sub delivers such notice and
shall be no later than January 4, 1996. If Kemper, KFC and the Company shall not
fulfill all of the Preliminary Closing Conditions on the Preliminary Closing
Date, Kemper, KFC and 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.
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:
(a) by Zurich, if the Kemper Merger Agreement shall have terminated;
(b) by Kemper, if Kemper shall have terminated the Kemper Merger
Agreement in accordance with Sections 7.1(c) or (g) thereof;
(c) by Zurich, if there has been any material breach of any
representation, warranty, covenant or agreement on the part of Kemper, KFC
or the Company 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 Kemper, KFC or the Company may be cured and Kemper, KFC or the
Company is taking reasonable steps to cure such breach, then Zurich 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;
(d) by Kemper, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the Zurich
or Merger Sub 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 or Merger Sub may be cured and Zurich or Merger Sub 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 Zurich or Merger Sub of the notice of such breach and (ii)
February 28, 1996;
(e) by Zurich, 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, 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;
(f) by Kemper, 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;
or
(g) by mutual written consent of Zurich and Kemper.
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement by either Zurich or Kemper 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, Merger Sub, the Company, KFC or Kemper, other
than the last sentence of Section 5.4 of the Kemper Merger Agreement (which is
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<PAGE> 22
incorporated by reference herein pursuant to Section 5.3) and Sections 2.16,
3.8, 5.6 of the Kemper Merger Agreement (which is incorporated by reference
herein pursuant to Section 5.3), 7.2 and 8.8. 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. This Agreement may not be amended 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 Merger Sub 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;
(b) "Material Adverse Effect with respect to the Company" means any
effect that, either individually or in the aggregate with all other
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 material subsidiary, or adversely affects the ability of the
Company or its affiliates to consummate the transactions contemplated by
this Agreement in any material respect;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) a "subsidiary" of any specified person means 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.
SECTION 8.4. Notices. All notices, requests, claims, demands and other
communications under the 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
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<PAGE> 23
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, Merger Sub or the Surviving Corporation, 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: 011-41-1-202-1063
Attention: Dr. Kaspar Hotz
and
Centre ReSource Limited
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-5002
Attention: Mr. Steven M. Gluckstern
and
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Fax: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
(b) If to Kemper, KFC or 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
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and
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 in 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 (including, without limitation, the Kemper Merger Agreement)
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 any
rights or remedies upon any person other than the parties hereto.
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.
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 operation 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
21
<PAGE> 25
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.
IN WITNESS WHEREOF, each of Zurich, Merger Sub, the Company, KFC and Kemper
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 HUEPPI
----------------------------------
Name: Rolf Hueppi
Title: President and Chief
Executive Officer
By: /s/ KASPAR HOTZ
----------------------------------
Name: Kaspar Hotz
Title: Corporate Secretary
President and
General Counsel
KFS ACQUISITION CORP.
By: /s/ WILLIAM BOLINDER
----------------------------------
Name: William Bolinder
Title: Vice President
KEMPER FINANCIAL SERVICES, INC.
By: /s/ STEPHEN B. TIMBERS
----------------------------------
Name: Stephen B. Timbers
Title: Chairman and CEO
KEMPER FINANCIAL COMPANIES, INC.
By: /s/ STEPHEN B. TIMBERS
----------------------------------
Name: Stephen B. Timbers
Title: Chairman and CEO
KEMPER CORPORATION
By: /s/ DAVID B. MATHIS
----------------------------------
Name: David B. Mathis
Title: Chairman and CEO
22
<PAGE> 1
EXHIBIT 2.3
LUMBERMENS MUTUAL CASUALTY COMPANY
ONE KEMPER DRIVE
LONG GROVE, ILLINOIS 60049
May 15, 1995
Zurich Insurance Company
Mythenquai 2, P.O. Box Ch-8022
Zurich, Switzerland
Insurance Partners, L.P.
201 Main Street
Fort Worth, TX 76102
Insurance Partners Offshore (Bermuda), L.P.
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM-EX, Bermuda
Ladies and Gentlemen:
In connection with the merger transaction (the "Merger") involving ZIP
Acquisition Corp. ("ZIP"), Zurich Insurance Company ("Zurich"), Insurance
Partners, L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P. ("IP Bermuda"
and, together with IP, "Insurance Partners") and Kemper Corporation ("Kemper"),
you have requested that the undersigned consent to certain matters relating to
the Merger and certain other related transactions and confirm and clarify the
scope of certain contractual relationships between the undersigned and Kemper.
To enable ZIP, Zurich, Insurance Partners and Kemper to consummate the Merger,
to induce Zurich, Insurance Partners and Kemper to continue working toward
definitive agreements with respect to the Merger and in consideration of the
mutual covenants and agreements set forth herein, the undersigned and any other
parties hereto hereby agree as follows:
1. Non-Competition Agreements. Reference is made to the Stock
Exchange Agreement, dated March 18, 1993, by and between Lumbermens Mutual
Casualty Company ("Lumbermens") and Kemper, as amended by First Amendment
to the Stock Exchange Agreement, dated August 1, 1993, and the letter
agreement, dated June 24, 1994 (together, the "Stock Exchange Agreement").
Capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms in the Stock Exchange Agreement.
Kemper, Lumbermens and ZIP hereby agree that on the closing date of
the Merger, (a) the Stock Exchange Agreement shall be amended by deleting
Section 10.1 in its entirety (other than the definition of Lumbermens
Businesses set forth in Section 10.1(a)(i)) and, without limitation,
Zurich, Insurance Partners, Kemper and any of their respective Affiliates
may, directly or indirectly (whether as principal, agent, independent
contractor or otherwise) own, operate, control or otherwise carry on a
business competitive with or substantially similar to any of the Lumbermens
Businesses and (b) the Stock Exchange Agreement shall be amended by
deleting Section 10.2 in its entirety (other than the definition of Kemper
Businesses set forth in Section 10.2(a)(i)) and, without limitation,
Lumbermens and any of its Affiliates may directly or indirectly (whether as
principal, agent, independent contractor or otherwise) own, operate,
control or otherwise carry on a business competitive with or substantially
similar to any of the Kemper Businesses.
2. Use of Kemper Name. The parties hereto hereby agree that effective
on the closing date of the Merger, Annex I of this letter agreement and the
provisions set forth therein shall be
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binding upon and inure to the benefit of the parties hereto as if set forth
in full in this letter agreement.
3. Rejected Investment Portfolio Assets. (a) Reference is made to
Section 11.1(f) of the Stock Exchange Agreement, pursuant to which
Lumbermens and Kemper agreed to the payment on the Final Settlement Date of
the Final Settlement Amount with respect to the Rejected Assets.
Lumbermens, Kemper and ZIP hereby agree that on the closing date of the
Merger, Section 11.1(f)(z) of the Stock Exchange Agreement shall be amended
to read as follows:
"(z) if the Final Settlement Amount is negative, then Lumbermens shall
deliver to Kemper the absolute value of the Final Settlement Amount by
either (i) wire transfer of immediately available funds or (ii) if
Lumbermens owns any shares of Kemper Common Stock on the Final
Settlement Date, (x) delivering to Kemper a number of shares of Kemper
Common Stock equal to the absolute value of the Final Settlement Amount
divided by the Price Per Share or (y) delivering to Kemper a combination
of cash and shares of Kemper Common Stock sufficient to satisfy the
absolute value of the Final Settlement Amount. Notwithstanding anything
in the preceding sentence to the contrary, the amount of cash delivered
by Lumbermens pursuant to the preceding sentence shall not result in a
Cash Limitation Fraction of 20 percent or more."
(b) Notwithstanding anything to the contrary set forth in Section
11.1(f) of the Stock Exchange Agreement, immediately prior to the filing of
the certificate of merger on the closing date of the Merger (i) Lumbermens
may deliver to Kemper an aggregate number of shares of Kemper Common Stock
(the "Prepayment Shares") not greater than the number obtained by dividing
(x) the Pre-Tax Gain on the sale of any one Rejected Asset by (y) the
Prepayment Price Per Share (as hereinafter defined) and (ii) the Interim
Period Amount for the Interim Period in which the Prepayment Shares are
delivered shall be reduced as of the date such shares are delivered by an
amount equal to the product of (x) the number of Prepayment Shares
multiplied by (y) the Prepayment Price Per Share; provided, however, that
since Lumbermens may wish to deliver to Kemper the Prepayment Shares on a
date prior to the expected closing date of the Merger (but after October 1,
1995) (the "Earlier Interim Settlement Date"), (i) Zurich, Insurance
Partners, ZIP and Lumbermens shall seek to obtain the consent of Kemper to
the Earlier Interim Settlement Date and (ii) Kemper shall not unreasonably
withhold its consent to the Earlier Interim Settlement Date if all material
conditions to the closing of the Merger have been satisfied or waived on
the Earlier Interim Settlement Date. If Lumbermens delivers to Kemper the
Prepayment Shares (i) immediately prior to the filing of the certificate of
merger on the closing date of the Merger, then the Prepayment Price Per
Share shall be the Merger Consideration (as defined in the Agreement and
Plan of Merger among Zurich, Insurance Partners, ZIP and Kemper) or (ii) on
the Earlier Interim Settlement Date, then the Prepayment Price Per Share
shall be the arithmetical average of the last reported sale price of Kemper
Common Stock on the New York Stock Exchange for the twenty (20) business
days preceding the Earlier Interim Settlement Date.
(c) If (i) Lumbermens elects to deliver to Kemper the Prepayment
Shares as described in subparagraph (b) of this paragraph 3, Lumbermens
hereby agrees to deliver to ZIP, Zurich and Insurance Partners prior to the
record date of the Merger written notice of such election and (ii)
Lumbermens fails to deliver such written notice prior to the record date of
the Merger, paragraph 3(b) shall terminate and Lumbermens shall have no
rights thereunder. Zurich, Insurance Partners and ZIP hereby agree to
deliver at least ten (10) days prior written notice to Lumbermens of the
record date of the Merger.
(d) Notwithstanding anything to the contrary set forth in Section
11.1(f) of the Stock Exchange Agreement or in this letter agreement, if (i)
the Merger is consummated, (ii) the Final Settlement Amount is positive and
(iii) Kemper Financial Services, Inc. ("KFS") is not a majority-owned
subsidiary of Kemper on the Final Settlement Date, then to the extent that
Kemper fails to
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pay to Kemper Reinsurance Company ("KRE") any portion of the Final
Settlement Amount when due, KFS hereby agrees to pay to KRE, within thirty
(30) days of the Final Settlement Date, such deficiency, plus any interest
accrued thereon since the Final Settlement Date.
4. Appraisal Rights; Series C Preferred Stock. (a) On the date
hereof, Lumbermens is the holder of all of the issued and outstanding
shares of Series C Cumulative Preferred Stock, without par value, of Kemper
(the "Series C Preferred Stock"). Lumbermens hereby agrees and confirms
that it shall not (i) demand an appraisal of such shares of Series C
Preferred Stock in connection with the Merger in accordance with Section
262 of the General Corporation Law of the State of Delaware or (ii)
transfer or otherwise dispose of such shares without an undertaking from
such transferee to comply with clauses (i) and (ii) of this paragraph 4(a).
(b) Kemper hereby agrees that after the closing date of the Merger,
upon thirty (30) days prior written notice from Lumbermens to Kemper, which
notice may be given not later than ninety (90) days after the occurrence of
any event specified in clauses (i)-(iii) below, following the earlier to
occur of (i) a 180-day period during which either (x) at least two of
Standard & Poor's Ratings Group, Moody's Investors Services, Inc. and Duff
& Phelps, Inc. or (y) the Securities Valuation Office of the National
Association of Insurance Commissioners has continuously rated the Series C
Preferred Stock below investment grade, (ii) the second separate time that
the condition set forth in clause (i) above is satisfied without regard to
the 180-day requirement or (iii) the first date (on or after April 1,
1996), on which quarterly dividends on the Series C Preferred Stock have
not been paid for two consecutive quarters, Kemper shall immediately
purchase all of the Series C Preferred Stock owned by Lumbermens at a price
per share of Series C Preferred Stock equal to $50, plus the amount of all
dividends accrued and unpaid thereon (the "Series C Preferred Stock
Purchase Price"); provided, however, that if such quarterly dividends on
the Series C Preferred Stock have not been paid for two consecutive
quarters as provided in clause (iii) above, then the thirty-day notice
period described above shall be reduced to ten (10) days; and provided,
further, that if and to the extent that Kemper fails to purchase any
portion of the Series C Preferred Stock when due pursuant to this paragraph
4(b), Zurich hereby agrees to purchase (or to cause an affiliate of Zurich
to purchase) from Lumbermens at the Series C Preferred Stock Purchase Price
all of the Series C Preferred Stock not purchased by Kemper, such purchase
to occur within five business days after the date on which the Series C
Preferred Stock Purchase Price was payable by Kemper to Lumbermens.
Lumbermens hereby agrees to give written notice to Kemper and Zurich ten
(10) days prior to the initial submission of any request by Lumbermens, on
and after the closing date of the Merger, to any rating agency, including,
without limitation, the Securities Valuation Office, for a rating on the
Series C Preferred Stock and to give prompt written notice to Kemper and
Zurich of any rating received on the Series C Preferred Stock.
(c) Lumbermens hereby agrees that after the closing date of the
Merger, upon thirty (30) days written notice to Lumbermens, each of Zurich
and Kemper shall have the right and option to purchase from Lumbermens and,
if Zurich or Kemper, as the case may be, exercises such right, Lumbermens
shall have the obligation to sell, all of the shares of Series C Preferred
Stock owned by Lumbermens at a price per share equal to the Series C
Preferred Stock Purchase Price.
(d) Lumbermens hereby agrees that all shares of Series C Preferred
Stock purchased by Zurich or Kemper, as the case may be, pursuant to this
paragraph 4 shall be delivered free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens") and Lumbermens shall represent and
warrant to Zurich or Kemper, as the case may be, that such shares of Series
C Preferred Stock are being transferred free and clear of all Liens.
5. Investment Management Services. For a period of at least three
years after the date upon which the acquisition of KFS by Zurich or an
entity controlled by Zurich is consummated (the
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"Asset Management Sale") and subject to the Investment Advisers Act of
1940, as amended (the "Advisers Act"), Lumbermens hereby expresses its
intention to continue to engage KFS, including its subsidiaries, to
provide, consistent with past practices, professional investment management
services with respect to not less than 80% of the investment assets of
Lumbermens (excluding benefit plan assets held in trust) managed by KFS or
its subsidiaries as of the date hereof on terms and conditions and in
accordance with definitive agreements mutually acceptable to Lumbermens,
Zurich and KFS; provided, however, that (i) KFS and its subsidiaries shall
perform such investment management services only in accordance with the
investment instructions of Lumbermens and (ii) notwithstanding anything to
the contrary set forth in this paragraph 5, nothing in this paragraph 5
shall be construed to delegate to KFS or its subsidiaries any investment
decision or other function required by the Advisers Act or other legal
requirement to be exercised by Lumbermens. Lumbermens shall, and shall
cause each of its Subsidiaries and Affiliates that is a party to an
investment advisory or management contract with KFS or its subsidiaries to,
consent to the "assignment" (as defined under the Advisers Act) of their
respective investment advisory and management contracts upon the
consummation of the Asset Management Sale. Zurich hereby agrees to notify
Lumbermens of the closing date of the Asset Management Sale within two days
thereafter.
6. Kemper Center Building Lease. Reference is made to Section 15.02
of the Office Building Lease, dated as of September 1, 1991 (the "Lease"),
by and between Lumbermens and Kemper. The acquisition of all of the issued
and outstanding shares of common stock of Kemper by Zurich and Insurance
Partners as contemplated by the Merger shall be deemed an assignment of the
Lease. Lumbermens hereby consents to the assignment of the Lease as
required by Section 15.02 thereof as a result of the Merger.
7. Investment in KFS. (a) The parties hereto hereby understand that
in connection with the consummation of the Asset Management Sale and the
Merger, Lumbermens presently intends, and Zurich presently intends for
Lumbermens, to invest in KFS an aggregate amount of up to $100 million or
such lesser amount as is necessary to purchase (i) either 9.9% of the
shares of common stock of KFS or an amount of convertible preferred stock
of KFS that is convertible into 9.9% of the shares of common stock of KFS
and (ii) pro rata with Zurich, all other equity and debt securities
purchased from KFS by Zurich (the "KFS Investment"). The parties hereto
shall (i) seek to structure the KFS Investment, if and to the extent
practicable, through an exchange or contribution of common stock of Kemper,
the Series C Preferred Stock and/or other Kemper Corporation securities
owned by Lumbermens and (ii) use reasonable efforts to make the KFS
Investment a tax-efficient transaction for each of Kemper, KFS and
Lumbermens that is also satisfactory to Zurich and Kemper from a tax
perspective.
(b) The parties hereto hereby agree that the terms and conditions
relating to the KFS Investment shall be set forth in definitive agreements
to be mutually agreed upon by Lumbermens, Zurich and KFS and that such
definitive agreements shall provide, among other things, that (i)
Lumbermens shall receive representation on the Board of Directors of KFS
that is proportionate to Lumbermens' equity interest in KFS, but in any
event, at least one individual designated by Lumbermens shall be elected to
the Board of Directors of KFS, (ii) if Lumbermens purchases shares of
common stock of KFS in the KFS Investment, the price per share of such
common stock of KFS paid by Lumbermens shall not exceed the price per share
of common stock of KFS paid by Zurich in connection with the Asset
Management Sale, (iii) after the seventh anniversary of the closing date of
the Asset Management Sale, Lumbermens shall have the right to make a
written demand to KFS to register under the Securities Act of 1933, as
amended, all of the shares of capital stock of KFS owned by Lumbermens and
(iv) if Lumbermens makes the KFS Investment and KFS provides professional
investment management services with respect to less than 50% of the
investment assets of Lumbermens (excluding benefit plan assets held in
trust), then Lumbermens hereby agrees that Zurich or, at the option of
Zurich, KFS shall have the right to purchase from Lumbermens and, if Zurich
or KFS, as the case may be, exercises such right,
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Lumbermens shall have the obligation to sell to Zurich or KFS, as the case
may be, all of the KFS Investment at an aggregate purchase price equal to
the fair market value thereof.
(c) The parties hereto hereby agree that (i) promptly after the date
hereof, Kemper shall cause KFS to permit Lumbermens to perform customary
due diligence with respect to KFS, subject to the execution and delivery by
Lumbermens of a confidentiality agreement, reasonably satisfactory to
Kemper, KFS and Lumbermens, and (ii) if Lumbermens requests from Zurich
information relating to its valuation of KFS (including information
furnished to Zurich by its financial advisers), then (x) Zurich shall
consider such request in its reasonable discretion and (y) if Zurich
complies with such request, any information furnished to Lumbermens by
Zurich shall be subject to the execution and delivery by Lumbermens of a
confidentiality agreement, reasonably satisfactory to Zurich and
Lumbermens. The confidentiality agreements referred to in this subparagraph
(c) shall provide, among other things, that Lumbermens waives any reliance
on any information furnished by Kemper, KFS, Zurich, their respective
Affiliates and Subsidiaries and their respective financial advisers and any
liability of Kemper, KFS, Zurich, their respective Affiliates and
Subsidiaries and their respective financial advisers arising out of such
information so furnished.
(d) The parties hereto hereby understand that if definitive agreements
relating to the KFS Investment have not been executed within ninety (90)
days after the date hereof or by such later date to which Zurich may
consent in writing, which consent shall not be unreasonably withheld, then
none of the parties hereto shall have any obligations under this paragraph
7.
8. Agreement on Arbella Tax Issue. Lumbermens agrees that if (i)
American Motorists Insurance Company ("AMICO") is entitled, as a result of
its 1988 payment to Arbella Mutual Insurance Company in the amount of
$17.85 million, to any deductions, credits, or offsets to income or gains
in periods beginning after March 31, 1989, and (ii) AMICO, or any other
member of the Lumbermens Group realizes any tax benefit in any taxable year
(including, but not limited to, by way of a carryback of any such
deductions, credits, or offsets to income or gain to periods ending on or
before March 31, 1989) as a result of such deductions, credits, or offsets
to income or gain, then Lumbermens will pay Kemper an amount equal to such
tax benefit, together with any related interest at the applicable rate
under the Internal Revenue Code of 1986, as amended, or any corresponding
provision of state or local tax law, as the case may be. Kemper agrees that
if AMICO is assessed any additional taxes, interest or penalties as a
result of adjustments to AMICO tax periods through March 31, 1989 relating
to Arbella, Kemper will pay such additional amounts and will not seek
recovery from AMICO.
9. Kemper Open Golf Tournament. Lumbermens hereby agrees to grant
Kemper, consistent with recent past practice, arrangements and
understandings, invitational and other related privileges with respect to
the annual Kemper Open golf tournament.
10. Termination of Other Agreements. Effective on the closing date of
the Merger, Lumbermens and Kemper hereby agree that each of (i) the Stock
Rights Agreement, dated as of March 31, 1989, by and between Lumbermens and
Kemper, as amended by First Amendment to Stock Rights Agreement, dated as
of March 18, 1993 (the "Stock Rights Agreement") and (ii) the Sponsors'
Agreement, dated as of April 1, 1991, by and among Lumbermens, Kemper and
Kemper Risk Management Services, as amended by First Amendment to the
Sponsors' Agreement, dated as of August 2, 1993 (the "Sponsors Agreement"),
other than Article III thereof, shall terminate and be of no further force
and effect and each of Lumbermens and Kemper shall unconditionally and
irrevocably release, acquit and forever discharge the other, and each of
Lumbermens' and Kemper's successors, agents, directors, officers,
stockholders, employees, representatives, subsidiaries, affiliates and all
persons acting by, through, under or in concert with any of them or any of
them, from any and all covenants, agreements, obligations and guarantees
arising out of the Stock Rights Agreement and the Sponsors Agreement (other
than Article III thereof).
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11. Restructuring of the Master Limited Partnership. Lumbermens and
Kemper hereby agree to restructure KLMLP, L.P. (the "MLP"), and the
ownership of all direct and indirect debt and/or equity real estate
interests currently owned by the MLP, on the following terms and
conditions:
(a) Title to the real property described on Exhibit A attached
hereto and made a part hereof as "Arbor Hills" shall be transferred to
Lumbermens.
(b) Title to the real property described on Exhibit A as
"Riverside" shall be transferred to Lumbermens. Kemper and Lumbermens
acknowledge and confirm that the Riverside property is encumbered by
first and second priority mortgages held by The Prudential Insurance
Company of America ("Prudential"), which mortgages (collectively, the
"Riverside Mortgage") are cross-collateralized and cross-defaulted with
first and second priority mortgages (the "Other Mortgages") held by
Prudential on the properties described on Exhibit A as "Benicia," "Stone
Road," "One Corporate Centre," "Tustin" and "One ADP Plaza." (Kemper and
Lumbermens acknowledge and confirm that the original principal amount of
the note secured by the second priority Riverside Mortgage, which note
restates, amends and reduces the note secured by the first priority
Riverside Mortgage (such notes, collectively, the "Riverside Note"), was
$6,400,000.) Kemper and Lumbermens shall in good faith act diligently
and use their best efforts (which best efforts shall not include the
payment of money or, except as expressly set forth below, the incurring
of any obligations or the giving of any guaranties) to cause Prudential
to consent to the above-described transfer of title to Riverside (the
"Riverside Transfer") and to amend the Riverside Mortgage and the Other
Mortgages so that the Riverside Mortgage is no longer
cross-collateralized and cross-defaulted as described above, which best
efforts shall, in the case of Lumbermens, include, without limitation,
agreeing, in consideration for Prudential's consenting to the Riverside
Transfer and so amending the Riverside Mortgage, to (i) amend the
Riverside Mortgage and the notes secured thereby so as to extend the
maturity date of said notes to June 23, 2000, increase the interest rate
payable under said notes to a fixed rate equal to one hundred and
fifteen (115) "basis points" in excess of the interest rate on 5-year
U.S. Treasury securities as of the date Lumbermens accepts a commitment
letter from Prudential in which Prudential offers to amend the Riverside
Mortgage and the Other Mortgages on the terms described in this
paragraph 11(b), and provide for monthly payments of principal and
interest on a 25-year amortization schedule, (ii) pay Prudential a fee
equal to one-quarter of one percent ( 1/4%) of the outstanding principal
amount of the note secured by the second priority Riverside Mortgage,
(iii) pay Prudential's legal fees and expenses in connection with the
above-described amendments to the Riverside Mortgage and the Other
Mortgages, up to a maximum amount of $10,000 and (iv) personally
guarantee the indebtedness evidenced by the Riverside Note on terms and
conditions reasonably satisfactory to Prudential. Whether or not
Lumbermens makes the election described in paragraph 11(q) with respect
to Riverside, the properties covered by the Other Mortgages shall remain
K Properties (as defined in paragraph 11(g)) and the Conveyance
Transaction with respect to each such K Property shall be consummated in
accordance with the terms of this paragraph 11; provided, however, that
from and after the consummation of each such Conveyance Transaction,
Kemper shall indemnify Lumbermens and its affiliates, and their
successors and assigns, from and against any and all Losses and Expenses
incurred by any of them in connection with or arising from any breach by
Kemper or any of its affiliates of, or default or event of default
committed by Kemper or any of its affiliates under, the Other Mortgages.
(c) Title to the real properties described on Exhibit A as "Napa
Valley Corporate Park -- Vacant Land" ("Napa Land") and "Napa Valley
Corporate Park -- Buildings 3A and 3B" ("L Napa Buildings"; collectively
with Napa Land, the "L Napa Property") shall be transferred to
Lumbermens. The L Napa Buildings shall continue, after such transfer, to
be encumbered by a first priority mortgage held by Kemper Investors Life
Insurance Company
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("KILICO") that secures a $2,900,000 non-recourse promissory note having
a maturity date of May 1, 1996 and an interest rate of nine percent (9%)
per annum, provided that Lumbermens and KILICO shall execute and deliver
amendments to such note and mortgage extending said maturity date to
January 1, 2002 and providing that interest shall accrue (with interest
at the rate of nine percent (9%) per annum) to the extent there is
insufficient cash flow from the L Napa Buildings to make the semi-annual
interest payments currently required. The Napa Land shall continue,
after such transfer, to be encumbered by a first priority mortgage held
by KILICO that secures a non-recourse promissory note having an original
amount of $6,100,000, a current outstanding principal amount of
approximately $2,300,000 and a maturity date in December, 2002 and that
currently bears interest at a rate of seven and one-half percent
(7 1/2%) per annum, provided that Lumbermens and KILICO shall execute
and deliver amendments to such note and mortgage providing that (i) the
interest rate under such note shall be seven and one-half percent
(7 1/2%) per annum, (ii) interest under such note shall be payable as
set forth in the further provisions of this sentence and in all other
events shall accrue (with interest at the rate of seven and one-half
percent (7 1/2%) per annum), (iii) subject to clause (iv) of this
sentence, until such note is paid in full, if all or a part of the Napa
Land is sold to a third-party buyer, such mortgage shall be released
from the property sold if Lumbermens pays to KILICO (or its successors
and assigns) the lesser of (1) ninety percent (90%) of the net proceeds
of such sale and (2) the total outstanding principal and accrued
interest under such note, which lesser amount shall be applied first to
accrued interest, and then to the outstanding principal, under such note
and (iv) if the contemplated "Pan-Am Sat" sale is consummated, such
mortgage shall be released from the land sold if the net proceeds of
such sale are placed in escrow pursuant to an escrow agreement
reasonably satisfactory to Kemper and Lumbermens that provides that such
proceeds shall be used to construct the cul-de-sac and related
improvements required by the terms of the contemplated Pan-Am Sat sale.
The parties acknowledge and confirm that Napa Industrial Properties, the
owner of the L Napa Property, currently owes money to Lumbermens and/or
its affiliates, and to KFC Portfolio Corp. ("KFCPC"), pursuant to
various unsecured promissory notes (the "Napa Valley Notes"). Kemper and
Lumbermens agree that (i) from and after the transfers described in the
first sentence of this paragraph, the Napa Valley Notes shall be secured
by a second priority mortgage on the L Napa Property in favor of the
holders of the Napa Valley Notes, which mortgage and notes shall be
recourse to the L Napa Property only (subject to a non-recourse
exception for fraud), shall be recorded simultaneously with such
transfers and shall contain terms and provisions which are customary for
second priority mortgages held by institutional lenders and which are
reasonably agreed to by Kemper and Lumbermens, (ii) all payments
received under such second priority mortgage shall be distributed pari
passu to Lumbermens and KFCPC, (iii) all net proceeds of sales of the
properties secured thereby shall, after all payments required under the
applicable first priority mortgage (if still remaining) are made, be
applied towards payment of the Napa Valley Notes in accordance with the
foregoing clause (ii), (iv) no payments shall be made or due under such
second priority mortgage and the Napa Valley Notes except pursuant to
the foregoing clause (iii) and (v) if the first priority mortgage on the
Napa Land is released from a portion of the Napa Land in accordance with
the foregoing provisions of this paragraph 11(c), such second priority
mortgage shall also be released from such land. Kemper acknowledges and
confirms that the L Napa Property is part of a Kemper Project (as
defined in that certain Agreement to Form Partnership dated as of March
18, 1993 by and among Kemper, Lumbermens and certain affiliates of each,
as amended (the "Formation Agreement")) and that, without limiting the
further provisions of this paragraph 11(c), the indemnity made by Kemper
to Lumbermens in Section 29(a) of the Formation Agreement with respect
to such Kemper Project shall (subject to the last paragraph of Section
29 of the Formation Agreement and the further provisions of this
paragraph 11(c)) remain in effect after the transfers described in the
first sentence of this paragraph 11(c) are made. Kemper and Lumbermens
acknowledge and confirm that the
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indemnity given by each to the other in Sections 29 and 30 of the
Formation Agreement shall remain in effect after the consummation of the
transactions contemplated by this paragraph 11; provided, however, that
(i) notwithstanding the last sentence of each of said Sections 29 and
30, the party (the "Indemnitor") indemnifying the other (the
"Indemnitee") in any particular instance shall not take any action to
mitigate any Damages and Costs (as defined in the Formation Agreement)
that could adversely affect the applicable property, or the operation,
use or value thereof, without the Indemnitee's prior written consent,
such consent not to be unreasonably withheld (Kemper and Lumbermens
hereby agree that if such consent is unreasonably withheld, such
indemnity shall no longer apply with respect to the applicable
property); (ii) neither Kemper nor Lumbermens may assign its rights
under such indemnity to a non-affiliated third party, and any such
assignment shall be void and of no force and effect and (iii) the
Indemnitee shall promptly notify the Indemnitor whenever it has reason
to believe that a claim may be made under such indemnity.
(d) Title to the real property described on Exhibit A as "Mason
Industrial" shall be transferred to Lumbermens.
(e) Title to the real property described on Exhibit A as "Rancho
Regional" shall be transferred to Lumbermens free and clear of any
mortgages, pledges and security interests (other than mortgages, pledges
and security interests held by Lumbermens or any affiliate thereof), and
Kemper shall take all actions necessary to cause such property to be
unencumbered by any such mortgages. Simultaneously with such transfer,
Kemper and Lumbermens (or their applicable affiliates) shall enter into
an easement agreement (the "Easement Agreement"), on terms and
conditions reasonably satisfactory to each, granting the owner of Rancho
Regional the right to construct and maintain a billboard on the property
known as "Palm Plaza" advertising the contemplated shopping center at
Rancho Regional, which agreement shall provide that (i) such billboard
must be, and the construction and maintenance of such billboard must be,
in material compliance with all applicable leases, so-called "REA's" and
"CC&R's" and zoning and other laws and governmental requirements, (ii)
the owner of Rancho Regional shall pay all of the costs and expenses in
connection with the construction and maintenance of such billboard,
(iii) Lumbermens and such owner shall jointly and severally indemnify
and hold harmless the owner of Palm Plaza and its successors and assigns
from and against any and all Losses and Expenses incurred by any of them
in connection with or arising from such construction and maintenance
(provided that such obligation of Lumbermens shall not survive the sale
or other transfer of Rancho Regional to an entity that is not an
affiliate of Lumbermens) and (iv) such billboard shall also advertise,
in a manner (including, without limitation, size, location and
character) reasonably satisfactory to the owner of Palm Plaza, the
shopping center at Palm Plaza. The Easement Agreement shall also provide
that (x) the owner of Palm Plaza, the owner of each other K Property (as
defined in paragraph 11(g)) located in the "Mello-Roos" District and all
other Kemper-controlled owners of property in such District
(collectively with the owner of Palm Plaza and the owner of each other K
Property in such District, the "Kemper Owners") shall, upon the written
request of the owner of Rancho Regional, consent to or vote in favor of
(to the extent such consent or such vote is requested or required by any
applicable governmental authority) the construction by the owner of
Rancho Regional of an overpass in the area designated therefor by the
Village of Temecula and (y) if (1) the owner of Rancho Regional makes
the above-described written request and (2) a so-called "regional
shopping center" having at least three department store "anchor" tenants
is not open for business at Rancho Regional as of the date the first
payments on the bonds issued to finance construction of such overpass
become due, Lumbermens and the owner of Rancho Regional shall, until
such time as at least three such "anchor" tenants are open for business
in such regional shopping center, jointly and severally indemnify and
hold harmless the Kemper Owners and their successors and assigns from
and against any and all Losses and Expenses (including, without
limitation, any Losses due to special assessments assessed against Palm
Plaza) incurred by
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<PAGE> 9
any of them in connection with or arising from such overpass or the
construction thereof (provided that such obligation of Lumbermens shall
not survive the sale or other transfer of Rancho Regional to an entity
that is not an affiliate of Lumbermens). Each of Kemper and Lumbermens
shall diligently and in good faith endeavor to determine the most
efficient technique, if any, to make the agreements set forth in the
Easement Agreement binding on the successors and assigns of the
applicable real property owners, and shall, if commercially reasonable
to do so, implement such technique.
(f) With respect to the real property described on Exhibit A as
"Delta Wetlands," Kemper and Lumbermens acknowledge and confirm (i) the
continuing obligation of KILICO and Lumbermens under the so-called "Term
Loan B" to make (on a 50%/50% basis) advances totaling $19,177,473 to
Delta Wetlands Properties, the owner of Delta Wetlands (the "Delta
Owner") and (ii) their agreement to consummate transactions pursuant to
which the so-called "equity loans" (the "Equity Loans") made by certain
affiliates of Kemper and by Lumbermens and certain affiliates thereof
shown on Exhibit B attached hereto and made a part hereof will be
secured by a pledge of the MLP's partnership interest in the Delta Owner
(Kemper and Lumbermens hereby agreeing that if, pursuant to the further
provisions of this paragraph 11(f) and the provisions of paragraph
11(m), the MLP's partnership interest in the Delta Owner is transferred
to a new Kemper-Lumbermens joint venture, the Equity Loans will be
secured by a pledge of such joint venture's partnership interest in the
Delta Owner), and will no longer be secured by mortgages on any of the
properties described on Exhibit A, including, without limitation, the
property described on Exhibit A as "Hawaii Kai". From and after the date
hereof, and notwithstanding any provisions to the contrary in the
Formation Agreement or the Agreement of Limited Partnership of the
Master Limited Partnership (the "MLP Partnership Agreement"), after all
payments then due under the mortgage on Delta Wetlands that secures the
so-called "Term Loan A" and "Term Loan B" are made (the "Delta
Mortgage") (which payments shall be applied towards payment of Term Loan
A and Term Loan B on a pari passu basis), all distributions made by the
Delta Owner to the MLP (or its successor pursuant to the further
provisions of the paragraph) shall first, be applied towards payment of
the Equity Loans on a pari passu basis and then, be distributed by the
MLP (or its successor) 75% to Kemper and/or affiliates thereof and 25%
to Lumbermens and/or affiliates thereof. As explained in paragraph 11(m)
below, it may be necessary to transfer the MLP's partnership interest in
the Delta Owner to a newly-formed Kemper-Lumbermens joint venture. If
such is the case, Kemper or an affiliate thereof shall hold 75% of the
partnership interests in such joint venture and Lumbermens or an
affiliate thereof shall hold 25% of the partnership interests in such
joint venture. The terms and provisions of the joint venture agreement
governing such new joint venture shall be diligently negotiated in good
faith and reasonably agreed to by Kemper and Lumbermens, provided that
such agreement (i) shall provide for the distributions described above
and (ii) shall (notwithstanding the 75%-25% ownership structure
described above) contain governance and management provisions
substantially similar to the governance and management provisions
contained in the Formation Agreement and the MLP Partnership Agreement
(e.g., joint consent needed for all actions and decisions), except that
Kemper and Lumbermens shall use reasonable efforts to agree on a dispute
resolution procedure for the joint venture (or for the MLP, if the MLP
shall continue to own its partnership interest in the Delta Owner after
the consummation of the transactions contemplated by this paragraph 11).
(g) Title to all real properties listed in Exhibit A and not
addressed in the foregoing provisions of this paragraph 11, and all real
properties and direct or indirect debt or equity interests in real
estate and other assets not listed in Exhibit A that are owned by the
MLP (the "Non-Exhibit A Properties"), shall be transferred to Kemper.
The properties being transferred to Lumbermens pursuant to paragraphs
11(a) through 11(e) above are hereinafter collectively referred to as
the "L Properties," and all other properties listed on Exhibit A
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<PAGE> 10
(other than Delta Wetlands), together with the Non-Exhibit A Properties,
are hereinafter collectively referred to as the "K Properties."
(h) Kemper and Lumbermens acknowledge and confirm that the
respective ownership interests of affiliates of Kemper and affiliates of
Lumbermens in the so-called "KRDC $75 Million Secured Loan" (the "KRDC
Loan"), and the obligations of KRDC, Inc. in connection with the KRDC
Loan shall, subject to the last sentence of this paragraph 11(h),
continue to be governed by, inter alia, that certain Participation
Agreement dated December 23, 1986 (the "Participation Agreement") and
that certain KRDC Distribution Agreement dated October 1, 1994 (the
"Distribution Agreement"), and that such ownership interests are as
follows:
KILICO: 20%
Federal Kemper Life Assurance Company: 20%
KFCPC: 20%
AMICO: 20%
KRE: 20%
In addition, Kemper and Lumbermens acknowledge and confirm that subject
to the further provisions of this paragraph 11(h), the Distribution
Agreement, the Participation Agreement and the mortgages and pledges of
notes and mortgages that secure the KRDC Loan shall remain in place
after the consummation of the transactions contemplated by this
paragraph 11. Notwithstanding any provision to the contrary in the
Participation Agreement or any other document, AMICO and KRE (and their
successors and assigns) shall, in connection with the sale by KRDC, Inc.
to a third party of any of the properties covered by a mortgage securing
said loan (but only if, in connection therewith, each of them receives
from the net proceeds of such sale its pro rata share of the payment
under said loan as required by the terms thereof, the Distribution
Agreement and the Participation Agreement), consent to the discharge or
reconveyance of such mortgage with respect to the property sold.
(i) From and after January 1, 1995 (the "Effective Date"), (a) no
monies derived from the operation and management of any L Property shall
be used to fund any shortfall in connection with the operation and
management of any K Property or Delta Wetlands, and (b) no monies
derived from the operation and management of any K Property shall be
used to fund any shortfall in connection with the operation and
management of any L Property or Delta Wetlands. Kemper and Lumbermens
shall promptly make the appropriate adjustments, in connection with
funds provided during the period from and including the Effective Date
until the date hereof by the owners of K Properties and L Properties to
fund L Property, K Property or Delta Wetlands shortfalls, in order to
cause compliance with the foregoing. Simultaneously with the
consummation of the transactions described in paragraph 11(g), (i)
Kemper shall pay Lumbermens an amount equal to all monies provided by
Lumbermens and it affiliates from the Effective Date until the date of
such consummation to fund shortfalls in connection with the operation
and management of K Properties and (ii) Lumbermens shall pay Kemper an
amount equal to all monies provided by Kemper and its affiliates from
the Effective Date until the date of such consummation to fund
shortfalls in connection with the operation and management of L
Properties. Kemper and Lumbermens acknowledge and confirm that
shortfalls in connection with the operation and management of L
Properties from and including the Effective Date until and including
April 30, 1995 (including, without limitation, shortfalls in connection
with the operation and management of Kemper Real Estate Management
Company ("KREMCO") that are allocated to the L Properties) were not more
than $300,000.
(j) Kemper and Lumbermens acknowledge and confirm that KREMCO's
Board of Directors has approved certain "incentive bonuses" for KREMCO
employees.
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<PAGE> 11
(k) Whenever in this paragraph 11 it is stated that title to a real
property shall be transferred, such statement shall mean (i) a
transaction (a "Conveyance Transaction") shall be consummated pursuant
to which Kemper (or a designee or designees thereof) or Lumbermens (or a
designee or designees thereof), as applicable, shall own 100% of the
equity interests in such real property and in all personal property
(including, without limitation, all accounts), intangible property and
all other rights and interests (including, without limitation,
development rights, but only to the extent transferable) relating to or
used in connection with such real property or owned by the owner of such
real property, (ii) except as expressly set forth above and in paragraph
11(r) below, whichever of Kemper and Lumbermens is not the transferee in
the Conveyance Transaction shall, prior to or simultaneously with such
transaction, Eliminate (as defined in paragraph 11(m)) all indebtedness
(and/or cause any applicable affiliates to Eliminate all indebtedness)
payable by the owner of such property to it (and/or any affiliates) and
discharge or reconvey (and/or cause any applicable affiliates to
discharge or reconvey) any mortgage on such property held by it (and/or
any affiliates), (iii) the Conveyance Transaction shall be evidenced by
transfer documents which contain no representations or warranties,
express or implied, other than representations by the transferor(s) that
it (or they) has (or have) the authority to execute such documents and
that it (or they) own the equity interests being transferred (as opposed
to the underlying property) free and clear of all liens and pledges, and
(iv) the parties shall execute and deliver all other documents necessary
or desirable to consummate such Conveyance Transaction and the
applicable transactions pursuant to clause (ii) of this sentence, which
documents shall be on terms and conditions reasonably satisfactory to
Kemper and Lumbermens. Except as expressly set forth in this paragraph
11, from and after the consummation of a Conveyance Transaction, neither
Kemper nor any affiliate thereof (if the transferee is Lumbermens), and
neither Lumbermens nor any affiliate thereof (if the transferee is
Kemper), shall have any liability in connection with (or shall have any
property it owns serve as security for) any indebtedness of the owner of
the applicable property. As of the date of a Conveyance Transaction with
respect to which Lumbermens is the transferee, the applicable management
agreement with KREMCO shall be terminated without penalty.
(l) Kemper and Lumbermens acknowledge and confirm that certain
third-party consents may be required in connection with certain
Conveyance Transactions (including, without limitation, certain
bondholder, bond issuer and governmental consents in connection with the
contemplated Arbor Hill transfer). Kemper and Lumbermens agree that in
connection with such consents, (i) the transferee under a Conveyance
Transaction shall be responsible for obtaining all required consents;
(ii) subject to the provisions of paragraph 11(q) below, each Conveyance
Transaction shall be consummated in accordance with the terms and
provisions hereof, regardless of the status of the obtaining of any
required third-party consents; provided, however, that under no
circumstances shall the Riverside Transfer be consummated if the consent
of Prudential described in paragraph 11(b) is not obtained; and (iii)
the party hereto that is not the transferee under a Conveyance
Transaction (and all affiliates thereof) shall have no liability in
connection with the failure to obtain any required third-party consents,
and the transferee shall indemnify and hold harmless the other party
hereto, its affiliates and their successors and assigns from and against
all Losses and Expenses incurred by any of them in connection with or
arising from such failure. Each of Kemper and Lumbermens shall execute
such documents and take such actions (or shall cause its applicable
affiliates to execute such documents and take such actions) as are
reasonably requested by the other in connection with the obtaining of
any such third-party consents.
(m) Kemper and Lumbermens shall determine the manner in which each
Conveyance Transaction, each Elimination of indebtedness and mortgage
discharge or reconveyance to be consummated prior to or simultaneously
with each Conveyance Transaction pursuant to clause (ii) of the first
sentence of paragraph 11(k) above, each transaction to be accom-
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<PAGE> 12
plished prior to or simultaneously with any Conveyance Transaction
pursuant to paragraph 11(u), and each transaction to be accomplished
pursuant to paragraph 11(o), shall be accomplished (such determinations
being hereinafter collectively referred to as the "Method of Transfer
Determination"). Without limiting the foregoing, (i) a Conveyance
Transaction may be accomplished by means of a deed (which may be a
deed-in-lieu of foreclosure or a deed given in exchange for the release,
discharge or cancellation of indebtedness or as a partnership
distribution), by means of a transfer of all the partnership interests
in the owner of the applicable property, or (with respect to the
Conveyance Transactions pursuant to paragraph 11(g)) by means of a
transfer by Lumbermens and affiliates thereof of all of their
partnership interests in the MLP and (ii) to "Eliminate" indebtedness
means to consummate transactions pursuant to which such indebtedness is
no longer payable by the owner of the applicable K Property or L
Property and, if applicable, is no longer secured by a mortgage on such
property, which transactions may include, but not be limited to, a
cancellation of the applicable note, an assumption of such note by
Kemper or an affiliate thereof (in the case of an L Property) or by
Lumbermens or an affiliate thereof (in the case of a K Property), or an
assumption of such note by the MLP (in which case, except to the extent
specifically provided for herein, there shall be no recourse to any
assets of Kemper or any affiliate thereof (in the case of a K Property)
or to any assets of Lumbermens or any affiliate thereof (in the case of
an L Property) in connection with such indebtedness). If Kemper and
Lumbermens agree that the Conveyance Transactions pursuant to paragraph
11(g) are to be accomplished by means of a transfer by Lumbermens and
affiliates thereof of all of their partnership interests in the MLP,
then (x) the partnership interest of the MLP in the Delta Owner shall be
transferred to a new Kemper-Lumbermens joint venture as contemplated by
paragraph 11(f), and (y) the properties as to which Lumbermens makes the
election described in paragraph 11(q) below (or the equity interests in
the entities that currently own such properties) shall be transferred to
a new Kemper-Lumbermens joint venture as contemplated by paragraph
11(q). In making the Method of Transfer Determination, and in making all
other decisions, and taking any action, contemplated by this paragraph
11 (such decisions and actions being referred to herein as "Other
Decisions and Actions"), Kemper and Lumbermens shall jointly consider
transfer, income and other tax issues and any other relevant factors in
order to make the transactions contemplated by this paragraph 11 tax-
efficient for each of Kemper and Lumbermens. Kemper and Lumbermens
acknowledge and confirm that the provisions of this paragraph 11 are
binding notwithstanding the fact that the Method of Transfer
Determination and the Other Decisions and Actions have not yet been
made.
(n) The transactions described in paragraphs 11(a) through 11(f)
shall be consummated as soon as practicable. Subject to paragraph 11(o)
below, the transactions described in paragraph 11(g) and the third
sentence of paragraph 11(i) shall be consummated simultaneously with the
closing of the Merger (or with the satisfaction of the Preliminary
Closing Conditions on the Preliminary Closing Date (as such terms are
defined in the Agreement and Plan of Merger described in Section 13
below), if such satisfaction occurs prior to the closing of the Merger);
provided, however, that Kemper shall have the right, in its sole and
absolute discretion upon written notice to Lumbermens, to elect to have
any such transaction consummated as soon as practicable.
(o) If, any time after the date hereof, a transfer of title
contemplated by this paragraph 11 has not yet been consummated, but
Kemper (in the case of a K Property) or Lumbermens (in the case of an L
Property) desires to sell the property in question (or any equity
interests therein), the other party hereto shall go-along with such sale
(and shall cause any applicable affiliates to go-along with such sale),
and shall take all actions and execute all documents (and shall cause
any applicable affiliates to take all actions and execute all documents)
(which actions may include, without limitation, the giving of consents,
the discharge or reconveyance of mortgages and the Elimination of the
indebted-
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<PAGE> 13
ness secured thereby) reasonably requested by Kemper or Lumbermens, as
applicable, in order to cause such sale to be consummated; provided,
however, that under no circumstances shall Lumbermens or any affiliate
thereof (in the case of a K Property), or Kemper or any affiliate
thereof (in the case of an L Property), be required to incur any
personal liability pursuant to any such document, unless (i) such
personal liability is in connection with (x) a representation and
warranty stating that the stock and/or partnership interests of
Lumbermens and/or its applicable affiliates (in the case of a K
Property) or Kemper and/or its affiliates (in the case of an L Property)
in the property being transferred are owned free and clear of all liens
and pledges or (y) a representation and warranty concerning Lumbermens'
(and/or its applicable affiliates') authority to execute and deliver any
documents necessary for such sale (including, without limitation, the
purchase and sale agreement in connection therewith (Lumbermens hereby
acknowledging that it understands that it is Kemper's intent that each
such purchase and sale agreement provide that the seller thereunder
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)), or (ii) the
other party hereto indemnifies and hold harmless such party or such
party's affiliate, and the successors and assigns of such party or such
party's affiliate, from and against any and all Losses and Expenses
incurred in connection with or arising from such personal liability.
Notwithstanding the provisions of the Formation Agreement and the MLP
Partnership Agreement or the existence of any indebtedness payable by
the owner of the property in question to Lumbermens or affiliates
thereof (in the case of a K Property), or to Kemper or affiliates
thereof (in the case of an L Property), all proceeds from the sale of a
K Property shall be kept and/or distributed to Kemper and all proceeds
from the sale of an L Property shall be kept and/or distributed to
Lumbermens; provided, however, that such proceeds shall first be used
(i) with respect to any L Property, to make required payments under the
Distribution Agreement (if applicable) and under mortgages covering such
property (or interests in such mortgages) held by Kemper and/or its
affiliates which, pursuant to the terms hereof, are not to be discharged
when the applicable Conveyance Transaction takes place and (ii) with
respect to any K Property, to make required payments under the
Distribution Agreement (if applicable) and under mortgages (or interests
therein) covering such property held by Lumbermens and/or its affiliates
which, pursuant to the terms hereof, are not to be discharged when the
applicable Conveyance Transaction takes place. Without limiting the
foregoing, Lumbermens acknowledges and confirms its consent to the
transactions described in that certain Term Sheet attached hereto and
made a part hereof as Exhibit C; provided, however, that Kemper and
Lumbermens shall determine and negotiate with the third party the manner
in which the transactions described in such Term Sheet shall be
accomplished, taking into consideration transfer, income and other tax
issues and any other relevant factors in order to make the transactions
contemplated by such Term Sheet tax-efficient for each of Kemper and
Lumbermens. The provisions of this paragraph 11(o) are subject to the
penultimate sentence of paragraph 11(m).
(p) Simultaneously with the transfer to Lumbermens of title to the
last remaining L Property, Lumbermens shall transfer all of its capital
stock in KREMCO to Kemper or a designee thereof for $10.00 of
consideration. From and after the date hereof, Kemper shall fund 85% of
all payments required to be made by KREMCO under that certain Term
Promissory Note dated August 28, 1992, and Lumbermens shall fund 15% of
such payments, which payments shall include payment, on the date that
title to the last remaining L Property is transferred to Lumbermens, of
all outstanding principal on and accrued interest under such note.
(q) Notwithstanding any of the foregoing provisions of this
paragraph 11, Lumbermens shall have the right, in its sole and absolute
discretion on written notice to Kemper, to elect to not have an L
Property transferred to it as contemplated above, provided that no such
election can be made after December 31, 1995. If Lumbermens makes any
such election,
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<PAGE> 14
then (i) the applicable Conveyance Transaction, and any other
transaction contemplated above relating to the applicable L Property,
shall not take place and (ii) if, as explained in paragraph 11(m) above,
it becomes necessary to transfer ownership of such L Property (or
ownership of the equity interests in the entity that currently owns such
L Property) to a newly-formed Kemper-Lumbermens joint venture, the terms
and provisions of the joint venture agreement governing such new joint
venture shall be diligently negotiated in good faith and reasonably
agreed to by Kemper and Lumbermens, provided that such agreement shall
(x) provide that Kemper (and/or certain of its affiliates) shall own 50%
of the equity interests in such joint venture and Lumbermens (and/or
certain of its affiliates) shall own 50% of the equity interests in such
joint venture, (y) provide for distributions and allocations
substantially similar to the distributions and allocations set forth in
the MLP Agreement and (z) contain governance and management provisions
substantially similar to the governance and management provisions
contained in the Formation Agreement and the MLP Partnership Agreement
(e.g., joint consent needed for all actions and decisions), except that
Kemper and Lumbermens shall use reasonable efforts to agree on a dispute
resolution procedure for the joint venture (or for the MLP, if it does
not become necessary to transfer ownership of such L Property (or
ownership of the equity interests in the entity that currently owns such
L Property) to a newly formed Kemper-Lumbermens joint venture). From and
after the date that Lumbermens makes any such election, the applicable L
Property shall be deemed to not be an L Property, and shall not be
deemed to be a K Property, for all purposes of this paragraph 11 (in
which case, notwithstanding anything to the contrary contained herein,
but subject to the proviso clause of this sentence, all debt payable to
Kemper or Lumbermens or affiliates of either that is owed by the owner
of such property and/or secured by a mortgage on such property shall
remain in place and in effect); provided, however, that Lumbermens may,
simultaneously with such election and in its sole and absolute
discretion, also elect to have such L Property be deemed to be a K
Property, which further election shall be binding and effective for all
purposes of this paragraph 11.
(r) Kemper and Lumbermens acknowledge and confirm (i) their
agreement to consummate a transaction pursuant to which certain
promissory notes (the "Hawaii Notes") described on Exhibit D attached
hereto and made a part hereof as "Second Priority Loans" (which Hawaii
Notes are held by Lumbermens, and affiliates of Kemper, in the
percentages indicated on Exhibit D) will be secured by a third priority
mortgage (the "Hawaii Mortgage") on the portion of Hawaii Kai known as
"Bishop Estates Land" on terms and conditions reasonably satisfactory to
Kemper and Lumbermens and (ii) that the rights of the holders of each
Hawaii Note vis-a-vis the other Hawaii Notes and the notes described on
Exhibit D as "First Priority Loans" are governed by that certain
Intercreditor and Subordination Agreement Hawaii Kai (the "Hawaii
Intercreditor Agreement") dated as of July 1, 1994 by and among
Lumbermens and certain affiliates of Kemper. Notwithstanding paragraph
11(k), the Hawaii Notes, the Hawaii Mortgage and the Hawaii
Intercreditor Agreement shall remain in place and in effect after the
consummation of the Conveyance Transaction with respect to Hawaii Kai.
(s) The indemnifications made by Kemper and the indemnifications
made by Lumbermens in this paragraph 11 shall be governed by the
procedures set forth in Sections 13.3 and 13.4 of the Stock Exchange
Agreement.
(t) All references in this paragraph 11 to a mortgage shall mean a
mortgage or a deed of trust, as applicable.
(u) Kemper and Lumbermens acknowledge and confirm that Fidelity
Life Association ("FLA") may have certain direct or indirect debt or
equity interests in one or more of the L Properties, and that it is
contemplated that as part of the transfer of title to any such L
Property to Lumbermens, (i) any such equity interest of FLA shall be
transferred to Lumbermens, and (ii) any debt as to which FLA has such an
interest shall be treated in the
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<PAGE> 15
manner set forth in clause (ii) of the first sentence of paragraph
11(k). Towards that end, Kemper shall be responsible for obtaining FLA's
agreement to consummate, on a timely basis, the transactions described
in paragraphs 11 and 12 in which FLA is involved, including the PGA
transaction, and otherwise cooperate in connection therewith, and Kemper
shall indemnify and hold harmless Lumbermens and its successors and
assigns from and against any and all Losses and Expenses incurred by any
of them in connection with or arising from the failure to so obtain such
agreement.
12. Other Real Estate Related Matters. (a) Kemper and Lumbermens
shall diligently and in good faith attempt to reach agreement on certain
issues pertaining to real estate related matters that are not addressed by
paragraph 11 above but are the topic of ongoing discussions between Kemper
and Lumbermens. These issues include, without limitation, the items listed
on Annex II attached hereto. Kemper acknowledges and confirms its consent
to the transaction with respect to the "PGA" property described on Exhibit
A to Annex II to this letter agreement.
(b) Notwithstanding anything to the contrary contained in this
paragraph 12, each of Kemper and Lumbermens hereby expresses its good faith
intention to cooperate with the other with respect to and not unreasonably
withhold its consent to the transfer or other disposition by the other and
the other's Affiliates of, or the write-down of debt on, any of the direct
and indirect debt and equity real estate related interests of the other and
the other's Affiliates.
13. Term. This letter agreement shall become effective upon the
execution hereof and shall remain in full force and effect from and after
such date; provided, however, that this letter agreement shall terminate
and be of no further force and effect on the earlier to occur of (a) the
date on which the Agreement and Plan of Merger among Zurich, Insurance
Partners, ZIP and Kemper shall terminate without the Merger having been
consummated and (b) June 30, 1996, if the Merger has not been consummated
by such date.
14. Notices. All notices, requests, claims, demands and other
communications under this letter 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 Lumbermens, to:
Lumbermens Mutual Casualty Company
One Kemper Drive
Long Grove, Illinois 60049
Fax: (708) 320-7928
Attention: Mr. Walter White,
Chief Financial Officer
with copies to:
Lumbermens Mutual Casualty Company
One Kemper Drive
Long Grove, Illinois 60049
Fax: (708) 320-4202
Attention: John K. Conway, Esq.
Sidley & Austin
1 First National Plaza
Chicago, Illinois 60603
Fax: (312) 853-7036
Attention: Tom Cole, Esq.
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<PAGE> 16
(b) 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
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
153 East 53rd Street
New York, New York 10022
Fax: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
(c) 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, New York 10019-6064
Fax: (212) 757-3990
Attention: Matthew Nimetz, Esq.
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<PAGE> 17
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-8720
Attention: Mr. Daniel L. Doctoroff
(d) if to ZIP, 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.
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<PAGE> 18
Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Fax: (212) 898-8720
Attention: Mr. Daniel L. Doctoroff
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Fax: (212) 757-3990
Attention: Matthew Nimetz, Esq.
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Fax: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
(e) if to Kemper prior to the closing date of the Merger, 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.
15. Governing Law. This letter agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without
regard to conflicts of law principles thereof, except to the extent that
the Federal laws of the United States are applicable thereto.
16. Waivers, Amendments and Consents. No delay on the part of any
party in exercising any right hereunder shall operate as a waiver thereof,
nor shall any waiver, express or implied, by any party of any right
hereunder or of any failure to perform or breach hereof by any other party
constitute or be deemed a waiver of any other right hereunder or of any
other failure to perform or breach hereof by the same, whether of a similar
or dissimilar nature thereof. No waiver or consent to any action governed
by this letter agreement shall be effective unless made in writing and
executed by the party giving such waiver or consent. No amendment of any
provision of this
18
<PAGE> 19
letter agreement shall be effective unless made in writing and executed by
all of the parties hereto, except that ZIP shall cease to be a separate
party hereto after the consummation of the Merger.
17. Further Assurances. Each of the parties hereto hereby agrees to
execute and deliver all such other and additional instruments and documents
and to do such other acts and things as may be reasonably necessary or
appropriate to carry out the intent and purposes of this letter agreement.
18. Subsidiaries. Each of Kemper, KFS and Lumbermens hereby agrees to
cause its Subsidiaries to comply with all obligations, agreements and
covenants arising out of this letter agreement to the extent necessary to
satisfy and discharge all of such obligations, agreements and covenants.
19. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.
20. Binding Effect; Assignment. This letter agreement, and all of the
provisions hereof, shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
provided that neither this letter agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties.
21. Public Announcements and Disclosures. Kemper, KFS, Zurich, ZIP
and Lumbermens hereby agree that all public announcements concerning the
Merger and the related transactions (i) if made prior to the closing date
of the Merger shall comply with the provisions set forth in Annex I of this
letter agreement and (ii) if both Kemper Corporation and Kemper National
Insurance Companies are referred to therein, shall not contain language
that could reasonably be expected to leave the impression that they are
affiliated; provided, that there shall be no public announcements or
disclosures concerning the terms or existence of this letter agreement,
except as required by applicable law or regulation or with the consent of
the parties, which consent shall not be unreasonably withheld.
19
<PAGE> 20
22. Counterparts. This letter agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Sincerely yours,
LUMBERMENS MUTUAL CASUALTY COMPANY
By: /s/ WALTER L. WHITE
----------------------------------
Name: Walter L. White
Title: Executive Vice President
and Chief Financial Officer
Accepted and agreed to on this
day of May, 1995 by:
ZIP ACQUISITION CORP.
By: /s/ DANIEL L. DOCTOROFF
----------------------------------
Name: Daniel L. Doctoroff
Title: Vice President
ZURICH INSURANCE COMPANY
By: /s/ ROLF HEUPPI
----------------------------------
Name: Rolf Heuppi
Title: President and Chief
Executive Officer
By: /s/ KASPAR HOTZ
----------------------------------
Name: Kaspar Hotz
Title: Corporate Secretary and
General Counsel
20
<PAGE> 21
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: Vice President
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: Vice President
KEMPER CORPORATION
By: /s/ JOHN H. FITZPATRICK
------------------------------------
Name: John H. Fitzpatrick
Title: Executive Vice President
and Chief Financial Officer
KEMPER FINANCIAL SERVICES, INC.
By: /s/ STEPHEN B. TIMBERS
------------------------------------
Name: Stephen B. Timbers
Title: Chairman & CEO
21
<PAGE> 1
Exhibit 4
SECOND AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT, dated as of May 15, 1995, is between KEMPER CORPORATION,
a Delaware corporation (the "Company"), and HARRIS TRUST AND SAVINGS BANK (the
"Rights Agent").
Recitals
--------
A. The Company and the Rights Agent are parties to a Rights Agreement,
dated as of July 18, 1990, as amended by the First Amendment to the Rights
Agreement, dated as of June 26, 1994 (the "First Amendment"), between the
Company and the Rights Agent (as so amended, the "Rights Agreement").
B. Pursuant to Section 26 of the Rights Agreement, the Company and the
Rights Agent desire to amend the Rights Agreement as set forth below.
Accordingly, the parties agree as follows:
1. Amendment of Section 1(a). The last sentence of Section 1(a) of the
Rights Agreement, as added by the First Amendment, is hereby deleted and the
following shall be substituted in its place:
"Notwithstanding anything in this Agreement to the contrary, neither
Zurich, Insurance Partners, ZIP, nor any of their respective Affiliates
shall be deemed to be an Acquiring Person solely as a result of (i) the
approval, execution or delivery of the Merger Agreement, (ii) the
consummation of the Merger (as defined in the Merger Agreement), (iii) the
approval, execution or delivery of the KFS Agreement (as defined in the
Merger Agreement) or (iv) the consummation of the KFS Sale (as defined in
the Merger Agreement)."
2. Amendment of Section 1(f). Section 1(f), as amended and restated by
the First Amendment, is hereby deleted and the following shall be substituted
in its place:
"(f) 'Common Stock' shall mean the common stock, par value $5.00 per
share, of the Company, except that 'Common Stock' when used with
reference to any Person other than the Company shall mean the capital
stock of
<PAGE> 2
such Person with the greatest voting power, or the equity securities
or other equity interest having power to control or direct the
management, of such Person."
3. Amendment of Section 1(i). Section 1(i), as amended and restated by
the First Amendment, is hereby deleted and the following shall be substituted
in its place:
"(i)(i) 'Insurance Partners' shall mean Insurance Partners, L.P., a
Delaware limited partnership and Insurance Partners Offshore (Bermuda),
L.P., a Bermuda limited partnership.
(i)(ii) 'Merger Agreement' shall mean the Agreement and Plan of
Merger dated as of May 15, 1995, among Zurich, Insurance Partners, ZIP
and the Company, as amended from time to time.
(i)(iii) 'Person' shall mean any individual, firm, corporation,
trust, partnership or other entity."
4. Amendment of Section 1(m). The last sentence of Section 1(m) of the
Rights Agreement, as added by the First Amendment, is hereby deleted and the
following shall be substituted in its place:
"Notwithstanding anything in this Agreement to the contrary, a Stock
Acquisition Date shall not be deemed to have occurred solely as the result
of (i) the approval, execution or delivery of the Merger Agreement, (ii)
the consummation of the Merger pursuant to the Merger Agreement, (iii) the
approval, execution or delivery of the KFS Agreement or (iv) the
consummation of the KFS Sale."
5. Amendment of Section 1(o). Section 1(o) of the Rights Agreement is
amended by the addition of the following sentence:
"Notwithstanding anything in this Agreement to the contrary, a
Triggering Event shall not be deemed to have occurred solely as the
result of (i) the approval, execution or delivery of the Merger Agreement,
(ii) the consummation of the Merger pursuant to the Merger Agreement,
(iii) the approval, execution or delivery of the KFS Agreement or (iv) the
consummation of the KFS Sale."
6. Amendment of Section 1. Section 1 is amended by the addition of the
following Section 1(p):
<PAGE> 3
"(p)(i) 'ZIP' means ZIP Acquisition Corp., a Delaware corporation.
(p)(ii) 'Zurich' means Zurich Insurance Company, a corporation
organized under the laws of Switzerland."
7. Amendment of Section 3(a). The last sentence of Section 3(a) of the
Rights Agreement, as added by the First Amendment, is hereby deleted and the
following shall be substituted in its place:
"Notwithstanding anything in this Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred solely as the
result of (A) the approval, execution or delivery of the Merger Agreement,
(B) the consummation of the Merger pursuant to the Merger Agreement, (C)
the approval, execution or delivery of the KFS Agreement or (D) the
consummation of the KFS Sale."
8. Amendment of Section 7(a). Section 7(a) of the Rights Agreement is
hereby deleted and the following shall be substituted in its place:
"(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions
on exercisability set forth in Section 9(c), Section 11(a)(iii) and
Section 23(a) hereof) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate, with the form
of election to purchase and the certificate on the reverse side thereof
duly executed, to the Rights Agent at the principal office or offices of
the Rights Agent designated for such purpose, together with payment of the
aggregate Purchase Price with respect to the total number of one
two-hundredths of a share of Preferred Stock (or other securities, cash
or other assets, as the case may be) as to which such surrendered Rights
are then to be exercised, at or prior to the earliest of (i) the close of
business on July 29, 2000 (the "Final Expiration Date"), (ii) the time at
which the Rights shall expire as provided in Section 13(d) hereof, (iii)
the time at which the Rights are redeemed as provided in Section 23 hereof
and (iv) immediately prior to the Effective Time (as defined in the Merger
Agreement) (the earliest of (i), (ii), (iii) and (iv) being herein
referred to as the "Expiration Date")."
<PAGE> 4
9. Amendment of Section 23. Section 23 of the Rights Agreement is
amended by the addition of the following Section 23(c):
"(c) Notwithstanding anything in this Agreement to the contrary,
this Rights Agreement shall terminate and have no further force and
effect at the Effective Time."
10. Effectiveness. This Amendment shall be deemed effective May 15,
1995. Except as amended hereby, the Rights Agreement shall remain in full
force and effect and shall be otherwise unaffected hereby.
11. Miscellaneous. This Amendment shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such
state applicable to contracts to be made and performed entirely within
such state. This Amendment may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed
an original and all such counterparts shall together constitute but one
and the same instrument. If any provision, covenant or restriction of this
Amendment is held by a court of competent jurisdiction or other authority
to be invalid, illegal or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
EXECUTED as of the date set forth above.
Attest: KEMPER CORPORATION
/s/ Richard F. Miranti /s/ John H. Fitzpatrick
-------------------------------- -------------------------------
Name: Richard F. Miranti Name: John H. Fitzpatrick
Title: Assistant General Counsel Title: Executive Vice President
and Chief Financial Officer
Attest: HARRIS TRUST AND SAVINGS BANK
/s/ Cecilia A. Murphy /s/ Keith A. Bradley
-------------------------------- -------------------------------
Name: Cecilia A. Murphy Name: Keith A. Bradley
Title: Trust Officer Title: Assistant Vice President
<PAGE> 1
Exhibit 20
NEWS KEMPER CORPORATION [LOGO]
RELEASE Long Grove, IL 60049-0001
FOR IMMEDIATE RELEASE
May 16, 1995
FOR MORE INFORMATION:
Ira Nathanson 708/320-4463 -- Kemper Corporation
Bob Schuerings 708/320-4808 -- Kemper Corporation
Elizabeth Ventura 212/898-5050 -- Zurich Insurance
Owen Blicksilver 212/546-2240 -- Insurance Partners, L.P.
ZURICH AND INSURANCE PARTNERS SIGN
DEFINITIVE AGREEMENTS TO ACQUIRE KEMPER
ZURICH SWITZERLAND, NEW YORK, NY, SCHAUMBURG, IL, AND LONG GROVE, IL
(May 16) -- Kemper Corporation (NYSE: KEM) and an Investor Group comprised of
Zurich Insurance Group and Insurance Partners today announced that the
companies have signed definitive agreements pursuant to which Kemper
Corporation would be acquired in a merger transaction valued at more than $2.0
billion.
The definitive agreements include certain modifications to the
agreement in principle announced on April 11, 1995. Kemper stockholders will,
under the terms of the revised agreements, receive consideration of $49.50 per
share, all in cash. Zurich is expected to own approximately 80 percent of
Kemper Corporation, which will consist of its life insurance and real estate
operations, with Insurance Partners owning the remaining 20 percent. In
connection with the merger, Zurich Insurance will acquire Kemper Financial
Services (KFS), a leading asset manager with approximately $62 billion in
assets under management.
-more-
<PAGE> 2
ZURICH AND INSURANCE PARTNERS SIGN DEFINITIVE AGREEMENTS TO ACQUIRE KEMPER
PAGE 2
In previously announced transaction, Kemper stockholders were to
receive $47.50 in cash and $2.00 in preferred stock.
Prior to closing, Kemper will complete its previously announced ESOP
sale and related spin-off of its securities brokerage operations. Including the
estimated value of the spin-off, the total value to Kemper stockholders from
these transactions approximates $51.00 per share.
The definitive agreement is not subject to any financing contingency.
It is, however, subject to, among other things, Kemper Corporation common
stockholder approvals, Kemper mutual fund boards and shareholder approvals,
regulatory approvals, confirmation of the securities brokerage spin-off and
other customary conditions. The transaction is expected to close early in the
fourth quarter of 1995, or, at the option of the Investor Group, in January
1996.
Rolf Hueppi, chairman, president and chief executive officer of Zurich
Insurance, stated, "With the signing of a definitive agreement, a new era
begins for Kemper Corporation. Adding the financial strength and long term
commitment of Zurich to Kemper's valuable brand name and reputation for
creativity and service will enhance Kemper's position in the asset management
and life insurance industries. We couldn't be more excited about the future of
this dynamic business combination."
David B. Mathis, chairman and chief executive officer of Kemper
Corporation, stated, "We are pleased with the definitive terms of the
transaction and the Kemper board of directors unanimously concluded that this
agreement is in the best interest of our stockholders. It is now our goal to
continue working toward the closing of this transaction in the most expeditious
manner possible. The Zurich will be an excellent partner for Kemper."
-more-
<PAGE> 3
ZURICH AND INSURANCE PARTNERS SIGN DEFINITIVE AGREEMENTS TO ACQUIRE KEMPER
PAGE 3
Insurance Partners is an investment partnership 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
partnership's committed capital is $540 million. Insurance Partners Advisors,
L.P. of New York is the partnership's advisor.
Kemper Corporation, headquartered in Long Grove, IL, is a financial
services holding company with principal operations in asset management and life
insurance. Kemper Corporation has approximately $98 billion in life insurance
in force, has the nation's 13th largest mutual fund family with $42 billion in
mutual fund assets under management, and also manages $20 billion in assets for
Kemper's life insurance companies and other institutional customers.
Zurich Insurance Group is an internationally recognized market leader
in life and non-life insurance, financial services and reinsurance.
Headquartered in Zurich, Switzerland, the Group operates offices in more than
40 countries worldwide and offers customers global coverage in all lines of
insurance. 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.
-30-
