<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION STATEMENT NO. 333-09163
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EVEREN CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6719 36-4019175
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
77 WEST WACKER DRIVE
CHICAGO, ILLINOIS
60601-1694
(312) 574-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JANET L. REALI, ESQ.
SENIOR EXECUTIVE VICE
PRESIDENT,
GENERAL COUNSEL AND
SECRETARY
EVEREN CAPITAL
CORPORATION
77 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601-
1694
(312) 574-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
CHARLES I. COGUT, ESQ. HOWARD S. LANZNAR, ESQ.
SIMPSON THACHER & BARTLETT KATTEN MUCHIN & ZAVIS
425 LEXINGTON AVENUE 525 W. MONROE STREET
NEW YORK, NEW YORK 10017 SUITE 1600
(212) 455-2000 CHICAGO, ILLINOIS 60661
(312) 902-5200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE AND DISTRIBUTION TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share.............. $89,700,000 $30,931
- -----------------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee. A
registration fee of $29,742 was paid on July 30, 1996. An additional fee
of $1,189 was paid on September 13, 1996.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering (the "International Prospectus") of the Common Stock, par value $.01
per share, of EVEREN Capital Corporation. The form of U.S. Prospectus is
included herein and is followed by the outside front cover page and outside
back cover page to be used in the International Prospectus, which are the only
differing pages of the International Prospectus. The outside front cover page
and outside back cover page of the International Prospectus included herein
are each labeled "Alternative Page for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
SEPTEMBER 16, 1996
4,000,000 SHARES
EVEREN CAPITAL CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by EVEREN
Capital Corporation. Of the shares being offered, 3,200,000 shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
800,000 shares are being offered initially outside of the United States and
Canada by the International Underwriters. See "Underwriters." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $17.50 and $19.50 per share. The initial public offering price will be
determined by agreement between the Company and the Underwriters in accordance
with the recommendation of a "qualified independent underwriter" as required by
the Conduct Rules of the National Association of Securities Dealers, Inc. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
listing on the New York Stock Exchange under the symbol EVR, subject to notice
of issuance.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------
Total(3)................................ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to additional shares
of Common Stock at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
-----------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about October , 1996 at the office
of EVEREN Securities, Inc. in Chicago, Illinois, against payment therefor in
immediately available funds.
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS
October , 1996
LOGO
<PAGE>
[MAP]
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
auditors and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Capitalized terms used but not defined in this summary are defined elsewhere in
this Prospectus. Unless the context otherwise requires, as used in this
Prospectus, "EVEREN" and the "Company" mean EVEREN Capital Corporation, a
Delaware corporation ("EVEREN Capital") and the issuer of the Common Stock, and
its subsidiaries. Unless otherwise indicated, numbers and percentages of shares
outstanding in this Prospectus assume (i) no exercise of the Underwriters'
over-allotment option and (ii) the consummation of the Transactions (as defined
in "Company History"). This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
EVEREN is a full-service securities brokerage firm that provides a broad
range of investment services and products primarily to individuals and also to
institutions, corporations and municipalities. The Company's core strength is
its retail operations which are focused on individual investors and which
generated more than 70% of the Company's net revenues in each of the last three
years. The Company also engages in capital markets, asset management and
clearing activities that complement and capitalize on the strength of the
Company's retail operations.
In its retail business, the Company focuses on maintaining and developing
strong client relationships in local and regional markets while providing the
breadth and quality of services and products offered by national brokerage
firms. Headquartered in Chicago, the Company operates its retail business
through an integrated network of approximately 1,175 investment consultants
located in 138 offices in 27 states. As of January 1, 1995, EVEREN was ranked
as the eleventh largest brokerage firm in the United States based on number of
investment consultants, according to the Securities Industry Association. As of
June 30, 1996, EVEREN held over $38 billion of customer assets in more than
430,000 client accounts.
EVEREN enjoys strong market positions in targeted regional markets with
approximately 73% of its branch offices and 74% of its investment consultants
located in the states of Illinois, California, Ohio, Wisconsin, Colorado and
Texas. EVEREN's market penetration is primarily the result of the consolidation
and integration in 1990 of five prominent predecessor firms to form a network
of seasoned investment consultants. Annualized average production for the
Company's investment consultants was $310,000 for the eight months ended
August 31, 1996 and, at that date, the Company's client assets per investment
consultant averaged $28.9 million. Management believes that the experience of,
and relationships developed by, its investment consultants help to
differentiate the Company from its competitors in its targeted markets and
enable the Company to more effectively access and serve clients. As of June 30,
1996, the Company's investment consultants averaged more than eight years of
tenure with the Company and 16 years of experience in the securities brokerage
industry. Based upon a confidential industry survey conducted by a third party,
management believes that the productivity of its investment consultants exceeds
that of most regional firms.
The Company also provides a full range of equity and fixed income products,
investment banking services and other capital markets products and services
through approximately 287 professionals located in eleven offices in major
cities in the United States. The Company is increasing the coordination of its
investment banking, syndicate and trading activities and focusing those
activities on middle market and growth companies in selectively targeted
industries in which management believes the Company has specialized expertise.
In addition, EVEREN is expanding its asset management business through a joint
venture with Mentor Investment Group, Inc. ("Mentor"), an asset management
company that has approximately $5.7 billion of assets under management. Through
its subsidiary, EVEREN Clearing Corp. ("EVEREN Clearing"), the Company also
provides securities clearing services to its trading and brokerage businesses
and to approximately 30 correspondent firms.
3
<PAGE>
In September 1995, the Company became independent when its employees
purchased it from Kemper Corporation ("Kemper") in the Buy-Out (as defined
herein) for an aggregate cash price of $71.4 million ($55.0 million of which
was funded by bank borrowings) plus $30.0 million of Exchangeable Preferred
Stock (as defined herein), terms that EVEREN management considered to be
attractive. As a result, the Company is currently employee-owned, with
approximately 92% of the Company's current employees having an ownership
interest. The Company experienced net losses in 1992, 1993, 1994 and 1995 of
$38.4 million, $3.7 million, $2.2 million and $15.9 million, respectively.
Since the Buy-Out, EVEREN has experienced improved growth and profitability.
For the fourth quarter of 1995, its first full quarter as an independent
entity, the Company reported net income of $6.2 million on net revenues of
$131.3 million compared to net income of $0.7 million on net revenues of $114.2
million in the fourth quarter of 1994. For the six months ended June 30, 1996,
the Company generated net income of $49.2 million, including a $30.2 million
after-tax gain on the sale of a subsidiary, on net revenues of $282.0 million
compared to a net loss of $2.7 million on net revenues of $233.6 million for
the first six months of 1995. Management believes that the Company's
independence and employee ownership have resulted in high levels of employee
motivation, confidence and commitment, which have in turn contributed
significantly to the Company's improved performance.
The principal purpose of the offering is to increase EVEREN's equity capital
and to facilitate its access to the public capital markets. Management
believes, based on market indices, volume levels and recent initial public
offering activity generally, that favorable conditions currently exist in the
public equity markets. Accordingly, the offering is being implemented at this
time.
The Company is dedicated to expanding its retail brokerage franchise while
increasing the proportion of revenues and profits contributed by its capital
markets and asset management businesses. The Company continually focuses on
enhancing its profitability through revenue growth and strict cost controls.
Key elements of the Company's strategy include actions to:
. Provide a high level of value-added service to clients. Management seeks to
provide its retail investment consultants with a work environment and
resources that enable them to offer clients service superior to that
provided by most national brokerage firms and a range of products and
services broader than those offered by most regional brokerage firms.
. Increase penetration in existing markets. The Company targets select local
markets in which its presence often equals or exceeds that of national
brokerage firms. The Company is focused on achieving target market
penetrations in most of its markets to realize operating efficiencies and
develop a meaningful presence in such communities.
. Grow client assets and increase asset management activity. The Company
seeks to increase client wealth maintained at the Company by encouraging
existing clients to maintain an increasing proportion of their financial
assets with the Company through the introduction of new cash management
accounts and by attracting new clients. The Company also intends to offer
proprietary mutual fund products through its joint venture with Mentor and
otherwise increase its asset management activities.
. Expand capital markets activity. The Company intends to increase the
origination of equity products primarily by focusing on select industry
groups through coordinated research, investment banking, syndicate and
trading efforts.
. Pursue opportunistic acquisitions consistent with the Company's overall
strategy. The Company will selectively pursue acquisition opportunities
that either deepen penetration in its existing markets or add new,
sufficiently penetrated markets to strengthen its franchise and further
leverage its existing infrastructure.
. Maintain rigorous cost discipline. The Company seeks to minimize operating
costs by closely aligning its compensation structure to profitability
targets and cost minimization goals and by converting fixed costs to
variable costs where appropriate.
. Maintain a conservative risk profile. The Company will continue to control
the risks in each of its businesses by minimizing securities inventories,
hedging to the extent practicable and subjecting each of its businesses to
strict risk management guidelines.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company. 4,000,000 shares
U.S. Offering..................... 3,200,000 shares
International Offering............ 800,000 shares
Common Stock to be outstanding after 15,747,897 shares (1)
the offering.......................
Dividend policy..................... The Board of Directors intends to pay
quarterly dividends of $.09 per share on
the outstanding shares of Common Stock
commencing in the fourth quarter of 1996.
Use of proceeds..................... Approximately $36 million of the net
proceeds to the Company from the offering
will be used to repay the aggregate
principal amount of indebtedness
outstanding under the Loan Agreement (as
defined herein). The remaining net
proceeds will be used for general
corporate purposes, including potential
future acquisitions.
New York Stock Exchange symbol...... EVR
</TABLE>
- --------
(1) Based on shares outstanding at June 30, 1996. Excludes 1,120,625 shares of
Common Stock subject to outstanding stock options as of June 30, 1996, at a
weighted average exercise price of $7.48 per share, none of which is
currently exercisable. See "Capitalization" and "Company Stock Plans."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The summary consolidated financial and operating data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Results for interim
periods are not necessarily indicative of results to be expected during the
remainder of the year or for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $300.5 $260.6 $543.2 $530.0 $673.7 $677.5 $663.7
Net revenues............ 282.0 233.6 490.7 485.2 626.8 624.5 600.4
Total non-interest
expenses............... 251.0 237.7 512.7(/2/) 497.9 628.3 652.0 593.9
Gain on sale of
subsidiary............. 50.2 -- -- -- -- -- --
Income (loss) before
taxes and cumulative
effect of accounting
changes................ 81.2 (4.1) (22.0) (12.7) (1.5) (27.5) 6.5
Net income (loss)....... $ 49.2(/1/) $ (2.7) $(15.9)(/2/) $ (2.2) $ (3.7)(/3/) $(38.4)(/4/) $ 6.2
Earnings per share(/5/). $ 4.98
========
Pro forma net income
(loss) per share(/6/).. $ 3.41 $(1.04)
======== ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(/7/) ADJUSTED(/8/)
--------- ---------- -------------
<S> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets................................ $ 1,767.4 $ 1,765.1 $1,797.1
Long-term obligations(/9/).................. 175.2 143.7 143.7
Stockholders' equity........................ 195.9 190.8 258.7
Book value per share of Common Stock
outstanding................................ $ 16.23 $ 16.24 $ 16.43
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ---------------------
1996 1995 1995 1994 1993
-------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
After-tax return on average
equity........................... 30.1% (1.6)% (10.6)% (1.4)% (2.4)%
Compensation and benefits expense
as a percentage of net revenues.. 62.3% 65.9% 68.4% 67.6% 61.8%
Non-compensation and benefits
expense as a percentage of net
revenues......................... 26.8% 36.0% 36.1% 35.1% 38.5%
Assets in client accounts (at end
of period) (in billions)......... $ 38.2 $ 33.0 $36.8 $31.0 $33.9
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on sale of
subsidiary. See "Company History" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out. See "Company History" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) After cumulative effect at January 1, 1993 of a change in accounting for
income taxes of $5.5 million. See Note 2 of Notes to Consolidated Financial
Statements.
(4) After cumulative effect at January 1, 1992 of a change in accounting for
post-retirement benefits of $10.0 million.
(5) Earnings per share of Common Stock is not presented for periods other than
the most recent period as historical per share information is not
indicative of the Company's continuing capital structure.
(6) Pro forma net income per share of Common Stock is calculated by dividing
net income for the period after eliminating the after-tax interest expense
related to the Debentures (as defined herein) by the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding
from the beginning of the period, adjusted only for the number of shares of
Common Stock sold in the offering the proceeds with respect to which will
be used to repay indebtedness under the Loan Agreement (as defined herein).
(7) Reflects the Transactions. See "Company History" and "Capitalization".
(8) Reflects the sale of 4,000,000 shares of Common Stock offered hereby at an
assumed initial price to the public of $18.50 per share and the application
of the net proceeds therefrom (net of estimated underwriting discounts and
commissions and offering expenses). See "Use of Proceeds" and
"Capitalization."
(9) Consists of the Debentures and collateralized mortgage obligations backed
by investments in mortgage-backed certificates. See "Company History."
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following factors should
be considered carefully in addition to the other information contained in this
Prospectus before purchasing the Common Stock offered hereby.
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to significant risks,
particularly in volatile or illiquid markets, including the risk of trading
losses, losses resulting from the ownership or underwriting of securities,
counterparty failure to meet commitments, customer fraud, employee fraud,
issuer fraud, errors and misconduct, failures in connection with the
processing of securities transactions and litigation.
The Company's principal business activity, retail broker-dealer operations,
as well as its investment banking, institutional sales, investment advisory,
clearing and other services, are highly competitive and subject to various
risks, volatile trading markets and fluctuations in the volume of market
activity. The securities business is directly affected by many factors,
including economic and political conditions, broad trends in business and
finance, legislation and regulation affecting the national and international
business and financial communities, currency values, inflation, market
conditions, the availability and cost of short-term or long-term funding and
capital, the credit capacity or perceived creditworthiness of the securities
industry in the marketplace and the level and volatility of interest rates.
These and other factors can contribute to lower price levels for securities
and illiquid markets.
Lower price levels of securities may result in (i) reduced volumes of
securities, options and futures transactions, with a consequent reduction in
commission revenues, (ii) losses from declines in the market value of
securities held in trading, investment and underwriting positions and (iii)
reduced management fees calculated as a percentage of assets managed. In
periods of low volume, levels of profitability are further adversely affected
because certain expenses remain relatively fixed. Sudden sharp declines in
market values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets which, in turn, may
result in the Company having difficulty selling securities, hedging its
securities positions and investing funds under its management. Such negative
market conditions, if prolonged, may also lower the Company's revenues from
investment banking and other activities.
As a result of the varied risks associated with the securities business,
which are beyond the Company's control, the Company's commission and other
revenues could be adversely affected. A reduction in revenues or a loss
resulting from the underwriting or ownership of securities could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, as a result of such risks, the Company's revenues and
operating results may be subject to significant fluctuations from quarter to
quarter and from year to year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Six
Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995" and
"--Quarterly Results."
SIGNIFICANT COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment banking firms,
investment advisors and certain commercial banks and, indirectly for
investment assets, with insurance companies and others. The financial services
industry has become considerably more concentrated as numerous securities
firms have either ceased operations or have been acquired by or merged into
other firms. Such mergers and acquisitions have increased competition from
these firms, many of which have significantly greater equity capital,
financial and other resources than the Company. With respect to retail
brokerage activities, certain of the regional firms with which the Company
competes have operated in certain markets longer than has the Company and its
predecessors and have established long-standing client relationships. In
addition, the
7
<PAGE>
Company expects competition from domestic and international commercial banks
to increase as a result of recent and anticipated legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks relating to the sale of securities. Finally, the Company
competes with others in the financial services industry with respect to the
recruiting of new employees and the retention of current employees. See "--
Dependence on Key Personnel."
HISTORY OF NET LOSSES
The Company experienced net losses in 1992, 1993, 1994 and 1995. Although
the Company had net income of $49.2 million, including a $30.2 million after-
tax gain on the sale of BETA Systems, Inc. ("BETA") for the six months ended
June 30, 1996, there can be no assurance that the Company will achieve or
sustain profitability in the future. Future operating results will depend on
many factors, including demand for the Company's services, the Company's
ability to maintain its client relationships and obtain new clients, the
Company's ability to implement its strategies, the Company's success in
attracting and retaining qualified personnel, the level of competition and the
Company's ability to respond to competitive developments. There can be no
assurance that the Company will be successful in addressing the risks
presented by such factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
RISKS ASSOCIATED WITH IMPLEMENTATION OF THE COMPANY'S STRATEGIES; RISKS
ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES
The Company's strategies include potential further penetration of existing
markets, entry into new markets and, particularly in the capital markets area,
expansion of the services it provides. There can be no assurance that the
Company will be able to successfully identify service or market opportunities
that are complementary to the Company's operations. If the Company
successfully identifies any such opportunities, there can be no assurance that
the Company's lack of significant experience with respect to a new service or
market will not hinder the Company's ability to successfully capitalize on
such opportunity. In addition, there can be no assurance that any such
opportunity will enhance the Company's business, results of operations or
financial condition.
To the extent the Company seeks to implement such strategies through
strategic acquisitions, there can be no assurance that the Company will be
able to successfully identify, acquire on favorable terms or integrate any
acquisitions. If an acquisition is completed, there can be no assurance that
such acquisition will enhance the Company's business, results of operations or
financial condition. The Company may face competition for acquisition
opportunities, which may inhibit the Company's ability to consummate
attractive acquisitions on terms favorable to the Company. Although the
Company is not currently in discussion with any acquisition candidates, a
substantial portion of the Company's capital resources, including a portion of
the proceeds of this offering, could be used for acquisitions. The Company may
require additional debt or equity financing for future acquisitions, which
financing may not be available on terms favorable to the Company, if at all.
Finally, when acquiring a predominantly personal service business such as a
securities brokerage firm, a need to provide financial or other incentives to
the professionals and other employees of such firm could make any such
acquisition difficult to consummate successfully.
To the extent the Company seeks to implement such strategies through
strategic joint ventures, many of the risks associated with acquisitions could
be present. In addition, joint ventures may involve additional risks
associated with lack of control. On July 25, 1996, the Company entered into a
joint venture agreement with Mentor pursuant to which the Company will acquire
an initial 20% ownership interest in Mentor. See "Business--Mentor Joint
Venture."
RISKS ASSOCIATED WITH COST REDUCTION STRATEGY
One of the Company's strategies is to reduce costs by converting certain
costs from fixed to variable. There can be no assurance that the Company will
successfully implement such strategy or that, if implemented, such
8
<PAGE>
strategy will enhance the Company's business, results of operations or
financial condition. In addition, if the revenues of the Company increase,
there may be a revenue level at which it would be advantageous for certain
costs to be fixed as opposed to variable so that the Company could benefit
from economies of scale relating to such costs.
To the extent the Company implements such strategy by outsourcing support or
other services to third-party providers, the Company may be subject to the
risks associated with the lack of control over and lack of direct supervision
of such services. The Company has recently outsourced its back office
processing and quotation services to BETA, a former subsidiary of the Company.
See "Company History." The failure, interruption or reduced quality of the
services provided by BETA or other third-party service providers to the
Company could have a material adverse effect on the Company's operating
results.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the Company's business are dependent on highly skilled
individuals. The Company devotes considerable resources to recruiting,
training and compensating such individuals. In addition, one component of the
Company's strategy is to increase market penetration by recruiting experienced
investment consultants and new trainees. There can be no assurance that such
recruiting efforts will be successful or, if successful, that they will
enhance the Company's business, results of operations or financial condition.
The Company has taken further steps to encourage individuals to remain in the
Company's employ, including providing the opportunity for equity participation
through the EVEREN Capital Corporation 401(k) and Employee Stock Ownership
Trust which is part of the EVEREN Capital Corporation 401(k) and Employee
Stock Ownership Plan (collectively, the "KSOP"), two employee stock purchase
plans and an incentive compensation plan. Individuals employed by the Company
may, however, choose to leave the Company at any time to pursue other
opportunities. In past years, the Company has experienced significant net
losses of investment consultants to its competitors. The level of competition
for such personnel remains intense. The loss of key personnel could materially
and adversely affect the Company's results of operations. See "Business--
Retail Brokerage Activities--Recruiting."
In accordance with industry practice, one of the Company's methods for
recruiting an experienced investment consultant is to offer such a recruit a
substantial up-front payment based on past performance levels with his or her
previous employer. Generally, the investment consultant must reimburse the
Company for an up-front payment only if he or she does not remain employed
with the Company for a specified period of time. There can be no assurance
that the Company will receive an adequate return on such up-front payments.
See "--Significant Competition" and "Business--Employees."
The Company's success will depend to a significant extent on the efforts and
abilities of its senior executive officers. The loss of a senior manager could
have a material adverse effect on the Company's business, financial condition
and results of operations. While the Company has entered into employment
agreements with nine of its current senior executives and while all members of
senior management have unvested restricted stock and option grants, there can
be no assurance that any of such persons will not voluntarily terminate his or
her employment with the Company. See "Management--Employment Agreements."
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
The Company, like others in the securities industry, relies on external
sources to finance a significant portion of its day-to-day operations,
principally customer margin account balances and certain transactions. The
principal sources of the Company's cash and liquidity are commissions,
collateralized repurchase agreements and collateralized bank loans. Liquidity
management includes the monitoring of assets available to hypothecate or
pledge against short-term borrowings. EVEREN Clearing maintains credit lines
with seven banks aggregating approximately $585.0 million, of which $220.0
million (including $40.0 million of unsecured credit arrangements) had been
drawn down as of June 30, 1996. Availability of financing to the Company can
vary depending on market conditions, the volume of certain trading activities,
credit ratings, credit capacity and the overall availability of credit to the
financial services industry. There can be no assurance that the Company will
continue to maintain its current access to these lines of credit or that
adequate financing to support the Company's business will be available in the
future on terms attractive to the Company, or at all.
9
<PAGE>
PRINCIPAL TRANSACTIONS
The Company's market making, underwriting and trading activities involve the
purchase, sale or short sale of securities as principal. These activities
involve the risks of changes in the market prices of such securities and of
decreases in the liquidity of the securities markets, which could limit the
Company's ability to resell securities purchased or to repurchase securities
sold short. In addition, these activities subject the Company's capital to
significant risk that counterparties will fail to perform their obligations.
RISKS ASSOCIATED WITH FEDERAL AND STATE REGULATION
The Company's business is, and the securities and commodities industries
are, subject to extensive regulation in the United States, at both the federal
and state level. As a matter of public policy, regulatory bodies are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets
and not with protecting the interests of the Company's stockholders. In
addition, self-regulatory organizations and other regulatory bodies in the
United States, such as the Securities and Exchange Commission (the "SEC"), the
New York Stock Exchange, Inc. (the "NYSE"), the National Association of
Securities Dealers, Inc. (the "NASD"), the Commodity Futures Trading
Commission (the "CFTC"), the National Futures Association (the "NFA") and the
Municipal Securities Rulemaking Board (the "MSRB"), require strict compliance
with their rules and regulations. Failure to comply with any of these laws,
rules or regulations, some of which are subject to interpretation, could
result in a variety of adverse consequences including civil penalties, fines,
suspension or expulsion, which could have a material adverse effect upon the
Company.
The laws and regulations, as well as governmental policies and accounting
principles, governing the financial services and banking industries have
changed significantly over recent years and are expected to continue to do so.
During the last several years Congress has considered numerous proposals that
would significantly alter the structure and regulation of such industries. The
Company cannot predict which changes in laws or regulations, or in
governmental policies and accounting principles, will be adopted, but such
changes, if adopted, could materially and adversely affect the business and
operations of the Company. See "Regulation."
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the NYSE, the CFTC and various other securities and commodities
exchanges and other regulatory bodies in the United States have rules with
respect to net capital requirements which affect the Company. These rules have
the effect of requiring that at least a substantial portion of a broker-
dealer's assets be kept in cash or highly liquid investments. Compliance with
the net capital requirements by EVEREN Securities, Inc. ("EVEREN Securities")
and EVEREN Clearing could limit operations that require intensive use of
capital, such as underwriting or trading activities. These rules could also
restrict the ability of the Company to withdraw capital from EVEREN Securities
or EVEREN Clearing, even in circumstances where EVEREN Securities or EVEREN
Clearing have more than the minimum amount of required capital, which, in
turn, could limit the ability of the Company to pay dividends, implement its
strategies, pay interest on and repay the principal of its debt and redeem or
repurchase shares of outstanding capital stock. In addition, a change in such
rules, or the imposition of new rules, affecting the scope, coverage,
calculation or amount of such net capital requirements, or a significant
operating loss or any unusually large charge against net capital, could have
similar adverse effects. See "Capital Requirements."
LITIGATION
Many aspects of the securities brokerage business involve substantial risks
of liability. In recent years, there has been an increasing incidence of
litigation involving the securities brokerage industry, including class action
suits that generally seek substantial damages and other suits seeking punitive
damages. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to underwritten offerings of securities. Like other securities
brokerage firms, the
10
<PAGE>
Company has been named as a defendant in class action and other suits and has
in the past been subject to substantial settlements and judgments. See
"Business--Legal Proceedings."
DEPENDENCE ON SYSTEMS
The Company's business is highly dependent on communications and information
systems. In addition, the Company has outsourced its back office processing
and quotation services to BETA. See "Company History." Any failure or
interruption of the Company's or BETA's systems could cause delays in the
Company's securities trading activities and an inability to execute client
transactions, which could have a material adverse effect on the Company's
operating results. There can be no assurance that the Company or BETA will not
suffer any such systems failure or interruption, whether caused by an
earthquake, fire, other natural disaster, power or telecommunications failure,
act of God, act of war or otherwise, or that the Company's or BETA's back-up
procedures and capabilities in the event of any such failure or interruption
will be adequate.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into certain futures contracts, options contracts,
forward agreements and interest rate agreements in the ordinary course of its
business to hedge or modify exposures to interest rate fluctuations related to
interest-sensitive securities in its inventory and to its unit investment
trust origination activities. While the use of these derivatives allows the
Company to better manage certain risks, derivatives also have risks that are
similar in type to the risks of the cash market instruments to which their
values are linked. For example, in times of market stress, sharp price
movements or reductions in liquidity in the cash markets may be related to
comparable or even greater price movements and reductions in liquidity in the
derivative markets. Further, the risks associated with derivatives are
potentially greater than those associated with the related cash market
instruments because of the additional complexity and potential for leverage.
In addition, derivatives may create credit risk (the risk that a counterparty
on a derivative transaction will not fulfill its contractual obligations), as
well as legal, operational, reputational and other risks beyond those
associated with the underlying cash market instruments to which their values
are linked. The Company manages derivative related risks, including market,
liquidity and credit risks, as part of its overall risk management policies
and procedures. There can be no assurance that the Company's use of
derivatives may not have a material adverse effect on its results of
operations or financial condition in any period. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Derivative
Financial Instruments."
CONTROL OF THE COMPANY; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Upon the completion of this offering, the Company's current employees and
directors, through the KSOP and otherwise, will own approximately 75% of the
outstanding Common Stock. Accordingly, the employees and directors, if they
and the KSOP trustee were to act as a group, would be able to elect all of the
Company's directors, increase the authorized capital and otherwise control the
policies of the Company. Upon the completion of the offering, the Company's
Board of Directors will have the authority to issue up to 10,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of shares of Preferred Stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Certain provisions of the Amended and Restated
Certificate of Incorporation and the Restated By-Laws of the Company and the
Company's preferred share purchase rights may be deemed to have anti-takeover
effects and may delay, deter or prevent a tender offer or takeover attempt
that a stockholder might believe to be in his or her best interest including
those attempts that might result in a premium over the market price for shares
of the Common Stock. Such provisions may also
11
<PAGE>
adversely affect the market prices for the Common Stock. These provisions,
with respect to the Company's Amended and Restated Certificate of
Incorporation and Restated By-Laws, include the inability of the stockholders
to take any action without a meeting or to call special meetings of
stockholders, certain advance notice procedures for nominating candidates for
election as directors and for submitting proposals for consideration at
stockholders' meetings, and limitations on the ability to remove directors and
the filling of vacancies on the Board of Directors. The Company is also
subject to the provisions of Section 203 of the Delaware General Corporation
Law (the "DGCL"), which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing a change of control of the Company.
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or, if developed, be sustained following this offering. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Representatives of the Underwriters, based upon
several factors. See "Underwriters" for a discussion of the factors to be
taken into account in determining the initial public offering price. Certain
factors, such as fluctuations in operating results of the Company or its
competitors and market conditions generally, could cause the market price of
the Common Stock to fluctuate substantially. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of companies and that have
often been unrelated to the operating performance of such companies.
Accordingly, the market price of the Common Stock may decline even if the
Company's operating results or prospects have not changed.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of Common Stock in the public market,
whether by purchasers in this offering or other stockholders of the Company,
could adversely affect the prevailing market price of the Common Stock, and
could impair the Company's future ability to raise capital through an offering
of its equity securities. There will be 15,747,897 shares of Common Stock
outstanding immediately after completion of this offering, 15,349,302 of which
will be freely tradeable in the public markets, subject in certain cases to
the volume and other limitations set forth in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and certain 180-day
lock-up agreements with the Underwriters. See "Shares Eligible for Future
Sale," "Dilution" and "Underwriters."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this offering will experience immediate
dilution in net tangible book value of $2.07 per share, based on an assumed
initial public offering price of $18.50 per share. To the extent that
currently outstanding options to purchase Common Stock are exercised,
purchasers of Common Stock will experience additional dilution. See
"Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
may be deemed to include the Company's plans to identify emerging trends and
industries, expand the range of services it offers, increase the number of its
investor and company clients, increase its principal investment activities and
increase the number of its personnel. Actual results could differ from those
projected in any forward-looking statements for the reasons detailed in the
other sections of this "Risk Factors" portion of, and elsewhere in, this
Prospectus.
12
<PAGE>
COMPANY HISTORY
EVEREN was formed through the consolidation in 1990 of five well-established
regional brokerage firms that had been acquired by Kemper in the 1980s. The
names of these brokerage firms, the regions in which they operated, their
headquarters and the years in which they were founded are set forth below.
<TABLE>
<CAPTION>
YEAR
PREDECESSOR FIRM REGION HEADQUARTERS FOUNDED
---------------- ------ ------------ -------
<S> <C> <C> <C>
Bateman Eichler, Hill West Coast Los Angeles 1931
Richards, Incorporated
Blunt Ellis & Loewi Midwest Milwaukee; Chicago 1928
Incorporated
Boettcher & Company, Inc. Rocky Mountains Denver 1910
Lovett Underwood Texas Houston 1981
Neuhaus & Webb, Inc.
Prescott, Ball & Eastern Midwest Cleveland; New York 1934
Turben, Inc.
</TABLE>
Following the consolidation, EVEREN operated as a subsidiary of Kemper and
conducted its business under the "Kemper" name. Kemper was a financial
services holding company principally engaged in the asset management and life
insurance businesses. Management believes that ownership uncertainty
surrounding the Company beginning in 1992, and then surrounding Kemper in 1994
and 1995, adversely affected the Company's ability to retain investment
consultants, the productivity of the Company's brokerage network and the
Company's investment banking and related revenues. See "Risk Factors--History
of Net Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On September 13, 1995 the KSOP purchased 96.6% of the then outstanding
Common Stock from Kemper (the "Buy-Out"), with the remainder being acquired by
members of management. As a result, substantially all of the Common Stock is
owned by the Company's employees either directly or through the KSOP. See
"Company Stock Plans--The KSOP." In connection with the Buy-Out, the holders
of Kemper's common stock received a distribution of shares (the "Preferred
Distribution") of the Company's Series A Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock"), which shares were subsequently exchanged for
EVEREN's 13.5% Junior Subordinated Debentures due 2007 (the "Debentures"). The
sources and applications of funds and other consideration related to the Buy-
Out are set forth in the following table (in millions):
<TABLE>
<S> <C>
Sources of funds:
Cash:
Previously held in the KSOP................................... $ 16.4
Short term bank loan.......................................... 25.0
Long term bank loan........................................... 30.0
Non-cash consideration from the Company to Kemper:
Exchangeable Preferred Stock.................................. 30.0
------
Total Sources............................................... $101.4
======
Applications of funds:
Cash:
KSOP payment to Kemper for Company Common Stock............... $ 71.4
Non-cash consideration from the Company to Kemper:
Exchangeable Preferred Stock.................................. 30.0
------
Total Applications.......................................... $101.4
======
</TABLE>
13
<PAGE>
Following the Buy-Out, a portion of the shares of Common Stock held in the
KSOP but not yet allocated to the account of any specific KSOP participant
were reoffered (i.e., KSOP participants were given an opportunity to allocate
a portion of their plan account assets previously otherwise invested to an
investment in such shares) and sold to the Company's employees. Approximately
two-thirds of all eligible employees participated, voluntarily allocating a
total of $29.6 million of their retirement funds to an investment in Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Equity Participation of Employees" and "Company Stock
Plans."
Since the Buy-Out, management has focused on building stockholder value by
emphasizing the Company's core retail and capital markets operations and
continuing to reduce costs. Management believes that the Company's improved
operating performance and revitalized focus result in great part from the
benefits of independence and employee ownership, as well as the implementation
of key initiatives since the Buy-Out. See "Business--Strategy."
On April 30, 1996 the Company sold BETA, a back office processing and quote
services subsidiary. Aside from exiting a non-core business, this divestiture,
and the operating agreements entered into with BETA in connection with it,
have enabled the Company to reduce data processing costs and quote services
expenses.
On July 25, 1996 the Company entered into a joint venture agreement (the
"JVA") pursuant to which it will acquire an initial 20% ownership interest in
Mentor, the asset management subsidiary of Wheat First Butcher Singer, Inc.
("Wheat"), a Mid-Atlantic based regional securities brokerage firm, for no
direct cash consideration. Mentor currently has approximately $5.7 billion in
assets under management, up from $1.0 billion in early 1993, and offers seven
distinct investment styles through retail mutual funds, institutional mutual
funds and separately managed portfolios. The JVA calls for the Company to
transfer money market mutual fund assets (currently approximately $2.8
billion) held in client accounts, with certain exceptions, to Mentor-sponsored
funds by December 31, 1996. The JVA also entitles the Company to earn an
additional equity interest in Mentor not later than late 1998, up to a maximum
50% ownership interest, based on revenues generated by assets attributable to
the Company's clients. The Company will account for the joint venture as an
equity investment. See "Business--Mentor Joint Venture" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Company Developments."
The Company has also been committed to improving its balance sheet following
the Buy-Out. In connection with the Buy-Out, the Company incurred $55.0
million of bank debt related to the KSOP. This indebtedness was retired in
full by May 1, 1996, some 39 months ahead of schedule. On June 17, 1996 the
Company exchanged all of its outstanding Exchangeable Preferred Stock for an
aggregate $32.2 million principal amount of Debentures. On July 30, 1996 the
Company called all of the outstanding Debentures for redemption on September
16, 1996 for an aggregate redemption price of $36.0 million (the
"Redemption"). The Redemption will be funded by borrowings under a Loan
Agreement among the Company, LaSalle National Bank and The Bank of New York
(the "Loan Agreement"). The Company intends to repay such borrowings with a
portion of the net proceeds from the offering. See "Use of Proceeds."
In addition to the Redemption, subsequent to June 30, 1996 and prior to the
consummation of this offering, the Company will have completed the following
transactions: (i) the repurchase, in accordance with the terms of the KSOP, of
an aggregate 322,832 shares of Common Stock that had been allocated to the
KSOP accounts of certain BETA employees, (ii) the payment by the Company of a
cash dividend of $1.18 per share on its outstanding Common Stock ($13.9
million in the aggregate), (iii) the application by the KSOP of $13.6 million
to repay indebtedness owed by the KSOP to the Company, (iv) the allocation
upon such repayment to the accounts of employee KSOP participants of all
shares of Common Stock held in the KSOP that had not been allocated
previously, (v) the reclassification of 107,400 vested and 108,750 unvested
shares, and unvested options on an additional 183,750 shares of the Company's
nonvoting common stock, into an identical number of vested and unvested shares
of Common Stock and options, and (vi) the obtaining of $36.0 million in bank
borrowings under the Loan Agreement to finance the Redemption. The Redemption
and the transactions described in clauses (i) through (vi) above are
collectively referred to as the "Transactions."
14
<PAGE>
EVEREN Capital was incorporated in Delaware in May 1995 in anticipation of
the Buy-Out. The business acquired by EVEREN Capital in the Buy-Out was, and
continues to be, operated primarily by EVEREN Securities and EVEREN Clearing.
EVEREN Capital conducts business primarily through EVEREN Securities and has
no operations of its own. The primary asset of EVEREN Capital is all of the
common stock of EVEREN Securities Holdings, Inc. ("ESHI"), which in turn owns
all the outstanding stock of EVEREN Securities and other related companies. As
used in this Prospectus, the "Company" and "EVEREN" refer, prior to the Buy-
Out, to ESHI and its subsidiaries, and following the Buy-Out, to EVEREN
Capital and its subsidiaries. EVEREN Capital's principal executive offices are
located at 77 West Wacker Drive, Chicago, Illinois 60601 and its telephone
number is (312) 574-6000.
DIVIDEND POLICY
Following consummation of this offering, the Company's Board of Directors
intends to pay a quarterly dividend of $.09 per share on the outstanding
shares of Common Stock commencing in the fourth quarter of 1996. The timing
and amount of future dividends will be determined by the Board of Directors
and will depend upon a number of factors, including the Company's earnings,
financial condition and cash requirements at the time such payment is
considered. Furthermore, the net capital rules of various regulatory bodies
impose limitations on the payment of dividends by the Company. See "Capital
Requirements" and "Description of Capital Stock."
DILUTION
The net tangible book value of the Company as of June 30, 1996, pro forma
for the Transactions, was $190.8 million, or approximately $16.24 per share of
Common Stock. See "Capitalization" and "Selected Consolidated Historical
Financial and Operating Data." Net tangible book value per share represents
the amount of the Company's tangible assets prior to the sale of the shares
offered hereby, less its total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale of the shares of
Common Stock offered hereby (at an assumed initial public offering price of
$18.50 per share, after deducting estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of
the Company as of June 30, 1996 would have been $258.7 million, or
approximately $16.43 per share. This represents an immediate increase of $0.19
per share to existing stockholders and an immediate dilution of $2.07 per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)......... $18.50
Pro forma net tangible book value per share as of June 30,
1996...................................................... $16.24
Increase in net tangible book value per share attributable
to new investors.......................................... .19
------
Pro forma net tangible book value per share after the
offering.................................................. 16.43
------
Dilution in net tangible book value per share to new
investors................................................. $ 2.07
======
</TABLE>
- --------
(1)Before deducting estimated underwriting discounts and commissions and
offering expenses.
The following table summarizes, on a pro forma basis as of June 30, 1996,
after giving effect to the offering, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing stockholders and by the investors purchasing
shares of Common Stock offered hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ --------------------- AVERAGE
AMOUNT PRICE
NUMBER PERCENT (IN MILLIONS) PERCENT PER SHARE
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 11,747,897 75% $82,275 52.6% $7.00
New investors........... 4,000,000 25 74,000 47.4 18.50
---------- --- ------- -----
Total............... 15,747,897 100% 156,275 100.0%
========== === ======= =====
</TABLE>
15
<PAGE>
The foregoing computations exclude 1,120,625 shares of Common Stock subject
to outstanding stock options as of June 30, 1996 at a weighted average
exercise price of $7.48 per share. None of such options are currently
exercisable. To the extent that any of such options is exercised, there will
be further dilution to new investors.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, based on an assumed initial public offering price of
$18.50 per share and after deducting underwriting discounts and commissions
and estimated offering expenses, are estimated to be approximately $67.9
million ($78.2 million if the U.S. Underwriters' over-allotment option is
exercised in full). The principal purpose of the offering is to increase
EVEREN's equity capital and to facilitate its access to the public capital
markets. Management believes, based on market indices, volume levels and
recent initial public offering activity generally, that favorable conditions
currently exist in the public equity markets. Accordingly, the offering is
being implemented at this time.
Approximately $36 million of the net proceeds will be used to repay the
aggregate principal amount of borrowings under the Loan Agreement, which
borrowings were incurred to redeem the Debentures, which had an interest rate
of 13.5% and would have matured on September 15, 2007. The interest rate on
the borrowings under the Loan Agreement (which matures on September 15, 1997,
unless extended) is the London Interbank Offered Rate ("LIBOR") plus 1.75%
(7.48% as of August 31, 1996). The remaining net proceeds to be received by
the Company from the offering will be used for general corporate purposes,
including potential future acquisitions. Pending such uses, the proceeds will
be invested in short-term securities or used to reduce short-term borrowings.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
16
<PAGE>
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization as
of June 30, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect
the Transactions and (iii) on a pro forma as adjusted basis to reflect the
Transactions, receipt by the Company of the net proceeds from the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $18.50 per share (after deducting estimated underwriting discounts
and commissions and offering expenses) and the application of the net proceeds
therefrom. See "Use of Proceeds." This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES:
Bank loans payable.................. $220,000 $256,000(/1/) $220,000(/2/)
-------- -------- --------
Debentures.......................... 31,542 -- (/3/) --
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value per
share.............................. 119 121(/4/) 161(/5/)
Nonvoting common stock, $.01 par
value per share.................... 2 -- (/4/) --
Additional paid-in capital.......... 168,638 173,550(/6/) 241,430(/7/)
Unrealized gain (loss) on available-
for-sale securities, net of income
taxes.............................. (4,698) (4,698) (4,698)
Unearned KSOP shares................ (13,611) -- (/8/) --
Unearned restricted stock........... (1,444) (1,444) (1,444)
Treasury stock, at cost............. (210) (5,088)(/9/) (5,088)
Retained earnings (since January 1,
1996).............................. 47,095 28,322(/1//0/) 28,322
-------- -------- --------
Total stockholders' equity....... 195,891 190,762 258,683
-------- -------- --------
Total capitalization.......... $447,433 $446,762 $478,683
======== ======== ========
</TABLE>
- --------
(1) Reflects bank borrowings of $36.0 million under the Loan Agreement to
finance the Redemption.
(2) Reflects the repayment of such $36.0 million of bank borrowings with a
portion of the proceeds from the offering.
(3) Reflects the Redemption.
(4) Reflects the exchange of 107,400 vested and 108,750 unvested shares and
unvested options on an additional 183,750 shares of the Company's
nonvoting common stock for an identical number of vested and unvested
shares of Common Stock and unvested options for an identical number of
shares of Common Stock.
(5) Reflects the par value of 4,000,000 shares issued in connection with the
offering.
(6) Reflects the receipt, in connection with the dividend referred to in
footnote 10 below, of $3.8 million under the indemnification arrangement
entered into between the Company and Kemper at the time of the Buy-Out and
a credit of approximately $1.1 million for the excess of the fair value
over cost of shares released to the KSOP and subsequently allocated to
participants.
(7) Reflects the net proceeds, in excess of par value, from the offering.
(8) Reflects the allocation of Common Stock to employee participant accounts
upon the KSOP's repayment of indebtedness owed to the Company with
proceeds from the dividend referred to in footnote 10 below and additional
employer contributions through the offering date.
(9) Reflects the repurchase, for approximately $4.9 million in accordance with
the terms of the KSOP, of 322,832 shares of Common Stock that had been
allocated to the KSOP accounts of certain BETA employees.
(10) Reflects the payment on August 5, 1996 of a $13.9 million cash dividend
($1.18 per share) on the outstanding Common Stock, a $3.0 million after-
tax extraordinary charge related to the anticipated early extinguishment
of debt in the Redemption and approximately $2.0 million of compensation
expense related to the release of the remaining unearned shares of Common
Stock to the KSOP.
17
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table includes summary historical consolidated financial data
for the Company which was derived from the Consolidated Financial Statements
of the Company. The summary consolidated statement of financial condition data
at December 31, 1995 and the summary consolidated statement of operations data
for the year ended December 31, 1995 were derived from the audited
Consolidated Financial Statements and the Notes thereto of EVEREN included
elsewhere in this Prospectus. The summary consolidated statement of financial
condition data at December 31, 1994 and the summary consolidated statement of
operations data for each of the years in the two-year period ended December
31, 1994 were derived from the audited Consolidated Financial Statements and
the Notes thereto of ESHI included elsewhere in this Prospectus. The summary
consolidated statement of financial condition data at December 31, 1993, 1992
and 1991 and the summary consolidated statement of operations data for each of
the years in the two-year period ended December 31, 1992 have been derived
from audited financial statements of ESHI which are not included in this
Prospectus. The summary consolidated statement of financial condition data as
of June 30, 1996 and 1995 and the summary consolidated statement of operations
data for the six months ended June 30, 1996 and 1995 were derived from
unaudited Consolidated Financial Statements of EVEREN included elsewhere in
this Prospectus and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of EVEREN for
such periods. The results for the year ended December 31, 1995 and the six-
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1996. The related
consolidated financial data should be read together with the Consolidated
Financial Statements of EVEREN and ESHI and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Commissions............ $ 117.7 $ 89.5 $ 190.4 $ 180.5 $ 241.1 $ 227.3 $ 222.5
Principal
transactions.......... 65.3 57.6 122.1 119.1 158.5 166.0 166.1
Investment banking..... 27.0 23.4 47.1 61.9 105.3 120.7 87.0
Asset management....... 27.7 25.8 53.3 51.5 49.8 46.9 42.5
Other.................. 25.3 23.1 49.1 43.2 44.9 35.7 51.1
Interest............... 37.5 41.2 81.2 73.8 74.1 80.9 94.5
-------- -------- -------- -------- -------- -------- --------
Total revenues....... 300.5 260.6 543.2 530.0 673.7 677.5 663.7
Interest expense....... 18.5 27.0 52.5 44.8 46.9 53.0 63.3
-------- -------- -------- -------- -------- -------- --------
Net revenues......... 282.0 233.6 490.7 485.2 626.8 624.5 600.4
-------- -------- -------- -------- -------- -------- --------
Non-interest expenses:
Compensation and
benefits.............. 175.6 154.0 335.5 328.0 387.1 403.7 377.9
Brokerage and
clearance............. 6.8 5.5 11.4 11.5 15.1 17.9 22.1
Communications......... 19.9 21.4 41.8 41.3 49.2 50.1 48.7
Occupancy and
equipment............. 20.3 22.1 54.5 46.4 48.7 48.8 50.3
Promotional............ 8.4 6.5 13.5 18.9 22.4 25.0 17.0
Other.................. 20.0 28.2 56.0 51.8 105.8 106.5 77.9
-------- -------- -------- -------- -------- -------- --------
Total non-interest
expenses............ 251.0 237.7 512.7(/2/) 497.9 628.3 652.0 593.9
Gain on sale of
subsidiary............ 50.2(/1/) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and cumulative
effect of accounting
changes................ 81.2 (4.1) (22.0) (12.7) (1.5) (27.5) 6.5
Income tax (expense)
benefit................ (32.0) 1.4 6.1 10.5 3.3 (0.9) (0.3)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
cumulative effect of
accounting changes..... 49.2 (2.7) (15.9) (2.2) 1.8 (28.4) 6.2
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 49.2(/1/) $ (2.7) $ (15.9)(/2/) $ (2.2) $ (3.7)(/3/) $ (38.4)(/3/) $ 6.2
======== ======== ======== ======== ======== ======== ========
Earnings per share(/4/). $ 4.98
========
Pro forma net income
(loss) per share(/5/).. $ 3.41 $ (1.04)
======== ========
STATEMENT OF FINANCIAL
CONDITION DATA (AT END
OF PERIOD):
Total assets............ $1,767.4 $1,817.7 $2,550.6 $1,554.7 $1,632.4 $2,007.3 $1,790.8
Long-term
obligations(/6/)....... 175.2 313.3 160.7 289.4 285.7 389.1 444.3
Stockholders' equity.... 195.9 164.5 131.6 167.2 150.5 154.1 192.5
Book value per share of
Common Stock
outstanding(/7/)........ $ 16.23
OPERATING DATA:
After-tax return on
average equity......... 30.1% (1.6)% (10.6)% (1.4)% (2.4)% (22.2)% 3.2%
Compensation and
benefits expense as a
percentage of net
revenues............... 62.3% 65.9% 68.4% 67.6% 61.8% 64.6% 62.9%
Non-compensation and
benefits expense as a
percentage of net
revenues............... 26.8% 36.0% 36.1% 35.1% 38.5% 39.8% 36.0%
Assets in client
accounts (at end of
period) (in billions).. $ 38.2 $ 33.0 $ 36.8 $ 31.0 $ 33.9 N/A N/A
</TABLE>
- -------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the
sale of BETA. See "Company History" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out. See "Company History" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(3) After cumulative effect at January 1, 1992 of a change in accounting for
post-retirement benefits of $10.0 million and at January 1, 1993 of a
change in accounting for income taxes of $5.5 million. See Note 2 of Notes
to Consolidated Financial Statements.
(4) Earnings per share of Common Stock is not presented for periods other than
the most recent period as historical per share information is not
indicative of the Company's continuing capital structure.
(5) Pro forma net income per share of Common Stock is calculated by dividing
net income for the period, after eliminating the after-tax interest
expense related to the Debentures by the weighted average number of shares
of Common Stock and Common Stock equivalents outstanding during the
period, adjusted only for the number of shares of Common Stock sold in the
offering the proceeds with respect to which will be used to repay
indebtedness under the Loan Agreement.
(6) Consists of the Debentures and collateralized mortgage obligations backed
by investment in mortgage-backed certificates. See "Company History."
(7) Book value per share of Common Stock outstanding is not presented for
periods other than the most recent period as such presentation would not
be meaningful.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto, each appearing elsewhere in this
Prospectus. In addition to historical information, the following Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including
those discussed in "Risk Factors" contained elsewhere in this Prospectus.
BUSINESS ENVIRONMENT
The Company's principal business activity, retail broker-dealer operations,
as well as its investment banking, institutional sales, investment advisory,
clearing and other services, are highly competitive and subject to various
risks, volatile trading markets and fluctuations in the volume of market
activity. As a result, the Company's revenues and earnings have been, and may
continue to be, subject to wide fluctuations including economic and securities
market conditions, changes in interest rates, competitive conditions within
the industry and regulatory developments. Consequently, the results of
operations for a particular period may not be indicative of results to be
expected for other periods.
Industry market conditions were generally favorable during 1995 and the
first six months of 1996. However, in 1994 an environment of rising interest
rates, which began in February of that year, caused price and liquidity
volatility in the fixed income securities markets which, in turn, adversely
impacted revenues in fixed income securities. Also, in early 1994 a downturn
in the retail sector of the securities industry contributed to reduced retail
production. By mid-1995 interest rates stabilized and began to trend downward,
positively impacting fixed income securities prices and both the institutional
and the retail sectors of the securities industry. In addition, favorable
economic conditions created a stronger retail demand for equity securities and
related products beginning in mid-1995 and continuing through the first six
months of 1996.
COMPANY DEVELOPMENTS
Management believes that, until the Buy-Out, ownership uncertainty adversely
impacted the Company in a number of areas, most notably the Company's ability
to recruit and retain qualified revenue-producing personnel, the productivity
of the Company's retail branch network and the Company's participation in
investment banking transactions. As a result of these ownership uncertainties
and increased market volatility, management implemented a defensive strategy
focusing on the retention of the Company's then existing workforce, a resizing
of its operations and general cost containment. Management believes that all
of the aforementioned factors depressed the Company's performance, despite
generally favorable market conditions during much of this time period. With
the Buy-Out in September 1995, the ownership uncertainty was resolved. In
anticipation of, and in conjunction with, the Buy-Out, the Company incurred
several non-recurring charges during the third quarter of 1995 as discussed
below under "--Results of Operations." Management believes ownership
resolution has contributed to a significant turnaround in the Company's
profitability, aided in the retention and recruitment of quality employees and
enabled the Company to implement certain strategic initiatives. See
"Business--Strategy."
Effective January 1, 1996 the Company implemented a quasi-reorganization and
revalued its assets and liabilities to fair value as of that date. This
revaluation resulted in a reduction in net assets of $3.7 million. The quasi-
reorganization also resulted in the transfer of the accumulated deficit as of
January 1, 1996 of $306.5 million to additional paid-in capital. Such
revaluation has not had and will not in the future have any significant impact
on the operating results of the Company. The balance in retained earnings at
June 30, 1996 represents the accumulated net earnings available to common
stockholders arising subsequent to the date of the quasi-reorganization. The
quasi-reorganization as of January 1, 1996 was effected in order to reflect
the emergence of the Company as a new organization, signal the end of its
transition from a wholly-owned subsidiary to a fully independent company and
enable the Company to present more accurately the new organization's
cumulative performance.
19
<PAGE>
Consistent with its strategy of focusing on its core retail and capital
markets businesses, on April 30, 1996 the Company completed the sale of BETA
for $63.5 million. The sale, which resulted in a pre-tax gain of approximately
$50.2 million and an after-tax gain of approximately $30.2 million, is
reflected in the Company's second quarter results. Based upon an internal
financial analysis, management believes that the loss of BETA's net income
will be more than offset by increased net interest income combined with
reduced data processing and quote services expenses resulting from new five-
year operating agreements executed in connection with the sale.
On June 17, 1996 the Company exchanged all of its outstanding Exchangeable
Preferred Stock for an aggregate $32.2 million principal amount of the
Debentures. On July 30, 1996 the Company issued a notice calling all of the
outstanding Debentures for redemption on September 16, 1996 at a price of 112%
of principal or $36.0 million, plus accrued interest. This redemption will be
funded principally through $36.0 million of borrowings under the Loan
Agreement and will result in an extraordinary charge of approximately $3.0
million after-tax in the quarter ending September 30, 1996 due to the early
extinguishment of debt. The Company intends to use a portion of the net
proceeds from the offering to repay the borrowings under the Loan Agreement.
See "Use of Proceeds."
On July 25, 1996 the Company entered into the JVA, pursuant to which it will
acquire an initial 20% ownership interest in Mentor for no direct cash
consideration. Under the terms of the JVA, the Company's ownership interest
may increase to as much as 50%. This joint venture will be accounted for as an
equity investment, and future operating results will include the Company's
proportionate share of the earnings or losses of Mentor. See "Business--Mentor
Joint Venture."
On August 5, 1996 the Company paid a cash dividend of $1.18 per share on its
shares outstanding as of July 23, 1996. This dividend allowed the KSOP to
repay its remaining loan balance to the Company, incurred in connection with
the Buy-Out, and allowed the release of substantially all of the remaining
unallocated KSOP shares to employee participant accounts. This release of
unallocated KSOP shares required the recording of compensation expense of
approximately $3.4 million (after-tax) which is included in the Company's
results of operations for the period ended June 30, 1996. As a result of this
dividend and the repayment by the KSOP of the loan with the proceeds thereof,
all shares held in the KSOP will be treated as outstanding in the Company's
future financial statements. Accordingly, future share dilution and
compensation expense, which would have occurred had such shares been released
over the expected remaining 39-month term of the loan, will be eliminated.
EQUITY PARTICIPATION OF EMPLOYEES
Substantially all of the current outstanding Common Stock is owned by the
Company's employees either directly or indirectly through the KSOP. Management
believes that significant employee ownership fosters a culture that encourages
strong performance and provides employees the opportunity to participate in
the future performance of the Company.
On September 13, 1995 the KSOP purchased 10,437,781 shares of Common Stock,
representing 96.6% of the then outstanding shares of Common Stock, from Kemper
in the Buy-Out. Kemper agreed to indemnify the Company for the first $20.0
million of employer contributions (other than 401(k) contributions) to the
KSOP. As of June 30, 1996, Kemper had paid $16.2 million of such first $20.0
million to the Company pursuant to such agreement. The Company received the
remaining $3.8 million following the August 5, 1996 dividend payment. The
receipt of such payments is recorded as additional paid-in capital and is not
reflected in the Company's Statement of Operations.
Immediately following the Buy-Out, 3,654,685 shares of Common Stock held in
the KSOP but not yet allocated to the account of any specific KSOP participant
were reoffered (i.e., KSOP participants were given an opportunity to allocate
a portion of their plan account assets previously otherwise invested to an
investment in such shares) to KSOP participants in an aggregate amount not to
exceed $25.0 million (the "Founders' Offering"). The price per share in the
Founders' Offering of $6.8405 was equal to the price per share paid by
20
<PAGE>
the KSOP in the Buy-Out. Subject to the terms of the Founders' Offering and
the contribution limitations of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company contributed to the KSOP an amount equal to one-half
of the amount invested in Common Stock by each participant in Common Stock in
the Founders' Offering.
Employee response to the Founders' Offering resulted in subscriptions
substantially higher than $25 million. As a result, in December 1995 the
Company, through the KSOP, offered additional shares of Common Stock to KSOP
participants who participated in the Founders' Offering up to the amount
oversubscribed. An additional $4.6 million of participant assets was allocated
to an investment in an aggregate 670,949 shares of Common Stock through this
offering.
In order to provide additional ownership opportunities to employees, in the
second quarter of 1996 the Company instituted three new employee benefit plans
to provide current and future employees the opportunity to acquire Common
Stock outside of the KSOP. See "Company Stock Plans" for a description of the
plans. In connection with these plans, the Company recognizes additional
compensation expense equal to the difference between the fair value of the
Common Stock issued and the amount of cash compensation otherwise payable or
cash paid under each respective plan. In the absence of a public market, fair
value, as used in all of the equity participation plans, is based upon
periodic valuation analyses prepared by an independent investment banking
firm.
COMPONENTS OF REVENUES AND EXPENSES
Revenues. Commissions include revenues generated by executing listed and
over-the-counter transactions as agent, as well as commissions earned on the
sales of mutual funds, insurance, annuities and certain other products.
Principal transactions consist of gains and losses from the trading of
securities by the Company as principal, including principal sales credits.
Investment banking revenues primarily include underwriting revenues, which are
comprised of underwriting selling concessions, management fees and
underwriting fees, as well as merger and acquisition and other advisory fees.
Asset management revenues primarily include managed account fees and 12b-1
distribution fees. Other revenues include transaction and account fees,
correspondent clearing and execution income and miscellaneous income. Interest
income primarily includes interest earned on customer margin accounts and
interest income on securities owned and investments in mortgage backed
certificates. Net revenues equal total revenues less interest expense.
Interest expense includes interest paid on bank borrowings, collateralized
securities transactions with brokers and dealers and collateralized mortgage
obligations.
Expenses. Compensation and benefits expense includes sales, trading and
incentive compensation, which are primarily variable based on revenue
production, and salaries, payroll taxes, and employee benefits, which are
relatively fixed in nature. Incentive compensation, including bonuses for
eligible employees, is accrued for ratably based on actual or estimated annual
amounts. Brokerage and clearance expense includes the cost of securities
clearance, floor brokerage and exchange fees. Communications expense includes
charges for telecommunications, news and market data services, customer
statements and depreciation on data processing and telecommunications
equipment. Occupancy and equipment expense includes rent and operating
expenses for facilities, expenditures for repairs and maintenance, and
depreciation of furniture, fixtures and leasehold improvements. Promotional
expense includes travel, entertainment and advertising. Other expenses include
general and administrative expenses, including professional services,
litigation expenses, dues and assessments, and other miscellaneous expenses.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, DECEMBER 31,
----------------- --------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions............ 41.7% 38.3% 38.8% 37.2% 38.5%
Principal transactions. 23.2 24.7 24.9 24.5 25.3
Investment banking..... 9.6 10.0 9.6 12.8 16.8
Asset management....... 9.8 11.0 10.9 10.6 7.9
Other.................. 9.0 9.9 10.0 8.9 7.2
Interest............... 13.3 17.6 16.5 15.2 11.8
----- ----- ----- ----- -----
Total revenues....... 106.6 111.5 110.7 109.2 107.5
Interest expense....... 6.6 11.5 10.7 9.2 7.5
----- ----- ----- ----- -----
Net revenues......... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Expenses:
Compensation and
benefits.............. 62.3 65.9 68.4 67.6 61.8
Brokerage and
clearance............. 2.4 2.4 2.3 2.4 2.4
Communications......... 7.1 9.2 8.5 8.5 7.8
Occupancy and
equipment............. 7.2 9.5 11.1 9.6 7.8
Promotional............ 3.0 2.8 2.8 3.9 3.6
Other.................. 7.1 12.1 11.4 10.7 16.9
----- ----- ----- ----- -----
Total non-interest
expenses............ 89.1 101.9 104.5 102.7 100.3
Gain on sale of
subsidiary............ 17.8 -- -- -- --
----- ----- ----- ----- -----
Income (loss) before
taxes and cumulative
effect of accounting
changes................. 28.7 (1.9) (4.5) (2.7) (0.3)
Income tax (expense)
benefit................. (11.3) 0.6 1.2 2.2 0.5
----- ----- ----- ----- -----
Net income (loss) before
cumulative effect of
accounting changes...... 17.4 (1.3) (3.3) (0.5) 0.2
----- ----- ----- ----- -----
Net income (loss)........ 17.4%(/1/) (1.3)% (3.3)%(/2/) (0.5)% (0.7)%(/3/)
===== ===== ===== ===== =====
</TABLE>
- --------
(1) Includes a $30.2 million after-tax gain on the sale of BETA (10.7% of net
revenues).
(2) Includes $22.0 million after-tax of non-recurring charges incurred in
connection with the Buy-Out (4.5% of net revenues).
(3) Includes cumulative effect of a change in accounting principles at January
1, 1993 of (0.9)% related to a change in accounting for income taxes.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company experienced strong operating results for the six months ended
June 30, 1996 compared to the first six months ended June 30, 1995. Revenues
increased in all of the Company's businesses, expenses declined as percentages
of net revenues, and net income (without giving effect to the gain realized
from the sale of BETA) improved significantly. Management attributes these
results to two principal factors. First, favorable conditions prevailed in the
equity markets during the first half of 1996, reflecting continued investor
optimism concerning inflation and interest rate stability. Second, this period
reflects the continued benefits of ownership resolution, which management
believes has enhanced employee motivation, confidence, commitment and
productivity and allowed management to concentrate on its key strategic
initiatives.
Total revenues increased $39.9 million or 15% to $300.5 million for the six
months ended June 30, 1996 from $260.6 million for the six months ended June
30, 1995. Revenues increased in all of the Company's major product areas
during the first six months of 1996. Net revenues increased $48.4 million or
21% to $282.0 million for the six months ended June 30, 1996 from $233.6
million for the six months ended June 30, 1995.
Commission revenues increased $28.2 million or 32% to $117.7 million for the
six months ended June 30, 1996 from $89.5 million for the six months ended
June 30, 1995, due to increased business in both the retail and institutional
areas, consistent with the overall growth in listed share volume on all the
major equity exchanges.
22
<PAGE>
During this period the Company benefited from a 26% increase in average
production per investment consultant (commissions, principal sales credits and
12b-1 and managed account fees credited to the production of all investment
consultants divided by the average number of investment consultants during the
period) when compared to the same period in 1995.
Principal transaction revenues increased $7.7 million or 13% to $65.3
million for the six months ended June 30, 1996 from $57.6 million for the six
months ended June 30, 1995, due to the strong trading volumes generated in the
Company's retail sector throughout the first half of 1996 and a significant
increase in trading gains and principal sales credits from over-the-counter
equity transactions, consistent with improved market conditions.
Investment banking revenues increased $3.6 million or 15% to $27.0 million
for the six months ended June 30, 1996 from $23.4 million for the six months
ended June 30, 1995. The increase in investment banking revenues was
indicative of the increased underwriting activity seen throughout the industry
and the Company's participation in a larger number of transactions. In
addition, management believes that resolution of the Company's past ownership
uncertainties has increased the Company's ability to participate in this type
of business.
Asset management revenues increased $1.9 million or 7% to $27.7 million for
the six months ended June 30, 1996 from $25.8 million for the six months ended
June 30, 1995, due primarily to increased managed account fees and increased
12b-1 distribution fees in 1996, consistent with the strong mutual fund
inflows seen throughout the industry in 1995 and 1996.
Other income increased $2.2 million or 10% to $25.3 million for the six
months ended June 30, 1996 from $23.1 million for the six months ended June
30, 1995. This resulted primarily from increased transactional fee income and
a license fee earned by BETA prior to its sale.
Interest and dividend income decreased $3.7 million or 9% to $37.5 million
for the six months ended June 30, 1996 from $41.2 million for the six months
ended June 30, 1995, due to lower average inventory balances and a lower
average rate of interest earnings on margin accounts. The decline in interest
and dividend income was more than offset by a decrease in interest expense of
$8.5 million or 31% to $18.5 million for the six months ended June 30, 1996
from $27.0 million for the six months ended June 30, 1995. This decrease in
interest expense was the net result of reduced costs of financing lower levels
of securities inventories and customer margin accounts, and reduced levels of
long-term debt which resulted from the Buy-Out and the early repayment of the
KSOP debt.
Total non-interest expenses increased $13.3 million or 6% to $251.0 million
for the six months ended June 30, 1996 from $237.7 million for the six months
ended June 30, 1995. This increase was the net result of an increase in
production-related compensation attributable to higher revenue, partially
offset by reduced operating expenses resulting from the Company's continued
focus on cost containment.
Compensation and benefits expense increased $21.6 million or 14% to $175.6
million for the six months ended June 30, 1996 from $154.0 million for the six
months ended June 30, 1995, primarily due to increased incentive and
production-related compensation. However, compensation and benefits as a
percentage of net revenues declined to 62% in this period from 65% in the
first six months of 1995. This decrease reflects the fixed nature of a
significant portion of this expense as well as the decrease in production-
based payout to retail investment consultants that was implemented in the
third quarter of 1995.
Brokerage and clearance expense increased $1.3 million or 24% to $6.8
million for the six months ended June 30, 1996 from $5.5 million for the six
months ended June 30, 1995. This increase was directly related to the
increased transaction volume in the current period and was consistent with the
24% increase in commission and principal transaction revenues in the current
period when compared with the 1995 period.
All other operating expenses decreased an aggregate $9.6 million or 12% to
$68.6 million for the six months ended June 30, 1996 from $78.2 million for
the six months ended June 30, 1995, primarily due to the continued realization
of benefits from cost containment programs initiated in previous years. All
other operating expenses
23
<PAGE>
as a percentage of net revenues declined to 24% for the six months ended June
30, 1996 from 34% for the six months ended June 30, 1995. Specifically, when
comparing the periods ended June 30, 1996 and 1995, communications expense
decreased $1.5 million or 7%; occupancy and equipment expense decreased $1.8
million or 8%; promotional expense increased $1.9 million or 29%; and other
expenses decreased $8.2 million or 29%. After excluding from first quarter
1995 expenses a $3.7 million pre-tax charge related to the failure of a
correspondent firm of EVEREN Clearing in March 1995, other expenses decreased
$4.5 million or 18% for the six months ended June 30, 1996 when compared to
the six months ended June 30, 1995. The increase in promotional expense during
this period was due to increased advertising expenses incurred to promote the
Company.
The Company's income tax provision (benefit) for the six months ended June
30, 1996 and 1995 was $32.0 million and $(1.4) million, respectively, which
represented a 39% effective tax rate on income before taxes for the six months
ended June 30, 1996 and a 34% effective benefit rate for the six months ended
June 30, 1995. The effective rate increase for 1996 is due primarily to
certain non-deductible compensation expenses related to appreciation on the
shares of Common Stock released to the KSOP (and subsequently allocated to
participants) and higher state and local income taxes.
Net income increased $51.9 million to $49.2 million for the six months ended
June 30, 1996 from a net loss of $2.7 million for the six months ended June
30, 1995.
1995 COMPARED TO 1994
Stronger operating results for 1995 were more than offset by $33.3 million
pre-tax ($22.0 million after-tax) of non-recurring charges related to the Buy-
Out that are discussed below. Management believes that the improved results in
1995, exclusive of non-recurring charges, were due in part to the turnaround
in the equity and fixed income markets that began in the second quarter and
continued through year end 1995. This factor, coupled with ownership
resolution in the later part of 1995, contributed to improved commission and
principal transaction revenues. For the fourth quarter of 1995, its first full
quarter as an independent entity, the Company reported net income of $6.2
million on net revenues of $131.3 million, compared to net income of $0.7
million on net revenues of $114.2 million for the fourth quarter of 1994.
Total revenues increased $13.2 million or 2% to $543.2 million for the year
ended December 31, 1995 from $530.0 million for the year ended December 31,
1994. Net revenues increased $5.5 million or 1% to $490.7 million for the year
ended December 31, 1995 from $485.2 million for the year ended December 31,
1994. These small increases were largely due to stronger market conditions in
the second half of 1995, which more than offset the weaker market conditions
in the first half of 1995.
Commission revenues increased $9.9 million or 5% to $190.4 million for the
year ended December 31, 1995 from $180.5 million for the year ended December
31, 1994. In the third and fourth quarters of 1995 commission revenues
increased by $10.6 million or 26% and $10.6 million or 27%, respectively, when
compared to the corresponding quarters in 1994, primarily reflecting improved
securities market conditions. Specifically, retail investment consultant
productivity improved significantly in the second half of 1995 due to
stability in the Company's workforce.
Principal transaction revenues increased $3.0 million or 3% to $122.1
million for the year ended December 31, 1995 from $119.1 million for the year
ended December 31, 1994, due to stronger equity markets and reduced volatility
in the fixed income markets. Increased stability in the fixed income markets
in 1995 resulted in increased trading profits in the municipal, government and
corporate bond areas, which accounted for the moderate improvement in
principal transaction revenues.
Investment banking revenues decreased $14.8 million or 24% to $47.1 million
for the year ended December 31, 1995 from $61.9 million for the year ended
December 31, 1994. Management believes that uncertainties with respect to the
Company's ownership negatively impacted its ability to generate investment
banking fees and participate in the upswing in equity origination business
experienced by other firms in this period.
24
<PAGE>
Asset management revenues increased $1.8 million or 3% to $53.3 million for
the year ended December 31, 1995 from $51.5 million for the year ended
December 31, 1994, primarily due to higher revenues earned on wrap accounts
and other fee earning assets.
Other income improved $5.9 million or 14% to $49.1 million for the year
ended December 31, 1995 from $43.2 million for the year ended December 31,
1994. The most significant element of this increase was the receipt of
approximately $2.8 million in recoveries in 1995 related to the contested
recruitment of Company employees by certain competitors. In addition, the
Company took advantage of favorable market conditions in the fourth quarter of
1995 by exercising its right to call certain of its collateralized mortgage
obligations and selling the related mortgage-backed securities, resulting in a
gain of approximately $2.1 million. Without giving effect to these two items,
other income improved $1.0 million or 2% for the year ended December 31, 1995
compared to the year ended December 31, 1994.
Interest and dividend income improved $7.4 million or 10% to $81.2 million
for the year ended December 31, 1995 from $73.8 million for the year ended
December 31, 1994, as increased earnings from higher interest on margin
accounts more than offset reduced customer margin borrowings. The improvement
in interest and dividend income, however, was offset by an increase in
interest expense of $7.7 million or 17% to $52.5 million for the year ended
December 31, 1995 from $44.8 million in 1994, which resulted from higher
average interest rates on the Company's borrowings.
Total non-interest expenses increased $14.8 million or 3% to $512.7 million
for the year ended December 31, 1995 from $497.9 million for the year ended
December 31, 1994, as a result of the non-recurring charges discussed below.
Such non-recurring charges amounted to $33.3 million pre-tax. Excluding these
non-recurring items, total non-interest expenses decreased $18.5 million or 4%
to $479.4 million for the year ended December 31, 1995 from $497.9 million for
the year ended December 31, 1994, due to the continued impact of cost
containment efforts.
The $33.3 million pre-tax ($22.0 million after-tax) of non-recurring charges
noted above are made up of the following: (i) $6.0 million of expenses related
to changing and publicizing the Company's name; (ii) $10.6 million of expenses
associated with the Company's decisions to sublease to third parties, rather
than to use in the Company's business, a significant portion of its 115,000
square feet of office space in Houston, Texas and to move its Denver, Colorado
operations from a 153,000 square feet owned building to a new leased facility;
(iii) $14.2 million for an initial contribution and a matching contribution to
the KSOP related to the Founders' Offering; and (iv) $2.5 million in
compensation expense as a result of the vesting of previously restricted stock
issued to senior management as part of the Buy-Out. All of these charges were
a result of or incurred in connection with the Buy-Out and were reflected in
third quarter 1995 operating results.
Compensation and benefits expense increased $7.5 million or 2% to $335.5
million for the year ended December 31, 1995 from $328.0 million for the year
ended December 31, 1994. Compensation and benefits as a percentage of net
revenues increased to 68.4% for the year ended December 31, 1995 from 67.6%
for the year ended December 31, 1994. Included in the increase in compensation
and benefits expense are non-recurring charges of $16.7 million related to the
vesting of restricted stock issued to senior management, and the initial and
matching KSOP contributions related to the Founders' Offering. Excluding these
items, compensation and benefits expense decreased $9.2 million (3%) or to 65%
of net revenues as a result of several factors including decreased production-
based compensation related to the weaker market conditions in the first half
of 1995, a reduction in production-based payout to retail investment
consultants beginning in August 1995 of approximately 2% of retail revenues
and, management believes, uncertainties surrounding the Company's ownership.
Brokerage and clearance expense remained relatively constant, decreasing
$0.1 million or 1% to $11.4 million for the year ended December 31, 1995 from
$11.5 million for the year ended December 31, 1994 as a result of the
Company's continued focus on cost containment, despite increased transaction
volumes.
Communications expense increased $0.5 million or 1% to $41.8 million for the
year ended December 31, 1995 from $41.3 million for the year ended December
31, 1994 mainly due to increased depreciation on broker workstation equipment.
25
<PAGE>
All other operating expenses, excluding the 1995 non-recurring charges of
$16.6 million pre-tax related to the sublease and relocations and the
Company's name change, decreased $9.7 million or 8% to $107.4 million for the
year ended December 31, 1995 from $117.1 million for the year ended December
31, 1994 as the benefits of cost containment programs continued to be
realized. Specifically, when comparing the years ended December 31, 1995 and
1994, occupancy and equipment (excluding $10.6 million of non-recurring
charges for the sublease and relocations) decreased $2.5 million or 5%;
promotional expense decreased $5.4 million or 29%; and other expenses
decreased $5.5 million or 11% after excluding a $6.0 million expense related
to the Company's name change and a $3.7 million charge related to the failure
of A.T. Brod & Company, Inc. ("Brod"), an EVEREN Clearing correspondent firm,
following Brod's failure to meet a $4.3 million margin call. While the Company
believes that Brod's failure was an isolated event which is not indicative of
a trend, the Company initiated more stringent credit and risk management
procedures in order to reduce the risk of any such future losses. See "--Risk
Management and "Business--Legal Proceedings."
The Company's income tax benefit for the years ended December 31, 1995 and
1994 was $6.1 million and $5.0 million (excluding a $5.5 million 1994 benefit
related to the revaluation of certain tax assets), respectively, which
represented a 28% effective benefit rate in 1995 and a 39% effective benefit
rate in 1994. The effective rate decline in 1995 was due to lower tax-exempt
interest income and higher state and local taxes.
The net loss increased $13.7 million to $15.9 million for the year ended
December 31, 1995 from $2.2 million for the year ended December 31, 1994.
1994 COMPARED TO 1993
Weak industry conditions and uncertainty as to the Company's ownership had
an adverse impact on operating results beginning in early 1994. During the
1994 period the Company proceeded with its cost control program and with
resizing the organization, reducing employee (other than investment
consultant) headcount by approximately 10% at December 31, 1994 compared to
December 31, 1993.
Consistent with the generally weak market conditions experienced throughout
the industry in 1994 and a net loss of investment consultants by the Company,
total revenues decreased $143.7 million or 21% to $530.0 million for the year
ended December 31, 1994 from $673.7 million for the year ended December 31,
1993. Net revenues decreased $141.6 million or 23% to $485.2 million for the
year ended December 31, 1994 from $626.8 million for the year ended December
31, 1993. These decreases were the result of poor market conditions coupled
with uncertainty surrounding the Company's and Kemper's ownership in 1994.
These and other factors led to a reduction in the average number of investment
consultants, lower average production per investment consultant and lower
investment banking revenues.
For the reasons described above, commission revenues decreased $60.6 million
or 25% to $180.5 million for the year ended December 31, 1994 from $241.1
million for the year ended December 31, 1993.
Principal transaction revenues declined $39.4 million or 25% to $119.1
million for the year ended December 31, 1994 from $158.5 million for the year
ended December 31, 1993, reflecting, in addition to the factors described
above, a tightening in the fixed income markets resulting from rising interest
rates as well as increased market volatility. The increase in short-term
interest rates in 1994 and uncertainty over their future direction caused a
reduction in demand for fixed income products and a reduction in the value of
most fixed income instruments. By contrast, fixed income markets were
generally strong in 1993, particularly within the tax-exempt and mortgage-
backed areas.
Investment banking revenues decreased $43.4 million or 41% to $61.9 million
for the year ended December 31, 1994 from $105.3 million for the year ended
December 31, 1993, primarily due to the factors described above and
significantly reduced equity and municipal underwriting activity. Volatility
in the fixed income markets resulted in reduced transactions. Ownership
uncertainties adversely affected the Company's ability to participate in
investment banking transactions.
Asset management revenues increased $1.7 million or 3% to $51.5 million for
the year ended December 31, 1994 from $49.8 million for the year ended
December 31, 1993, due to increased fee earning assets.
26
<PAGE>
Other income decreased $1.7 million or 4% to $43.2 million for the year
ended December 31, 1994 from $44.9 million for the year ended December 31,
1993, reflecting lower transaction fee revenues due to reduced volume from
retail accounts.
Interest and dividend income decreased $0.3 million to $73.8 million for the
year ended December 31, 1994 from $74.1 million for the year ended December
31, 1993. Due to market volatility in 1994, the Company reduced its fixed
income securities inventory, resulting in reduced interest income, which was
offset by increased earnings from margin accounts due to higher interest
rates. Despite higher rates, interest expense decreased $2.1 million or 4% to
$44.8 million for the year ended December 31, 1994 from $46.9 million for the
year ended December 31, 1993, due to reduced borrowings.
Total non-interest expenses, excluding a supplemental addition to legal
reserves in 1993 discussed below, decreased $100.4 million or 17% to $497.9
million for the year ended December 31, 1994 from $598.3 million for the year
ended December 31, 1993, largely as a result of decreased production-based
compensation and a focus on cost containment.
Compensation and benefits expense decreased $59.1 million or 15% to $328.0
million for the year ended December 31, 1994 from $387.1 million for the year
ended December 31, 1993, primarily due to lower commission expense (resulting
from lower retail revenues) and reduced production-based compensation
accruals.
Brokerage and clearance expense decreased $3.6 million or 24% to $11.5
million for the year ended December 31, 1994 from $15.1 million for the year
ended December 31, 1993, due to lower volumes which resulted from market
volatility and relatively lower levels of investor confidence.
All other expenses, excluding a supplemental addition to legal reserves in
1993, declined $37.7 million or 19% to $158.4 million for the year ended
December 31, 1994 from $196.1 million for the year ended December 31, 1993, as
the benefits of a then recently instituted cost containment program took
effect. Specifically, when comparing the years ended 1994 and 1993,
communications expense decreased $7.9 million or 16%, occupancy and equipment
expense decreased $2.3 million or 5%, and promotional expense decreased $3.5
million or 16%. In addition, other expenses decreased $24.0 million or 32% due
in large part to lower litigation-related expense. Results in 1993 included a
supplemental addition to the Company's litigation reserves of $19.8 million
after-tax. The addition was based on management's evaluation of pending legal
matters in light of then current information. The Company subsequently settled
certain significant litigation within established reserves.
The Company's income tax benefit for the years ended December 31, 1994 and
1993 was $5.0 million (after adjustment for a special revaluation of $5.5
million) and $1.7 million (after adjustment for deferred tax asset
revaluations), respectively, which represented a 39% effective benefit rate in
1994 and a 115% effective benefit rate in 1993. In 1993, significant net tax-
exempt income relative to the loss before income taxes was the primary reason
for the high effective benefit rate.
The net loss decreased $1.5 million or 41% to $2.2 million for the year
ended December 31, 1994 from $3.7 million for the year ended December 31,
1993. The 1994 net loss included the benefits of $5.5 million from revaluation
of certain tax liabilities. The 1993 net loss included a charge of $5.5
million for the adoption of Statement of Financial Accounting Standards No.
109, which changed the method of accounting for deferred income taxes. See
Note 2 of Notes to Consolidated Financial Statements.
27
<PAGE>
QUARTERLY RESULTS
The information set forth below is derived from unaudited quarterly results
of operations of the Company for each quarter of 1995 and the first two
quarters of 1996. The data has been prepared by the Company on a basis
consistent with the Consolidated Financial Statements included elsewhere in
this Prospectus and includes all adjustments, consisting principally of normal
recurring accruals, that the Company considers necessary for a fair
presentation thereof. These operating results are not necessarily indicative
of the Company's future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
-------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions........... $ 60,277 $57,431 $49,591 $ 51,188 $47,189 $42,336
Principal
transactions......... 34,469 30,875 30,863 33,670 30,180 27,414
Investment banking.... 16,540 10,442 15,520 8,220 11,807 11,546
Asset management...... 13,231 14,480 13,907 13,636 13,031 12,759
Other................. 13,486 11,722 14,552 11,493 12,112 10,978
Interest.............. 19,278 18,191 19,452 20,497 20,460 20,768
-------- ------- ------- -------- ------- -------
Total revenues...... 157,281 143,141 143,885 138,704 134,779 125,801
Interest expense...... 9,203 9,254 12,567 12,942 13,368 13,651
-------- ------- ------- -------- ------- -------
Net revenues........ 148,078 133,887 131,318 125,762 121,411 112,150
-------- ------- ------- -------- ------- -------
Expenses:
Compensation and
benefits............. 88,893 86,725 83,101 98,378(/2/) 80,193 73,801
Brokerage and
clearance............ 3,899 2,949 2,590 3,329 2,729 2,774
Communications........ 9,567 10,321 10,305 10,085 10,703 10,666
Occupancy and
equipment............ 10,052 10,224 10,714 21,687(/2/) 10,929 11,154
Promotional........... 4,375 3,982 3,453 3,568 3,269 3,218
Other................. 10,881 9,049 10,504 17,219(/2/) 12,568 15,683
-------- ------- ------- -------- ------- -------
Total non-interest
expenses........... 127,667 123,250 120,667 154,266(/2/) 120,391 117,296
Gain on sale of
subsidiary........... 50,181(/1/) -- -- -- -- --
-------- ------- ------- -------- ------- -------
Income (loss) before
taxes.................. 70,592 10,637 10,651 (28,504) 1,020 (5,146)
Income tax (expense)
benefit................ (28,173) (3,831) (4,413) 9,125 (517) 1,930
-------- ------- ------- -------- ------- -------
Net income (loss)....... $ 42,419(/1/) $ 6,806 $ 6,238 $(19,379)(/2/) $ 503 $(3,216)
======== ======= ======= ======== ======= =======
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the
sale of BETA.
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out as discussed under
"Results of Operations--1995 Compared to 1994." On a pre-tax basis,
excluding these charges, compensation and benefits expense would decrease
$16.7 million to $81.7 million from $98.4 million; occupancy and equipment
expense would decrease $10.6 million to $11.1 million from $21.7 million;
and other expenses would decrease $6.0 million to $11.2 million from $17.2
million.
28
<PAGE>
The following table sets forth certain statement of operations data as a
percentage of net revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions........... 40.7% 42.9% 37.8% 40.7% 38.9% 37.7%
Principal
transactions......... 23.3 23.1 23.5 26.8 24.9 24.4
Investment banking.... 11.2 7.8 11.8 6.5 9.7 10.3
Asset management...... 8.9 10.8 10.6 10.8 10.7 11.4
Other................. 9.1 8.8 11.1 9.1 10.0 9.8
Interest.............. 13.0 13.6 14.8 16.3 16.9 18.5
----- ----- ----- ----- ----- -----
Total revenues........ 106.2 107.0 109.6 110.2 111.1 112.1
Interest expense...... 6.2 7.0 9.6 10.2 11.1 12.1
----- ----- ----- ----- ----- -----
Net revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -----
Expenses:
Compensation and
benefits............. 60.0 64.8 63.3 78.2 (/2/) 66.1 65.8
Brokerage and
clearance............ 2.6 2.2 2.0 2.6 2.2 2.5
Communications........ 6.5 7.7 7.8 8.0 8.8 9.5
Occupancy and
equipment............ 6.8 7.6 8.2 17.2 (/2/) 9.0 9.9
Promotional........... 3.0 3.0 2.6 2.8 2.7 2.9
Other................. 7.3 6.8 8.0 13.7 (/2/) 10.4 14.0
----- ----- ----- ----- ----- -----
Total non-interest
expenses........... 86.2 92.1 91.9 122.5 (/2/) 99.2 104.6
Gain on sale of
subsidiary........... 33.9(/1/) -- -- -- -- --
----- ----- ----- ----- ----- -----
Income (loss) before
taxes.................. 47.7 7.9 8.1 (22.5) 0.8 (4.6)
Income tax (expense)
benefit ............... (19.0) (2.9) (3.4) 7.3 (0.4) 1.7
----- ----- ----- ----- ----- -----
Net income (loss)....... 28.7%(/1/) 5.0% 4.7% (15.2)%(/2/) 0.4% (2.9)%
===== ===== ===== ===== ===== =====
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax or 33.9% ($30.2 million after-tax or
20.4%) gain on the sale of BETA.
(2) Includes the $33.3 million pre-tax or 26.5% ($22.0 million after-tax or
17.4%) of net revenues for non-recurring charges incurred in connection
with the Buy-Out discussed under "Results of Operations--1995 Compared to
1994." On a pre-tax basis, excluding these charges, compensation and
benefits expense would decrease 13.3% to 64.9% from 78.2%; occupancy and
equipment expense would decrease 8.4% to 8.8% from 17.2%; and other
expenses would decrease 4.8% to 8.9% from 13.7%.
The upward trend in the Company's net revenues for the six quarterly periods
ended June 30, 1996 reflects recent favorable retail brokerage industry market
conditions and general stability in the fixed income markets, combined with
ownership certainty which has resulted in improved investment consultant
retention, recruitment and average production, as well as increased investment
banking activity.
Net revenues during this six-quarter period follow the same positive trend,
with the Company realizing the benefit of declining non-customer/dealer
related interest expense as a result of the elimination of certain long-term
debt owed to Kemper and the accelerated repayment of the KSOP loans.
While in absolute dollar amounts, non-interest expenses have trended up
during the six periods (excluding the third quarter 1995 non-recurring charges
of $33.3 million pre-tax discussed previously), such absolute dollar increases
are generally attributable to compensation and benefits expense and brokerage
and clearance expense, all of which are significantly correlated to revenue
growth. As a percentage of net revenues, non-interest expenses have trended
downward during such periods which trend management believes to be a result of
the Company's cost containment focus.
Net income (both in absolute dollar amounts and as a percentage of net
revenues) also reflects a positive trend during this six-quarter period, with
the exception of the third quarter of 1995 which includes the $22.0 million
(after-tax) of non-recurring charges discussed previously.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
HOLDING COMPANY
EVEREN Capital is the parent holding company for ESHI, the holding company
for the Company's operating subsidiaries. As the parent, EVEREN Capital
expects to receive dividends, interest on any loans and payments for federal
income tax from its subsidiaries. Dividends and other distributions, as well
as certain interest payments, to EVEREN Capital from its registered broker-
dealer subsidiaries, which are expected to be EVEREN Capital's primary sources
of liquidity, are restricted as to amounts which may be paid by applicable law
and regulations. The "net capital" rules are the primary regulatory
restrictions. EVEREN Capital's rights (and the rights of its stockholders and
creditors) to participate in the assets of any subsidiary are also subject to
prior claims of the subsidiary's creditors, including customers of the broker-
dealer subsidiaries (except to the extent the Company itself may be a creditor
with recognized claims). See "Capital Requirements" and Note 11 of Notes to
Consolidated Financial Statements. Since the Buy-Out, the Company has also
generated funds from loans for the Buy-Out, the sale of BETA and the issuance
of Common Stock to employees.
Immediately following the offering, all indebtedness incurred in connection
with the Buy-Out will have been retired in full. See "Company History" and
"Use of Proceeds."
The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations and the anticipated proceeds
of this offering, will be adequate to fund its operations for the foreseeable
future.
OPERATING SUBSIDIARIES
The assets of EVEREN Securities and EVEREN Clearing, the Company's primary
operating subsidiaries (the "Subsidiaries"), are highly liquid with the
majority consisting of securities inventories and collateralized receivables,
both of which fluctuate depending on the levels of customer business.
Collateralized receivables consist primarily of securities purchased under
agreements to resell ("resale agreements") and securities borrowed, both of
which are secured by U.S. government and agency securities and highly
marketable corporate debt securities. In addition, the Subsidiaries have
significant receivables from customers, brokers and dealers which turn over
rapidly. The Subsidiaries' total assets and the individual components of total
assets vary significantly from period to period because of changes relating to
customer needs and economic and market conditions. A relatively small
percentage of total assets is fixed or held for a period of longer than one
year. The Company's total assets at June 30, 1996, December 31, 1995 and
December 31, 1994 were $1.8 billion, $2.6 billion and $1.6 billion,
respectively.
The majority of the Subsidiaries' assets are financed through daily
operations by securities sold under repurchase agreements, securities sold not
yet purchased, securities loaned, bank loans and through payables to
customers, brokers and dealers. Short-term funding is generally obtained at
rates related to federal funds, LIBOR and money market rates. Other borrowing
costs are negotiated depending upon prevailing market conditions. The Company
monitors overall liquidity by tracking the extent to which unencumbered
marketable assets exceed short-term unsecured borrowings. The Company
maintains borrowing relationships with a broad range of banks, financial
institutions, counterparties and others. At June 30, 1996, the Subsidiaries
had $585 million in uncommitted and committed bank credit lines with seven
banks.
Repurchase agreements are used primarily for customer accommodation purposes
and to finance the Company's inventory positions in U.S. government and agency
securities. These positions provide products and liquidity for customers and
are not maintained for the Company's investment or market speculation. The
level of
30
<PAGE>
activity fluctuates significantly depending on customer needs; however, these
fluctuations have no material effect on cash flows, liquidity or capital
resources. The Company monitors the collateral position and counterparty risk
on these transactions daily. See "Risk Management."
The Subsidiaries are capital intensive. In addition to normal operating
requirements, capital is required to cover financing and regulatory charges on
securities inventories, investment banking commitments and investments in
fixed assets. The Company's overall capital needs are continually reviewed to
ensure that its capital base can appropriately support the anticipated needs
of the Subsidiaries. Management believes that existing capital, funds from
operations and current credit facilities will be sufficient to finance the
operating subsidiaries' ongoing businesses. The majority of the Subsidiaries'
assets are funded with liabilities that reprice on a matched basis, generally
producing a positive spread. As a result, the Company has modest exposure to
fluctuations in interest rates (other than the effect of interest rate
volatility on market conditions and prices of fixed income securities, and the
resulting impact on the Company's revenues).
CASH FLOWS
The Company's statements of consolidated cash flows classify cash flow into
three broad categories: cash flows from operating activities, investing
activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash and cash equivalents at June 30, 1996 and 1995 totaled $43.2 million
and $7.1 million, respectively, representing an increase of $28.6 million for
the six months ended June 30, 1996 and a decrease of $3.4 million for the
comparable period of 1995.
For the first half of 1996 and 1995, cash provided from operating activities
was used primarily in financing activities to reduce bank loans payable. Cash
flows from investing activities for the first six months of 1996 were further
bolstered by the $59.3 million net proceeds ($63.5 million of gross sales
proceeds less costs of sale) from the sale of BETA.
Cash provided by operating activities totaled $27.7 million and $62.0
million for the first six months of 1996 and 1995, respectively. In 1996, the
net change in receivables from and payables to customers, dealers, affiliates
and others of $20.9 million, the decrease in securities purchased under
agreements to resell in excess of the decrease in securities sold under
agreements to repurchase of $32.7 million and an increase in accounts payable
of $13.9 million were primary sources of operating cash flow. An increase in
securities owned of $39.9 million and a decrease in securities owned, not yet
purchased of $14.6 million used operating cash flow. In 1995, the net change
in receivables from and payables to customers, dealers, affiliates and others
of $68.0 million, a decrease in securities owned of $33.1 million and a
decrease in other assets of $6.2 million generated operating cash flow. An
increase in securities purchased under agreements to resell in excess of the
increase in securities sold under agreements to repurchase of $20.8 million, a
decrease in securities sold, not yet purchased of $5.5 million and a decrease
in accounts payable, accrued expenses and other liabilities of $23.3 million
used operating cash flow.
For the first six months of 1996, cash provided from investing activities of
$57.6 million resulted from the $59.3 million of net proceeds from the sale of
BETA and the $2.1 million of cash proceeds from the sale of fixed assets which
were partially offset by $4.0 million of fixed asset purchases. For the first
six months of 1995, the Company used $30.0 million for investing activities,
which was comprised of $26.4 million net cash flows used in its mortgage-
backed securities investing activities and $3.6 million used for the purchase
of fixed assets.
For the first six months of 1996, the Company's financing activities used
$56.7 million primarily as a result of the collection of $9.1 million under
the Kemper indemnification, $9.3 million related to repayment of the KSOP
loan, repayment of $77.8 million of bank loans, receipt of $4.2 million in
proceeds from the issuance of additional shares of Common Stock under Company
stock plans and a cash dividend payment of $1.1 million
31
<PAGE>
during the second quarter on the Exchangeable Preferred Stock. In 1995,
financing activities consisted of $34.1 million of proceeds from the issuance
in excess of repayments of collateralized mortgage obligations and the
repayment of $62.1 million of bank loans.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Cash and cash equivalents at December 31, 1995, 1994 and 1993 totaled $14.6
million, $10.5 million and $7.0 million, respectively, reflecting increases of
$4.1 million and $3.5 million, respectively, for 1995 and 1994 and a decrease
of $8.0 million for 1993.
For the full years 1995 and 1994, cash provided from operating activities
was used in financing activities to reduce bank loans payable and to a limited
extent in 1994 in investment activities to fund fixed asset acquisitions,
while in 1993, cash provided by financing activities was used primarily for
operating activities.
Cash provided by operating activities totaled $34.3 million and $15.7
million in 1995 and 1994, respectively, while cash used for operating
activities was $112.6 million in 1993. In 1995, there were changes in
securities owned and securities owned, not yet purchased of $58.2 million and
changes in other assets and other liabilities of $44.2 million which generated
cash. These sources were partially offset by a $22.3 million increase in
securities purchased under agreements to resell in excess of the increase in
securities sold under agreements to repurchase and a $25.3 million use of
funds related to the net change in receivables from and payables to customers,
dealers, affiliates and others. During 1994, decreases in net securities
positions of $81.6 million and other assets of $12.4 million along with a
$19.2 million increase in securities sold under agreements to repurchase in
excess of the increase in securities purchased under agreements to resell
generated cash. Uses of cash flow offsetting these sources were the net change
in receivables from and payables to customers, dealers, affiliates and others
of $83.0 million and a decrease in accounts payable, accrued expenses and
other liabilities of $35.4 million. In 1993 a decrease of securities purchased
under agreements to resell in excess of a decrease in securities sold under
agreements to repurchase of $27.5 million and an increase in accounts payable,
accrued expenses and other liabilities of $35.4 million generated cash. A net
change in receivables from and payables to customers, dealers, affiliates and
others of $153.2 million and increases in securities owned and securities
sold, not yet purchased of $12.7 million used cash.
In 1995 cash provided from investing activities of $59.9 million resulted
primarily from the $62.4 million of net cash flows from the sale, purchase and
principal collections on investments in mortgage-backed-securities which was
offset by $2.5 million of fixed asset purchases. In 1994 the Company used
$44.8 million for investing activities which was comprised primarily of $24.0
million net cash flows used in its mortgage-backed securities investing
activities and for the purchase of $20.8 million of fixed assets. In 1993 cash
provided from investing activities of $95.0 million consisted of $110.8
million from the collection of principal on its mortgage-backed securities
investments that was offset by $15.8 million of fixed asset purchases.
In 1995 the Company's financing activities included $4.7 million in proceeds
from the offering related to the over-subscribed Founders' Offering,
collections of $7.1 million under the Kemper indemnification, $61.0 million of
repayments in excess of proceeds from the issuance of collateralized mortgage
obligations, payment of debt issuance costs of $1.0 million related to the
KSOP loans and the repayment of $40.0 million of bank loans. In 1994 financing
activities consisted of a $19.0 million capital contribution from Kemper,
$23.6 million of proceeds from the issuance in excess of repayments of
collateralized mortgage obligations and the repayment of $10.0 million of bank
loans. In 1993 repayment of collateralized mortgage obligations totaled $115.3
million and bank loans increased by $124.9 million.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments, the payments on which are linked to
the prices, or relationships between prices, of securities or commodities,
interest rates, currency exchange rates or other financial measures
(collectively referred to as "cash market instruments"). Derivatives enable
the Company and its clients to manage their exposure to interest rates,
currency exchange rates and security and other price risks. Derivatives
include structured notes, swaps, futures or forward contracts and options.
Certain types of derivatives, including forwards and certain options, are
traded in the over-the-counter markets. Other types of derivatives, including
futures contracts and listed options, are traded on regulated exchanges.
32
<PAGE>
Based on relative notional amounts, management believes that the Company's
derivative activities are not as extensive as those of many of its
competitors. The Company does not engage in the speculative trading of
derivatives. Instead, the Company has focused its derivative activities on
trading in forward and futures contracts in U.S. government and agency issued
or guaranteed securities as hedges against the Company's securities inventory
positions. The Company also executes transactions in exchange-traded futures
contracts and listed options on behalf of its clients.
The Company has entered into certain futures and options contracts on a
limited basis in the ordinary course of its business to hedge or modify
exposures to interest rate fluctuations related to its unit investment trust
product originations and interest-sensitive securities in its inventory. Given
the limited use of such derivatives, the Company has not incurred and does not
expect to incur any material losses relating to its derivative investments
that would not be substantially offset with corresponding gains on the
securities hedged. Both the securities hedged and the derivative instruments
are carried on the statement of financial condition at their market values.
Gains and losses, both realized and unrealized, from both the hedged
securities and the derivative instruments are included in current operating
results. See Note 20 of Notes to Consolidated Financial Statements.
RISK MANAGEMENT
The ways in which the Company manages its exposure to various types of risks
on a day-to-day basis are critical to its survival and financial success. The
Company monitors its market and counterparty risk on a daily basis through a
number of control procedures designed to identify and evaluate the various
risks to which the Company is exposed.
The Company often acts as a principal in customer-related transactions in
financial instruments which expose the Company to market risks. The Company
makes dealer markets in certain equity securities, investment-grade corporate
debt, high-yield securities, U.S. government and agency securities, mortgages
and mortgage-backed securities and municipal fixed-income securities. In
connection with its market making activities, the Company maintains securities
inventories to facilitate customer transactions. The Company covers its
exposure to market risk by limiting its net long or short positions, both
overall and by individual product area, by limiting the number of days
inventory is held, by selling or buying similar instruments and by utilizing
various derivative financial instruments such as futures and forward and
option contracts. Management believes the Company's philosophy, risk
management and hedging practices result in carefully managed market exposure
and reduced earnings volatility.
At June 30, 1996 and December 31, 1995, the Company's securities owned and
securities sold, not yet purchased consisted of the following:
<TABLE>
<CAPTION>
OWNED 6/30/96 12/31/95
----- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Obligations of the U.S. Government or its agencies...... $ 78,912 $ 62,808
State and municipal obligations......................... 19,056 22,333
Corporate obligations................................... 73,140 44,954
Corporate stocks and warrants........................... 8,352 9,205
Other................................................... 1,713 1,956
-------- --------
$181,173 $141,256
======== ========
<CAPTION>
SOLD, NOT YET PURCHASED
-----------------------
<S> <C> <C>
Obligations of the U.S. Government or its agencies...... $ 56,958 $ 70,130
State and municipal obligations......................... 1,090 601
Corporate obligations................................... 10,658 13,809
Corporate stocks and warrants........................... 8,326 7,085
Other................................................... 25 7
-------- --------
$ 77,057 $ 91,632
======== ========
</TABLE>
33
<PAGE>
The Company manages risk exposure utilizing mechanisms involving various
levels of management. The Company's risk management committee assists senior
management in managing risk associated with trading and inventory accounts.
The primary function of this committee is to establish and monitor position
limits for these accounts on an ongoing basis. Current and proposed
underwriting and other commitments are subject to due diligence reviews by
senior management as well as professionals in the appropriate business and
support units involved.
The Company's trading activities result in the creation of inventory
positions. Position and exposure reports are prepared daily by operations
staff. Such reports are distributed to and reviewed independently on a daily
basis by the risk management committee as well as by certain members of senior
management. In addition, the corporate accounting group prepares a daily
summarized position report indicating both long and short exposure. These
reports, which are distributed to various levels of management throughout the
Company, enable senior management to better control inventory levels and
monitor results of the trading areas. The Company also reviews and monitors,
at various levels of management, inventory aging, pricing, concentration and
securities ratings.
In addition to position and exposure reports, the Company produces a daily
revenue report which summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of the trading departments.
Daily revenues are reviewed for various risk factors and are independently
verified by a member of the risk management committee. The daily revenue
report is summarized by the corporate accounting group and distributed to
various levels of management throughout the Company, together with position
and exposure reports. These reports enable senior management to monitor and
better control overall activity of the trading areas.
Credit risk related to various financing activities is reduced by the
industry practice of obtaining and maintaining possession and control of
collateral. The Company monitors its exposure to counterparty risk on a daily
basis through the use of credit exposure information and the monitoring of
collateral values. The Company's credit department is responsible for
reviewing counterparties to establish appropriate exposure limits for a
variety of transactions. In addition, the Company actively manages the credit
exposure relating to its trading activities by monitoring the creditworthiness
of counterparties and their related trading limits on an ongoing basis,
requesting additional collateral when deemed necessary and limiting the amount
and duration of exposure to individual counterparties.
The Company seeks to control the risks associated with its investment
banking activities through a process that results in a thorough review by
various committees of the risks associated with all significant transactions
prior to acceptance of any engagement. The Company currently has various
commitment and other review committees. Each such committee is chaired by a
member of senior management and has at least one additional senior management
member. Other committee members include employees who provide expertise in the
evaluation and analysis of proposed transactions brought before the particular
committee.
EVEREN's risk management effort also includes an emphasis on compliance.
Retail branch managers and other supervisors are required to engage in
specific review and other tasks, and complete various reports, as part of
their supervisory responsibilities. The Company's compliance department
professionals monitor the Company's retail and capital markets activities,
conduct periodic and other examinations, respond to any customer complaints
that arise and interface with the various regulatory agencies that have
jurisdiction over the Company and its business. See "Regulation."
34
<PAGE>
BUSINESS
GENERAL
EVEREN is a full-service securities brokerage firm that provides a broad
range of investment services and products primarily to individuals and also to
institutions, corporations and municipalities. The Company's core strength is
its retail operations, which are focused on individual investors and which
generated more than 70% of the Company's net revenues in each of the last
three years. The Company also engages in capital markets, asset management and
clearing activities that complement and capitalize on the strength of the
Company's retail operations.
In its retail business, the Company focuses on maintaining and developing
strong client relationships in local and regional markets while providing the
breadth and quality of services and products offered by national brokerage
firms. Headquartered in Chicago, the Company operates its retail business
through an integrated network of approximately 1,175 investment consultants
located in 138 offices in 27 states. As of January 1, 1995, EVEREN was ranked
as the eleventh largest brokerage firm in the United States based on number of
investment consultants, according to the Securities Industry Association. As
of June 30, 1996, EVEREN held over $38 billion of customer assets in more than
430,000 client accounts.
EVEREN enjoys strong market positions in targeted regional markets with
approximately 73% of branch offices and 74% of its investment consultants
located in the states of Illinois, California, Ohio, Wisconsin, Colorado and
Texas. EVEREN's market penetration is primarily the result of the
consolidation and integration in 1990 of five prominent predecessor firms to
form a network of seasoned investment consultants. Annualized average
production for the Company's investment consultants was $310,000 for the eight
months ended
August 31, 1996 and, at that date, the Company's client assets per investment
consultant averaged $28.9 million. Management believes that the experience of,
and relationships developed by, its investment consultants help to
differentiate the Company from its competitors in its targeted markets and
enable the Company to more effectively access and serve clients. As of June
30, 1996, the Company's investment consultants averaged more than eight years
of tenure with the Company and 16 years of experience in the securities
brokerage industry. Based on an industry source, management believes that both
the productivity and tenure of its investment consultants exceed that of most
regional firms and approximate the averages of all United States securities
brokerage firms.
The Company also provides a full range of equity and fixed income products,
investment banking services and other capital markets products and services
through approximately 287 professionals located in eleven offices in major
cities in the United States. The Company is increasing the coordination of its
investment banking, syndicate and trading activities and focusing those
activities on middle market and growth companies in selectively targeted
industries in which management believes the Company has specialized expertise.
In addition, EVEREN is expanding its asset management business through a joint
venture with Mentor, an asset management company that has approximately $5.7
billion of assets under management. Through its subsidiary, ECC, the Company
also provides securities clearing services to its trading and brokerage areas
and approximately 30 correspondent firms.
In September 1995, the Company became independent when its employees
purchased it from Kemper in the Buy-Out for an aggregate cash price of $71.4
million ($55.0 million of which was funded by bank borrowings) plus $30.0
million of Exchangeable Preferred Stock, terms that EVEREN management
considered to be attractive. As a result, the Company is currently employee-
owned, with approximately 92% of the Company's current employees having an
ownership interest. The Company experienced net losses in 1992, 1993, 1994 and
1995 of $38.4 million, $3.7 million, $2.2 million and $15.9 million,
respectively. Since the Buy-Out, EVEREN has experienced improved growth and
profitability relative to prior periods. For the fourth quarter of 1995, its
first full quarter as an independent entity, the Company reported net income
of $6.2 million on net revenues of $131.3 million compared to net income of
$0.7 million on net revenues of $114.2 million for the fourth quarter of 1994.
For the six months ended June 30, 1996, the Company generated net income of
$49.2 million, including a $30.2 million after-tax gain on the sale of a
subsidiary, on net revenues of $282.0 million
35
<PAGE>
compared to a net loss of $2.7 million on net revenues of $233.6 million for
the first six months of 1995. Management believes that the Company's
independence and employee ownership have resulted in high levels of employee
motivation, confidence and commitment, which have in turn contributed
significantly to the Company's improved performance.
STRATEGY
EVEREN is dedicated to expanding its retail brokerage franchise while
increasing the proportion of revenues and profits contributed by its capital
markets and asset management businesses. The Company continually focuses on
enhancing its profitability through revenue growth and strict cost controls.
Key elements of the Company's strategy include actions to:
. Provide a high level of value-added service to clients. Management seeks
to provide its retail investment consultants with a work environment and
resources that enable them to offer clients service superior to that
provided by most national brokerage firms and a range of products and
services broader than those offered by most competing regional brokerage
firms. Management believes that the Company's ability to provide clients
with superior service is primarily attributable to the long average
tenure and experience of its investment consultants, a high average level
of support staff per investment consultant and the breadth of the
Company's service and product offerings. The Company is also actively
seeking to enhance the consultative, as opposed to transactions-oriented,
nature of its approach in an effort to meet and serve its clients' needs
more effectively.
. Increase penetration in existing markets. EVEREN targets select local
markets in which its presence often equals or exceeds that of larger
national brokerage firms. The Company is focused on achieving target
market penetrations (generally 10%-15% market share) in most of its
markets to realize operating efficiencies and develop a meaningful
presence in such communities. To achieve desired market penetration, the
Company is building its investment consultant base by recruiting
experienced investment consultants in appropriate markets, as well as
selectively hiring and training new investment consultants. Newly
recruited investment consultants typically occupy available space within
existing offices, although the Company may selectively open new offices
in locations in which it believes it can reach desired penetration
levels.
. Grow client assets and increase asset management activity. The Company
seeks to increase the level of client wealth maintained at the Company by
encouraging existing clients to maintain an increasing proportion of
their financial assets with the Company and by attracting new clients.
Toward this end, the Company has undertaken two recent initiatives. The
first initiative was the introduction of new cash management products
that allow clients to consolidate their financial assets into one, full
service, integrated account with a variety of features. The introduction
of these products, coupled with certain marketing efforts related to
them, is designed both to facilitate the maintenance of higher balances
at the Company and also to attract and reward higher net worth
individuals who maintain assets greater than $500,000 at the Company.
The Company's second initiative is the joint venture with Mentor, which
will provide the Company's investment consultants with proprietary mutual
funds to sell to existing and new clients. The arrangement will expand
the Company's product offerings while also allowing the Company to
diversify and potentially increase its earnings through direct
participation in Mentor's earnings. The Company is seeking to increase
the recurring, fee-based revenues generally associated with asset
management activities.
. Expand capital markets activity. The Company intends to increase its
origination of equity products. To implement this strategy, the Company
is increasing the coordination of its research, investment banking,
syndicate and equity trading activities to focus those activities on
middle market and growth companies in a group of core industries. By
focusing its activities, the Company expects to enhance its reputation in
such industries and increase its penetration, thereby leading to the
execution of a greater volume of larger, higher margin transactions.
36
<PAGE>
. Pursue opportunistic acquisitions consistent with the Company's overall
strategy. The Company intends to selectively pursue acquisition
opportunities that either deepen penetration in its existing markets or
add new, sufficiently penetrated, markets to its franchise. Management
intends to selectively pursue acquisitions, principally of smaller
brokerage firms that have a full-service orientation similar to the
Company and that are likely to further leverage the Company's
infrastructure. The Company intends to continue to consider from time to
time the divestiture, elimination or resizing of other non-core
businesses, programs or assets in order to increase the focus on its
retail brokerage and capital markets businesses.
. Maintain rigorous cost discipline. The Company seeks to minimize
operating costs and to convert fixed costs to variable costs as
appropriate. The Company regularly reviews the expense levels in, and
profit contributions of, each retail branch office and business unit to
determine appropriate consolidation and other cost saving opportunities.
In addition, the Company has closely aligned the compensation structure
for branch managers and other managerial personnel to profitability
targets and the attainment of cost minimization goals. The Company also
seeks to reduce fixed costs by divesting non-core businesses, such as
BETA, and resizing certain business units, such as its municipal bond
unit.
. Maintain conservative risk profile. The Company will continue to control
the risks in each of its businesses. Securities inventories are
maintained at relatively low levels, hedged to the extent practicable and
subjected to strict risk management guidelines. The Company seeks to
limit its exposure to trading losses by focusing its trading activity on
facilitating its retail and institutional businesses rather than on
trading for its own account. Management seeks to foster a conservative
approach to risk through a number of mechanisms including the linking of
trader compensation to production as a priority over trading profits, an
emphasis on compliance, a focus on education and the implementation of
thorough risk management systems monitored on a daily basis.
RETAIL BROKERAGE ACTIVITIES
EVEREN's retail business offers clients a complete range of investment
products, such as stocks, bonds and mutual funds, and investment services,
including investment advice, financial planning and asset management.
Management believes that the breadth and quality of the Company's products and
services, coupled with the productivity, tenure and experience of its
investment consultants, allow it to provide superior service to its clients
and help to distinguish EVEREN from its competitors.
MARKETS
EVEREN's investment products and services are marketed to clients by a
network of approximately 1,175 investment consultants operating out of 138
retail branch offices in 27 states primarily located in five regions in the
United States. Approximately three-quarters of the Company's investment
consultants at June 30, 1996 were located in branch offices in California
(274), Ohio (148), Illinois (149), Wisconsin (114), Colorado (98) and Texas
(85).
The following table sets forth certain information as of, or for the six
months ended, June 30, 1996 for each of the five regions:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NUMBER OF INVESTMENT OF RETAIL
REGION BRANCH OFFICES CONSULTANTS REVENUES(1)
------ -------------- ----------- -----------
<S> <C> <C> <C>
Central 18 180 11%
Eastern 41 252 28
Midwestern 35 265 23
South Central 6 95 7
Western 38 383 31
--- ----- ---
Total 138 1,175 100%
=== ===== ===
</TABLE>
- --------
(1) Retail revenues include commissions, principal sales credits, 12b-1 and
managed account fees credited to the production of an individual
investment consultant, as well as asset management and margin interest
income earned on related client assets.
37
<PAGE>
Many of EVEREN's retail offices are located in smaller cities or suburban
areas in which the Company's presence equals or exceeds that of the larger
national brokerage firms. The Company's top fifteen branch offices accounted
for 37% of retail revenues for the six months ended June 30, 1996.
RETAIL PRODUCTS AND SERVICES
EVEREN offers a full line of investment products to its retail clients.
These include cash management accounts, listed and over-the-counter stocks,
government and corporate bonds, tax-exempt state and local government bonds,
open- and closed-end mutual funds, unit investment trusts, commodities,
individual retirement accounts ("IRAs") and a wide variety of investment
advisory products. Service offerings include investment advisory services,
financial planning services such as retirement planning and planning for
college funding, asset allocation advice, margin loans and prototype 401(k)
plans and services. The Company imposes a service charge for certain of its
retail services. Others are provided without charge to facilitate the
accumulation of investment assets in client accounts.
The table below sets forth the percentage contribution of various retail
investment products and services to EVEREN's 1995 retail revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRODUCT/SERVICE RETAIL REVENUES(1)
--------------- ------------------
<S> <C>
Equities............................................... 41%
Asset management ...................................... 12
Margin interest........................................ 12
Mutual funds........................................... 11
Other ................................................. 11
Taxable fixed income................................... 9
Municipals............................................. 4
---
Total.............................................. 100%
===
</TABLE>
--------
(1) Retail revenues include commissions, principal sales credits, 12b-1 and
managed account fees credited to the production of an individual
investment consultant, as well as asset management and margin interest
income earned on related client assets.
In May 1996 as part of its strategy to grow client assets and increase asset
management activity, EVEREN introduced two new forms of cash management
accounts, the EVEREN Automatic Access Account(TM) ("AAA") and the EVEREN
Advantage account ("Advantage"). AAA and Advantage are designed to allow
clients to consolidate their financial assets in a full service, integrated
account. AAA accounts feature numerous services, including a daily sweep of
any cash in the client's account to a money market mutual fund, unlimited free
checking, debit cards, margin account access and automatic bill payment.
Advantage account holders also will receive customized statements showing gain
and loss information, a complimentary IRA and EVEREN Online Service, a service
that will provide the client with direct access to his or her account
information via computer modem. Higher net worth clients are rewarded with
complimentary services for maintaining higher account balances. Management
believes that AAA and Advantage have been well received by clients. By June
30, 1996 over 470 AAA and 4,200 Advantage accounts had been opened with
average assets per account equal to $596,000 compared to $88,000 of average
assets per account Company-wide.
EVEREN offers its clients approximately 3,000 different mutual funds,
including mutual funds of every type, sponsored by approximately 90 different
firms. As of June 30, 1996 eight of these firms, each of which is a leading
mutual fund sponsor, had been designated as preferred vendors within the
Company's retail network, based on service level and other criteria developed
by the Company. On July 25, 1996 the Company entered into a joint venture with
Mentor, an asset management company with approximately $5.7 billion of assets
under management, pursuant to which Mentor will be accorded a preferred vendor
status consistent with the Company's equity interest in Mentor. See "--Mentor
Joint Venture."
INVESTMENT ADVISORY SERVICES
The Company's investment advisory services include performance monitoring,
selection of third party investment managers and, to a limited extent,
discretionary asset management. The investment advisory services offered by
the Company are tailored for a variety of clients, including individuals,
pension and profit-
38
<PAGE>
sharing plans, trusts and estates, charitable organizations, corporations and
other business and governmental entities. These services are provided by
approximately 239 investment consultants located in 78 of the Company's branch
offices. Investment advisory services are typically rendered on a fixed or
"wrap" fee basis, such that all services, including execution services, are
provided by EVEREN for a fixed fee, payable quarterly, usually a percentage of
assets under management.
In April 1996 the Company redesigned and reintroduced certain of its
investment advisory service offerings, including the following programs:
<TABLE>
<CAPTION>
PROGRAM/ALLOCATION DESCRIPTION
------------------ -----------
<C> <S>
EVEREN Masters Client portfolio managed by one or more outside
investment advisory firms
EVEREN Portfolio Management Client portfolio managed by a specially
qualified investment consultant
EVEREN Fund Allocation Non-discretionary no-load mutual fund wrap
product
EVEREN Paragon Tailored manager selection, performance
monitoring and other services, the fee for
which can be paid in hard or soft dollars
</TABLE>
Management believes that the redesign of these programs provides an
opportunity to significantly grow client assets under management and the
recurring fee-based revenues generally associated with asset management
activities.
INVESTMENT CONSULTANTS
Productivity. One of the strengths of the Company's retail business is the
experience and productivity of its investment consultants. Management believes
that average production and average client assets per investment consultant
are important measures of productivity.
<TABLE>
<CAPTION>
PER INVESTMENT CONSULTANT 1996 1995 1994 1993
------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Average production for period(/1/).... $310,000(/2/) $275,000 $258,000 $295,000
Average client assets at period end
(in millions)(/3/)................... $ 28.9 $ 27.8 $ 23.2 $ 26.5
</TABLE>
- --------
(1) Average production is calculated by dividing the aggregate commissions,
principal sales credits and 12b-1 and managed account fees credited to the
production of all investment consultants by the average number of
investment consultants during the period.
(2) Annualized for 1996 based on average production at August 31, 1996.
(3) Average client assets equals total assets held in retail client accounts
divided by number of investment consultants. Excludes certain annuity and
mutual funds and other assets not actually held in the client's account
but on which commissions or similar payments are received. 1996 data as of
June 30, 1996.
Based upon a confidential industry survey conducted by a third party,
management believes that the average production generated by the Company's
investment consultants exceeded the industry average of $230,000 for regional
firms in 1995 and approximated the industry average of $283,000 for all firms.
In 1993, 1994 and 1995, the Company had 30, 19 and 27 investment consultants,
respectively, whose production exceeded $1,000,000. As of June 30, 1996, the
Company had 36 investment consultants whose 1996 production exceeded $500,000.
Management believes that the increase in investment consultant productivity
from 1994 to date is attributable, in part, to the departure of lower revenue-
producing investment consultants during this period and the recruitment of
higher revenue producing investment consultants.
Management believes that the Company's high level of support staff per
investment consultant is a key contributor to the Company's investment
consultant productivity. EVEREN employs more than 900 retail support staff,
approximately 825 of whom are located in branch offices. The branch office
support staff is composed primarily of sales assistants, most of whom are
licensed to execute client orders, as well as wire operators, cashiers and
others. As of June 30, 1996 the Company's ratio of support staff per
investment
39
<PAGE>
consultant was 0.7 to 1. Management believes this high level of support staff
allows the Company's investment consultants to focus on strengthening existing
and developing new client relationships rather than on providing time
intensive but less specialized services, such as trade processing and
logistical support. Management also believes any additional costs incurred by
the Company in maintaining its high support staff ratio are more than offset
by the improved levels of productivity and resulting higher levels of retail
revenues.
In the effort to maximize investment consultant productivity, the Company
also has a number of professional product liaisons in its capital markets area
that primarily service investment consultants as well as approximately 57
professionals in its marketing and investment services area focused on
providing product information and support to investment consultants and
clients.
Tenure. On average, EVEREN's investment consultants have more than eight
years of tenure with the Company and 16 years of experience in the securities
brokerage industry. Management attributes this long tenure to a number of
factors that management believes distinguish the Company from its competitors.
EVEREN's corporate culture emphasizes employee ownership and incentives that
encourage strong performance. In addition, management believes that such
culture offers a level of independence for investment consultants greater than
that permitted by many national firms. Moreover, management believes that the
high level of support staff per investment consultant and the breadth of
product and service offerings provided by the Company attract investment
consultants. Finally, management believes that the Company's commission payout
rates, particularly for higher level producers, exceed those of most of the
Company's competitors, especially the national firms.
Recruiting. In order to achieve its desired market share penetrations,
EVEREN is building its investment consultant base by recruiting experienced
investment consultants in targeted markets, as well as selectively training
new investment consultants. The Company added a net of 32 new investment
consultants for the first six months of 1996, compared to a net decline of 54
investment consultants for the first six months of 1995. The Company's
recruitment efforts are coordinated in-house by a national investment
consultant recruiter who has been employed in this capacity by the Company
since 1994. Management believes that the Company will be able to meet its
recruiting goals in part by highlighting certain aspects of its corporate
culture and other factors discussed above under "--Tenure" that distinguish it
from its competitors. However, the Company faces significant competition from
other firms seeking to recruit qualified investment consultants and there can
be no assurance that the Company's recruiting and retention efforts will be
successful.
Training. The Company intends to strengthen its base of investment
consultants by means of its ongoing training programs. Through EVEREN
University, which provides coordinated training and educational programs, a
core curriculum is being developed to help experienced investment consultants
gather more client assets and serve clients more effectively. Trainee
investment consultants will participate in a completely revamped program that
will focus on a consultative rather than transactions-oriented approach, asset
gathering, technology and overall financial planning for clients. See "--
EVEREN University and EVEREN Foundation."
SIPC INSURANCE
The Company maintains insurance provided by the Securities Investors
Protection Corporation ("SIPC") for up to $500,000 per customer account, as
well as excess SIPC coverage for up to an additional $9.5 million ($10.0
million total protection) per client account. Coverage up to an additional
$49.5 million ($50.0 million total protection) is available for clients
electing specialized account services.
CAPITAL MARKETS ACTIVITIES
The Company engages in a full range of capital markets activities, including
product origination, trading and research of equity, taxable fixed income and
municipal securities. The Company's capital markets activities are primarily
client-driven, in contrast to those of many other securities firms which
emphasize proprietary trading, and currently account for approximately 25% of
the Company's net revenues. Capital markets activities are conducted through
approximately 287 professionals in eleven offices located in major cities
across the United States.
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EQUITIES
The Company seeks to focus its equity capital markets activities
increasingly on institutional clients because of their greater share volumes
and resulting revenues. The Company is therefore seeking to coordinate its
equity securities research, investment banking, syndicate and trading
activities by industry group and focus those activities on middle market and
growth companies in a group of core industries. These industries currently
include financial services (primarily thrifts, insurance companies and finance
companies), real estate, technology (primarily computer hardware and
software), consumer goods (primarily retail, catalogues and restaurants),
industrials (primarily specialty chemicals, capital goods, metals and mining
and selected manufacturing), telecommunications (primarily equipment and
wireless and landline services) and health care.
Research. The Company provides equity research coverage primarily on a group
of middle-market and growth companies in the Company's core industries. The
Company's research staff, consisting of 22 senior analysts, twelve junior
analysts and eleven assistants and support staff, prepares periodic reports on
approximately 250 publicly traded companies and uses a team approach that is
designed to allow depth of coverage. Since the Buy-Out, the Company has hired
a new research director and enhanced its research capabilities with the net
addition of seven research analysts, with a combined 53 years of research
experience. In addition, the Company purchases research coverage from two
well-regarded investment banks. This out-sourcing of research provides the
broad services needed by retail investment consultants and clients and allows
the Company's in-house analysts to focus where they can add value. The Company
also maintains a research liaison desk to provide responsive support service
to its investment consultants and retail clients.
Investment Banking. The Company offers a broad range of investment banking
services primarily relating to equity offerings and private placements to
middle market and growth companies, principally in the Company's core
industries. The Company has approximately 40 investment banking professionals
in five locations. In the first six months of 1996, the Company participated
as a lead or co-manager in eleven equity offerings and private placements
aggregating $505 million, compared to only three such transactions in the
first half of 1995 aggregating $175 million. Management attributes this
increase to resolution of the Company's ownership situation, favorable market
conditions and better coordination of its retail and investment banking
groups. The Company also offers other investment banking services, including
mergers and acquisitions advisory and debt origination.
Institutional Sales. The Company distributes equity securities through an
institutional equity sales force that primarily serves mid-size and large
institutional clients. In 1995, the Company designated a new director of
institutional equity sales and hired approximately eleven new institutional
equity sales professionals, bringing the number of such professionals employed
by the Company to 32 located in four offices. In the first six months of 1996,
the institutional equity sales force generated $9.3 million of revenues, up
from $4.5 million in the first half of 1995.
Trading. The Company makes a market in approximately 475 over-the-counter
stocks, including most of those covered by the Company's research department.
EVEREN employs 18 trading professionals who execute transactions in both over-
the-counter and listed securities primarily for retail and institutional
clients. Traders are paid based on a formula that encourages them to work with
the Company's investment consultants and institutional sales professionals to
generate sales revenues as a priority over trading profits. The Company seeks
to limit its exposure to trading losses by focusing its trading activity on
facilitating its retail and institutional businesses rather than on trading
for its own account. The Company imposes low position limits for its traders.
TAXABLE FIXED INCOME
The Company provides a broad range of government, government agency and
corporate fixed income securities to its retail and generally smaller
institutional clients. A relatively small amount of the taxable fixed income
securities offered by the Company are originated internally, most being
obtained in the secondary market.
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The taxable fixed income department employs 71 professionals, including fixed
income research personnel who primarily provide investment ideas and credit
oversight. To facilitate taxable fixed income sales, the Company enters into
standard repurchase and reverse repurchase agreements with qualified
institutional clients.
MUNICIPALS
The Company provides underwriting and financial advisory services to, and
distributes securities of, tax-exempt municipalities principally in the
Midwest. The Company's municipal securities business includes an institutional
sales force of five professionals, as well as a group of 15 public finance
investment bankers and analysts that provide underwriting and financial
advisory services. As part of its cost reduction strategy, the Company has
realigned and downsized its municipal business in the third quarter of 1996,
eliminating 34 out of 94 positions.
GATEWAY MORTGAGE ACCEPTANCE CORPORATION
Gateway Mortgage Acceptance Corporation ("Gateway") is a wholly-owned
limited purpose subsidiary whose business activities are limited to issuing
series of collateralized mortgage obligations, directly or through one or more
trusts beneficially owned by it, to retail investors and purchasing, owning
and selling other mortgage-related assets associated with collateralized
mortgage obligations. In the fiscal year ended December 31, 1995, Gateway, as
a pass-through entity, accounted for approximately $19.0 million of interest
income and approximately $19.0 million of interest expense of the Company.
Gateway has no employees. Gateway retains the right to call, beginning four
years after issuance, the collateralized mortgage obligations it issues and
may realize a gain, if any, between the call price of such securities and the
underlying value of the collateral. See Notes 2, 7 and 8 of Notes to
Consolidated Financial Statements.
MENTOR JOINT VENTURE
The Company has entered into a joint venture (the "Joint Venture") pursuant
to which it will acquire an initial 20% ownership interest in Mentor, the
asset management subsidiary of Wheat, a Mid-Atlantic based securities
brokerage firm, for no direct cash consideration. The JVA provides the Company
with an opportunity not later than late 1998 to increase its ownership stake
in Mentor up to a maximum 50% equity interest (or such lesser equity interest
equal to Wheat's equity interest if another firm is added to the Joint
Venture).
By entering into the Joint Venture, the Company is seeking to grow client
assets under management by offering a greater range of asset management
products and, through its ownership interest in Mentor, to capture a portion
of earnings relating to client assets under management that would otherwise be
earned by third-party vendors.
Mentor is a regional asset management firm headquartered in Richmond,
Virginia that offers seven distinct investment styles (cash, active fixed
income, balanced, tactical asset allocation, large capitalization quality
growth, global/international equity growth and small/mid-capitalization equity
growth) through retail mutual funds, institutional mutual funds and separately
managed portfolios. Mentor currently has three regional representatives to
service the Wheat system and has committed to add five regional
representatives to service the Company and its clients. As of June 30, 1996,
Mentor had approximately $5.7 billion in assets under management compared to
$1.0 billion in early 1993.
The JVA calls for the Company to transfer approximately $2.8 billion of
money market mutual fund assets now held in client accounts, with certain
exceptions, to Mentor-sponsored funds by December 31, 1996 and prohibits each
of the Company and Wheat from engaging, directly or indirectly, in the asset
management business other than through Mentor or through activities generally
engaged in by broker-dealer firms.
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<PAGE>
Under the JVA, the Company will have representation on Mentor's board
proportionate to its ownership interest. The Company's investment in Mentor
will be accounted for under the equity method of accounting and a
proportionate share of Mentor's profits will be included in the pre-tax
earnings of the Company each year.
EVEREN CLEARING
The Company, through EVEREN Clearing, a broker-dealer registered with the
SEC and a member firm of the NYSE and other principal exchanges, provides
securities execution and clearing services on a fully-disclosed basis and
commodities clearing services for EVEREN Securities and other non-affiliated
broker-dealers.
EVEREN Clearing was incorporated in Delaware in 1984 to service the clearing
needs of the broker-dealers then affiliated with Kemper. EVEREN Clearing
expanded its clearing services to outside broker-dealers in order to leverage
its clearing structure, thereby reducing EVEREN Securities' clearing costs. As
of June 30, 1996, EVEREN Clearing provided clearing services for approximately
30 non-affiliated broker-dealers. Over the past several years, enhancements in
systems and procedures have allowed EVEREN Clearing to reduce its workforce by
over 27% to 378 as of June 30, 1996 from 522 as of December 31, 1992,
resulting in lower clearing costs per trade.
EVEREN UNIVERSITY AND EVEREN FOUNDATION
The Company recently established EVEREN University to provide coordinated
training, education and development programs for Company employees, clients
and others. Separate courses and programs are being developed for experienced
investment consultants, trainees, branch office managers and other employees
that will be designed to enhance their fundamental and professional skills and
improve their familiarity with the services and products the Company offers.
See "--Retail Brokerage Activities--Investment Consultants--Training."
In conjunction with EVEREN University, the Company has recently established
the EVEREN Foundation (the "Foundation"), a not-for-profit corporation through
which the Company's employee matching gift program, its annual retail "charity
day" and other charitable programs will be coordinated and funded. The
Foundation's focus will be education. To provide initial funding for the
Foundation, the Company has approved a seed grant of $250,000 and has agreed
to match, on a two-for-one basis until September 30, 1996 and on a one-for-one
basis until December 15, 1996, any contributions made by employees and certain
others to the Foundation.
The Company expects EVEREN University and the Foundation to play important
roles in the implementation of the Company's local market penetration
strategy.
EMPLOYEES
At June 30, 1996, the Company employed approximately 3,200 persons. Of that
number, approximately 2,080 were employed in the Company's retail areas
(including 57 in its marketing and investment services areas) 439 in its
capital markets area, 304 in administrative and financial areas (including 38
in compliance) and 378 at EVEREN Clearing. Of the Company's employees at such
date, approximately 1,900 were classified as professionals and 1,300 as
support staff. None of the Company's employees are subject to a collective
bargaining agreement. Management believes that the Company's relations with
its employees are good.
PROPERTIES
The Company leases 241,000 square feet of office space (and an additional
36,000 square feet of warehouse space) in Chicago, Illinois; 115,000 square
feet in one location in Houston, Texas, a significant portion of which is
subleased; 41,000 square feet in two locations in Cleveland, Ohio; 30,000
square feet in one location in Los Angeles, California; 118,000 square feet in
two locations in Milwaukee, Wisconsin; 38,000 square feet in two locations in
New York City; and approximately 700,000 square feet in other locations
nationwide.
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment
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<PAGE>
banking firms, investment advisors and certain commercial banks and indirectly
for client assets with insurance companies and others. The financial services
industry has become considerably more concentrated as numerous securities
firms have either ceased operations or have been acquired by or merged into
other firms. Such mergers and acquisitions have increased competition from
these firms, many of whom have significantly greater equity capital, financial
and other resources than the Company. With respect to retail brokerage
activities, many of the regional firms with whom the Company competes have
operated in their regions significantly longer than has the Company and have
established long-standing client relationships. In addition, the Company
expects competition from domestic and international commercial banks to
increase as a result of recent and anticipated legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks relating to the sale of securities.
In addition, the Company faces competition for investment consultants.
Although the Company takes steps to maintain strong relationships with its
investment consultants, because of the significant emphasis on and importance
of its retail operations, the Company faces competition in attracting and
retaining high-producing retail brokers. While many competitors require their
registered representatives to enter into restrictive non-competition
agreements which seek to prohibit the representatives from being employed by
any competitor, the Company has not implemented such a requirement because it
believes that the general use of such agreements is not conducive to
attracting valuable employees.
Management believes that the principal competitive factors influencing the
Company's business are the quality of its investment consultants and other
professional staff, the Company's reputation in and penetration of the local
markets in which it operates, its existing client relationships, its mix of
market capabilities and the incentives associated with employee ownership.
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability. In recent years there has been an increasing incidence of
litigation involving the securities brokerage industry, including class action
suits that generally seek substantial damages and other suits seeking punitive
damages. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to securities offerings. Like other securities brokerage firms,
the Company has been named as a defendant in class action and other suits and
has in the past been subject to substantial settlements and judgments.
Following are descriptions of certain of the lawsuits in which the Company
is currently a named defendant. The Company intends to vigorously defend
itself against the allegations in each of such actions. Although there can be
no assurances, the Company does not believe that the ultimate outcome of any
of this litigation, individually or in the aggregate, will have a material
adverse effect on its financial condition. Due, however, to the relatively
early stage of each of these lawsuits and the lack of information currently
available, management cannot accurately make estimates of potential loss, if
any, or assure that such lawsuit will have no material adverse effect on the
Company's results of operations in any particular period.
In Re Nasdaq Market-Makers Antitrust Litigation. In December 1994 a
consolidated amended class action complaint was filed in the United States
District Court for the Southern District of New York against thirty-three
broker-dealer market makers in The Nasdaq National Market System ("Nasdaq")
traded securities, including EVEREN Securities, alleging the defendants had
conspired to fix the "spread" between bid and asked prices for Nasdaq traded
securities in violation of Section 1 of the Sherman Act. On behalf of a
purported class allegedly including all United States customers of the
defendants who purchased or sold securities on Nasdaq during a period from May
1989 through May 1994, plaintiffs claim damage in that allegedly they paid
more for securities purchased on Nasdaq, or received less on securities sold,
than they would have but for the alleged conspiracy. Compensatory damages,
treble damages, attorneys' fees and costs and other relief are being sought
against each of the defendants on a joint and several basis. In August 1995
the Court granted defendants' motion to dismiss
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<PAGE>
on the ground that plaintiffs had failed to specify the stocks in which the
alleged collusion had occurred. Plaintiffs then filed a further amended
complaint identical in substance to the dismissed one listing over 1,000
securities allegedly the subject of the claimed conspiracy. Defendants have
filed their answer denying the material allegations of such complaint.
Discovery is proceeding.
In addition, allegations of collusion among market-makers became the subject
of investigations by the Antitrust Division of the Department of Justice
("DOJ"), the SEC and the NASD. EVEREN Securities and other market makers have
responded to Civil Investigative Demands by the DOJ and to subpoenas by the
SEC. On July 17, 1996 DOJ filed a civil complaint against 24 market makers,
other than EVEREN Securities, alleging that a common understanding arose among
the defendants and other market makers to adhere to a quoting convention for
the purpose of fixing the inside spread on a substantial number of Nasdaq
stocks in violation of the antitrust laws and announced that the market makers
named in that complaint had entered into a settlement agreement with the DOJ.
Cuyahoga County, Ohio Litigation (Jones, et al. v. McDonald & Co., et al.).
In August 1995 a lawsuit was filed in the Court of Common Pleas of Cuyahoga
County, Ohio on behalf of the County of Cuyahoga (the "County"), the State of
Ohio and the Board of County Commissioners against eight broker-dealers and
banks, including EVEREN Securities, relating to investment losses suffered by
the County and its Secured Assets Fund Earnings program (the "S.A.F.E. Fund").
Plaintiffs' second amended complaint alleges that the defendants facilitated
and assisted the staff of the County's investment department in engaging in
certain investment activity that was risky and speculative and that violated
the S.A.F.E. Fund's policies and procedures and certain state laws. The
investments at issue consisted of fixed-income securities, specifically U.S.
Treasuries and government agency securities, financed by reverse repurchase
transactions. When interest rates rose dramatically in 1994, resulting in a
decline in the value of the County's investment portfolio, the County
terminated the S.A.F.E. program, liquidated its portfolio and incurred losses.
Thereafter, the County Treasurer was convicted of dereliction of duty and the
County's Chief Investment Officer pled guilty to dereliction of duty and
falsification. The complaint seeks unspecified compensatory damages and
punitive damages, costs and attorneys' fees, alleging investment losses in the
"tens of millions of dollars." News reports have indicated that the County
incurred investment losses exceeding $100 million. The complaint alleges
breach of fiduciary duty and negligence by EVEREN Securities and the other
defendants. The complaint also alleges fraud, misrepresentation and violation
of the Ohio securities law by three defendants other than EVEREN Securities in
connection with certain of the County's securities issuances. The Ohio Supreme
Court has disqualified all Cuyahoga County judges from hearing the case, and a
retired judge from another Ohio county has been assigned.
Estate of Braunstein, et al. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
et al. EVEREN Securities is named as a defendant, together with ten other
broker-dealers, in a purported class action lawsuit filed in the Supreme Court
of the State of New York, County of New York, in May 1994. Plaintiffs purport
to state claims individually and on behalf of a class of all individuals or
entities who have had accounts with one or more of the defendants in which
they have had free credit balances from which the defendants have derived
economic benefit for which they have not accounted to the plaintiffs. The
complaint purports to assert causes of action for breach of fiduciary duty and
unjust enrichment. Plaintiffs allege that defendants unlawfully retained
interest earned on free credit balances in broker-dealer accounts. Plaintiffs
seek compensatory damages, the imposition of a constructive trust, an
injunction to require the payment of interest on free credit balances, costs
and attorneys' fees. In June 1995 the court granted defendants' motion to
dismiss for failure to state a cause of action. Plaintiffs then filed an
amended complaint containing similar claims. Defendants motion to dismiss the
amended complaint was denied. Defendants have filed an answer in the case, and
discovery has commenced.
EVEREN Clearing v. Brod, et al. EVEREN Clearing has initiated this NYSE
arbitration proceeding seeking to recover from Brod, a failed correspondent
clearing firm, and its principals approximately $5.3 million in losses
primarily resulting from unsatisfied margin calls and other losses incurred as
a result of Brod's failure. Brod and its principals have asserted various
defenses to EVEREN Clearing's claims, and Brod and one of the principals have
filed counterclaims in which they seek to recover approximately $25.7 million
in alleged damages as the
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<PAGE>
result of EVEREN Clearing's termination of its clearing agreement with Brod.
EVEREN Clearing has asserted various defenses to such counterclaims. An
arbitration hearing is scheduled to begin in late September 1996.
In addition to the matters described above, the Company is currently a
defendant in various civil actions and arbitrations arising out of its
activities as a broker-dealer in securities. Some of such actions involve
allegations of misconduct by Company employees, and other actions involve
claims against the Company by current or former employees. The Company does not
believe that any such matters will have a material adverse effect on its
financial condition or results of operations.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. EVEREN Securities and EVEREN
Clearing are registered as broker-dealers, and EVEREN Securities is registered
as an investment adviser, with the SEC. They are subject to regulation by the
SEC and by self-regulatory organizations, principally the NASD, the MSRB and
national securities exchanges such as the NYSE. Securities firms are also
subject to regulation by state securities administrators in those states in
which they conduct business. EVEREN Securities is a registered broker-dealer in
all 50 states, the District of Columbia and the Commonwealth of Puerto Rico.
Failure to comply with the laws, rules or regulations of the SEC, such self-
regulatory organizations and state securities commissions may result in
censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion by such entities of a broker-dealer, an investment adviser, officers
or employees. The Company believes that it is currently in material compliance
with the regulations to which it is subject.
EVEREN Securities and EVEREN Clearing are registered with the CFTC as futures
commission merchants and are subject to regulation as such by the CFTC and
various domestic boards of trade and other commodity exchanges. EVEREN
Securities' commodity futures and options business is also regulated by the
NFA, a not-for-profit membership corporation which has been designated as a
registered futures association by the CFTC.
Because financial services businesses are subject to extensive regulation on
the federal and state level, and because of the possibility of changes
resulting from numerous legislative and regulatory proposals that are advanced
each year and from judicial decisions, it is possible that changes will be
necessary in the way in which the Company conducts its activities. While it is
difficult to predict the impact of any new laws, regulations or judicial
decisions, the Company anticipates that regulation of the securities and
commodities industries will increase at all levels and that compliance
therewith will become more difficult. Monetary penalties and restrictions on
business activities by regulators resulting from compliance deficiencies are
also expected to become more severe.
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<PAGE>
CAPITAL REQUIREMENTS
As registered broker-dealers, EVEREN Securities and EVEREN Clearing are
subject to the SEC's net capital rule, Rule 15c3-1 (the "Net Capital Rule"),
promulgated under the Exchange Act. The NYSE monitors the application of the
Net Capital Rule. EVEREN Securities and EVEREN Clearing each compute net
capital under the alternative method which requires minimum net capital equal
to the greater of $1.0 million for EVEREN Securities and $1.5 million for
EVEREN Clearing or 2% of aggregate items arising from customer transactions. A
broker-dealer may be required to reduce its business if its net capital is
less than 4% of aggregate debit balances and may also be prohibited from
expanding its business or paying cash dividends if resulting net capital would
be less than 5% of aggregate debit balances. In addition, the Net Capital Rule
does not allow withdrawal of subordinated capital if net capital would be less
than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the
Net Capital Rule, equity capital cannot be withdrawn from a broker-dealer
without the prior approval of the SEC when net capital after the withdrawal
would be less than 25% of its securities position haircuts (which are
deductions from capital of certain specified percentages of the market value
of securities to reflect the possibility of a market decline prior to
disposition). In addition, the Net Capital Rule requires a broker-dealer to
notify the SEC and the appropriate self-regulatory organization two business
days before a withdrawal of excess net capital if the withdrawal would exceed
30% of the broker-dealer's excess net capital, and two business days after a
withdrawal that exceeds 20% of excess net capital, provided that no such
notice need be given if the withdrawal is less than $500,000. Finally, the Net
Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net
capital and the SEC believes that such a withdrawal would be detrimental to
the financial integrity of such broker-dealer or would jeopardize the broker-
dealer's ability to pay its customers.
EVEREN Securities receives flow-through capital benefits from EVEREN
Clearing, to the extent available, in accordance with the Net Capital Rule. At
June 30, 1996 and December 31, 1995, EVEREN Securities had net capital, as
defined, of $108.1 million and $94.2 million, respectively, which exceeded its
minimum net capital requirement by $107.1 million and $93.2 million,
respectively. At June 30, 1996 and December 31, 1995, EVEREN Clearing had net
capital of $58.7 million and $58.6 million, respectively, which exceeded its
net capital requirement by $44.1 million and $45.0 million, respectively.
Compliance with the Net Capital Rule could limit those operations of the
Company that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict its ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding Common Stock.
The SEC, the NYSE, the CFTC and various other securities and commodities
exchanges and other regulatory bodies in the United States have rules with
respect to net capital requirements which affect the Company. A change in such
rules, or the imposition of new rules, affecting the scope, coverage,
calculation or amount of such net capital requirements, or a significant
operating loss or any unusually large charge against net capital, could
adversely affect the ability of the Company to expand or maintain present
levels of business or pay dividends or interest.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
and their respective present positions are as follows:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION
---- --- ----------------
<C> <S> <C>
James R. Boris 51 Chairman of the Board and Chief Executive
Officer
Stephen G. McConahey 52 President, Chief Operating Officer and Di-
rector
Stanley R. Fallis 55 Senior Executive Vice President and Direc-
tor of
Administration and Operations
David M. Greene 50 Senior Executive Vice President and Direc-
tor of
Client Services
Arthur J. McGivern 49 Senior Executive Vice President and Direc-
tor of
Corporate Development
Janet L. Reali 45 Senior Executive Vice President, General
Counsel and Secretary
Thomas R. Reedy 36 Senior Executive Vice President and Direc-
tor of
Capital Markets
John G. Sullivan 51 Senior Executive Vice President and Direc-
tor of
Marketing and Investment Services
Daniel D. Williams 44 Senior Executive Vice President, Chief Fi-
nancial
Officer and Treasurer
Thomas M. Mansheim 38 Senior Vice President, Controller and Chief
Accounting Officer
William M. Daley(1)(2) 48 Director
William T. Esrey(1)(2) 56 Director
Homer J. Livingston Jr.(1)(2) 61 Director
William C. Springer(1)(2) 56 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors of the
Company.
(2) Member of the Audit Committee of the Board of Directors of the Company.
James R. Boris was elected Chairman of the Board and Chief Executive Officer
of the Company in May 1995. Mr. Boris is Chairman of the Board and Chief
Executive Officer of EVEREN Securities, and has held such positions since
January 1990. From January 1994 until September 1995, he was also an Executive
Vice President of Kemper. From January 1990 until September 1995, he served on
the board of directors of Kemper Financial Companies, then a Kemper subsidiary
("KFC"), and the boards of its major subsidiaries.
Stephen G. McConahey was elected President and Chief Operating Officer of
the Company in May 1995, and has been a director since July 1995. Mr.
McConahey is President and Chief Operating Officer of EVEREN Securities and
has held such positions since January 1994. He was Senior Vice President for
Corporate and Internal Development of Kemper from 1990 through December 1993.
He was also Executive Vice President (Corporate and International Development)
of Kemper Financial Services, Inc. from 1988 through December 1993 and Senior
Vice President of KFC from 1990 through 1993. Mr. McConahey is also a member
of the Board of Trustees of AMLI Residential Properties Trust, a publicly-
traded real estate investment trust that invests in multi-family properties,
and is an individual general partner of Boettcher Venture Capital Partners,
L.P.
Stanley R. Fallis was elected Senior Executive Vice President of the Company
in May 1995 and also acts as the Company's Director of Administration and
Operations. In April 1995, he was elected Senior Executive
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Vice President and Chief Administrative Officer of EVEREN Securities. From
March 1994 until April 1995, he was Senior Vice President and Director of
Strategic Planning of Kemper. He was Senior Executive Vice President,
Treasurer and Chief Financial Officer of EVEREN Securities from September 1991
until March 1994, after having been Executive Vice President, Chief Financial
Officer and Treasurer from April 1990 until September 1991.
David M. Greene was elected Senior Executive Vice President of the Company
in May 1995 and also acts as the Company's Director of Client Services. Since
January 1994 he has been Senior Executive Vice President and Director of
Client Services of EVEREN Securities. From October 1992 until January 1994, he
was EVEREN Securities national sales director. From August 1991 to October
1992 he was Regional Director of EVEREN Securities branch offices in
Wisconsin, Iowa, Florida and Minnesota. Prior thereto, he was branch manager
of the Madison, Wisconsin branch office of an EVEREN Securities predecessor
firm, Blunt Ellis & Loewi Incorporated ("BEL").
Arthur J. McGivern was elected Senior Executive Vice President and Director
of Corporate Development of the Company in February 1996, at which time he was
also elected Senior Executive Vice President and Director of Corporate
Development of EVEREN Securities. From January 1994 to January 1996, he was
Senior Vice President and Corporate Counsel of Kemper. Prior to the Buy-Out
Mr. McGivern was an officer of a number of the Company's subsidiaries,
including the following positions at EVEREN Securities: Executive Vice
President from March 1991 to September 1992; Senior Executive Vice President
from September 1992 to September 1995; General Counsel from March 1991 to
September 1995; and Corporate Secretary from March 1991 to December 1993.
Janet L. Reali was elected Senior Executive Vice President, General Counsel
and Secretary of the Company in February 1996 after having been Executive Vice
President and Secretary since May 1995. In December 1995 she was elected
Senior Executive Vice President, General Counsel and Secretary of EVEREN
Securities after having been Executive Vice President, Corporate Counsel and
Corporate Secretary since December 1993. She was Senior Vice President and
Associate General Counsel of EVEREN Securities from July 1991 to December
1993. Before joining EVEREN Securities, she was a partner in the Chicago law
firm of Keck, Mahin & Cate.
Thomas R. Reedy was elected Senior Executive Vice President of the Company
in May 1995 and acts as the Company's Director of Capital Markets. He has been
Senior Executive Vice President of EVEREN Securities since December 1993. He
was Executive Vice President from September 1993 to December 1993 and Senior
Vice President from January 1991 to September 1993. He has held the additional
titles of Director of Capital Markets since January 1995, Director of Product
Origination from June 1994 to January 1995, Director of Investment Banking
from September 1993 to June 1994 and Director of Public Finance from January
1991 to September 1993. He originally joined EVEREN Securities in 1988 as a
Senior Vice President of BEL.
John G. Sullivan was elected Senior Executive Vice President of the Company
in February 1996 and also acts as the Company's Director of Marketing and
Investment Services. He has been a Senior Executive Vice President and
Director of Marketing and Investment Services of EVEREN Securities since
October 1995. Prior to joining the Company, he worked at Smith Barney Inc. as
Executive Vice President for strategic marketing from July 1995 to October
1995, as Executive Vice President and director of recruiting and development
from June 1994 to June 1995 and as Executive Vice President and Director of
that firm's northwest retail division from 1990 to 1994.
Daniel D. Williams was elected Senior Executive Vice President, Chief
Financial Officer and Treasurer of the Company in May 1995. Since April 1995
he has been Senior Executive Vice President and Chief Financial Officer of
EVEREN Securities. From January 1994 to April 1995 he was Executive Vice
President and Director of Finance and Administration and from January 1991 to
January 1994 he was Senior Vice President and Director of Accounting of EVEREN
Securities.
Thomas M. Mansheim was elected Vice President, Controller and Chief
Accounting Officer of the Company in May 1995 and Senior Vice President,
Controller and Chief Accounting Officer as of July 1995. Since January 1991 he
has been Senior Vice President, and since January 1994 he has been Director of
Accounting, of EVEREN Securities.
49
<PAGE>
William M. Daley has been a director of the Company since September 1995. He
is a partner with the Chicago law firm of Mayer Brown & Platt, having rejoined
the firm in May 1993, concentrating in the areas of corporate and government
relations matters. From September 1993 through December 1993, he served as
Special Counsel to the President of the United States for the North American
Free Trade Agreement. A partner with Mayer Brown & Platt from 1985 to 1990,
Mr. Daley concentrated in the corporate and government relations areas, and
assisted in expanding the firm's Washington office. He held the position of
President and Chief Operating Officer of Amalgamated Bank of Chicago from 1990
to 1993, after joining the bank as Vice Chairman in 1989. He serves on the
boards of directors for the Federal National Mortgage Association and
Wheelabrator Technologies, Inc. EVEREN Securities has utilized and anticipates
that it will continue to utilize the services of Mayer Brown & Platt.
William T. Esrey has been a director of the Company since September 1995. He
has been Chief Executive Officer of Sprint Corporation since 1985 and Chairman
since 1990. He was also President of Sprint from 1985 until February 1996. He
serves on the boards of Sprint, The Equitable Life Assurance Society of the
United States, PanEnergy Corporation and General Mills, Inc.
Homer J. Livingston Jr. has been a director of the Company since September
1995. He was Chief Executive Officer of The Chicago Stock Exchange from
January 1993 until he retired in May 1995, following a 30-year career in the
commercial and investment banking fields. Mr. Livingston previously served as
Chairman and Chief Executive Officer of The Livingston Financial Group, a firm
he started in 1988 that specialized in commercial bank restructuring. Mr.
Livingston serves as a board member of the Peoples Energy Corporation and
American National Can Company.
William C. Springer has been a director of the Company since September 1995.
He has held the title of President and Chief Executive Officer for Heinz
U.S.A. since 1989. In 1992, he was appointed President of Heinz North America,
responsible for Heinz Canada and Heinz U.S.A. Additionally, in September of
1993 he was elected to the board of directors of the H.J. Heinz Company and
assumed responsibility for the Heinz Service Company and Heinz operations in
Latin and South America.
Compensation of Directors. Directors who do not receive compensation as
officers or employees of the Company are paid an annual retainer of $17,500, a
fee of $2,500 paid in Common Stock for each meeting of the Board of Directors
attended, and a cash fee of $1,000 for each committee meeting attended. The
Compensation Committee is authorized to determine the amount of the annual
retainer to be paid in Common Stock. Such directors will also be reimbursed
for reasonable travel and related expenses.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee reports to the Board of Directors in
discharging its responsibilities relating to the accounting, reporting and
financial control practices of the Company. The Audit Committee has general
responsibility for oversight of financial controls, as well as the Company's
accounting and audit activities. The Audit Committee annually reviews the
qualifications of the independent auditors. The Audit Committee is composed
entirely of outside directors who are not now, and have never been, officers
of the Company. The Audit Committee consists of Mr. Livingston (Chairman) and
Messrs. Daley, Esrey and Springer.
Compensation Committee. The Compensation Committee is responsible for
administering all of the Company's employee benefit and compensation plans.
The Compensation Committee establishes corporate policy and programs with
respect to the compensation of officers and employees of the Company,
including establishing compensation programs, policies and practices, such as
salary, cash incentives, long-term incentive compensation, stock purchase and
other programs and making grants under such plans. No member of this committee
will receive an award or payment under any employee plan, other than as
described below. See "--Executive Officers and Directors--Compensation of
Directors." The Compensation Committee is composed entirely of outside
directors who are not now, and have never been, officers of the Company. The
members of the Compensation Committee are Mr. Esrey (Chairman) and Messrs.
Daley, Livingston and Springer.
50
<PAGE>
The 1995 Non-Employee Directors Plan (the "Directors Plan") provides non-
employee directors with incentives to improve the Company's performance by
increasing their level of stock ownership and granting of non-qualified stock
options. See "Company Stock Plans--1995 Non-employee Directors Plan."
Participation in the Directors Plan by non-employee directors is mandatory.
EXECUTIVE COMPENSATION
Prior to the Buy-Out, certain officers and employees of the Company
participated in various compensation plans of Kemper. The following tables set
forth certain information regarding the compensation paid or accrued by the
Company and Kemper to or for the account of the Chief Executive Officer and
each of the four most highly compensated executive officers of the Company for
services rendered in all capacities during the Company's fiscal years ended
December 31, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ----------------------------------
OTHER RESTRICTED STOCK
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1)(5) ($)(2)(6) (#)(3)(7) ($)(4)(8)
- ------------------ ---- --------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James R. Boris,......... 1995 $500,000 $1,300,000 $507,767 $1,500,000 30,000 $156,542
Chairman of the 1994 440,000 300,000 367,418 220,400 11,000 369,671
Board and Chief
Executive Officer
Stephen G. McConahey,... 1995 385,000 900,000 743,832 1,000,000 22,500 30,036
President and Chief 1994 350,000 175,000 335,498 261,000 14,000 206,777
Operating Officer
David M. Greene,........ 1995 250,000 450,000 233,677 0 17,000 27,526
Senior Executive 1994 200,000 85,000 21,468 0 4,350 118,340
Vice President
Thomas R. Reedy,........ 1995 250,000 400,000 194,379 0 17,000 41,662
Senior Executive 1994 200,000 85,000 0 0 4,350 87,357
Vice President
Frank V. Geremia,(9).... 1995 275,000 300,000 284,726 0 13,000 30,911
Senior Executive 1994 275,000 190,000 122,045 92,800 4,600 188,159
Vice President
</TABLE>
- --------
(1) For 1995, the amounts disclosed in this column include:
(a) Compensation based on Kemper salary and benefit programs and contractual
arrangements. The realization of compensation in 1995 resulted from
Kemper's consummation of certain transactions (including the Buy-Out):
(i) Compensation income reported in 1995 as the result of an arrangement
Kemper extended to approximately 52 management and administrative
personnel of EVEREN Securities. Under this Kemper Corporation 1995
Deferred Bonus program, Messrs. Greene, Reedy and Geremia received
payments of $120,000, $120,000 and $51,600, respectively, immediately
after the Buy-Out.
(ii) $404,460, $606,690 and $179,118 for Messrs. Boris, McConahey and
Geremia, respectively, based on the value on the vesting date of
phantom restricted stock units awarded in 1995 under the Kemper
Corporation 1995 Executive Incentive Plan.
(iii) The taxable value of the Exchangeable Preferred Stock payments made
to each of the named executives by Kemper pursuant to the Preferred
Distribution based on the number of in the money Kemper stock
options held by each named executive. The distribution ratio in the
Preferred Distribution was one share of Preferred Stock for every
31.25 shares of Kemper common stock underlying any unexercised and
unexpired options (and/or units) participants held on September 7,
1995. No fractional shares of Exchangeable Preferred Stock were
distributed in the Preferred Distribution. For compensation
purposes, the taxable income from this distribution was based on
the participant's Kemper options (and/or units) and was equal to
$20.8125 (the average of the high and low sales prices of the
Exchangeable Preferred Stock on its first day of trading, September
14, 1995) times the number of shares of Exchangeable Preferred
Stock received, plus any cash received in lieu of fractional
shares.
51
<PAGE>
(iv) Compensation amounts paid to Messrs. Boris, McConahey and Geremia as
non-preferential dividend equivalents on phantom Kemper restricted
stock units.
(b) Compensation based on the Company's salary and benefit programs:
(i) The taxable value of nonvoting common stock awarded to Messrs.
Greene, Reedy and Geremia, which shares of nonvoting common stock
were exchanged for shares of Common Stock on a one-for-one basis as
part of the Transactions. Because of the restrictions placed on the
transfer of this stock, the Company advanced an amount to Messrs.
Greene, Reedy and Geremia to cover the withholding tax obligations
incurred in connection with the receipt of the shares of nonvoting
Common Stock. Under the terms of this loan, each executive pledged
the shares issued as collateral of the principal amount owed to the
Company. Payment of the loan was due the earlier of (i) the first
date on which the stock is sold or otherwise transferred, in whole or
part, in any transaction in which the executive receives any amount
of cash consideration for all or any portion of the transferred
stock, or (ii) the first date on which there no longer remained
outstanding any shares of Exchangeable Preferred Stock or Debentures
issued in exchange for shares of such Exchangeable Preferred Stock,
or (iii) the date of any acceleration of the payments due following
such demand by the Company.
(ii) The taxable benefits from personal use of any employer-provided
automobile, adjusted for the related tax expense.
(iii) The taxable benefits of various incentive trips the named
executives participated in during 1995.
(iv) A distribution of $31,921 made to Mr. Greene from the Blunt Ellis &
Loewi Amended and Restated Deferred Incentive Compensation Plan.
(2) Amounts reported for 1995 were awarded under the terms of the 1995 Plan
(as defined herein) and certain provisions of employment agreements
entered into with the Company. Under the terms of such employment
agreements, Messrs. Boris and McConahey received 219,281 and 146,188
shares, respectively, of Common Stock. Such shares vested in 1995.
(3) Stock options displayed for 1995 relate to Common Stock and were granted
under the 1995 Plan. The nonqualified stock option granted to each named
executive is subject to a five-year cliff vesting schedule. If a
participant terminates service prior to the end of the five-year period
for reasons other than death, permanent disability or retirement, the
options and all associated rights are forfeited and returned to the
Company. Certain provisions exist for acceleration of vesting for various
change of control scenarios.
(4) The amounts in this column for 1995 include employer contributions
allocated to the accounts of the named executives under profit sharing
plans (including the supplemental plan) maintained by EVEREN Securities
and Kemper in the case of Mr. Boris, Kemper, KFC and EVEREN Securities in
the case of Mr. Geremia, and EVEREN Securities in the case of Messrs.
McConahey, Greene and Reedy.
Effective with the 1995 plan year, the Company adopted the KSOP and employer
contribution provisions which provided for a fifty percent match of the
first five percent of participants' elective 401(k) contributions and a
discretionary year-end contribution. Under the KSOP, annual compensation
which is attributable to restricted stock vesting, stock option exercise or
nonqualified deferred compensation vesting is not taken into account for
employer contributions.
In addition, in the Founders' Offering, the Company contributed to the KSOP
an amount equal to one-half of the amount invested by each participant in
the Common Stock in the Founders' Offering, with the amount subject to such
contribution being limited to the lesser of 40% of the participant's 1995
compensation (limited to $150,000, as provided by the KSOP) or $60,000.
Finally, as a part of the Buy-Out, the Company and Kemper made a special
contribution to the KSOP. This initial employer contribution was allocated
to participants who were employed by the Company on December 31, 1995, in
proportion to participants' 1995 earnings. Each of the named executives
participated in the initial employer KSOP contribution of $3,000,000, based
on eligible compensation in 1995 (limited to $150,000 per individual).
(5) For 1994, the amounts disclosed in this column include:
(a) Compensation income reported in 1994 of $349,838 for Mr. Boris, $319,150
for Mr. McConahey and $122,045 for Mr. Geremia, based on the value on
the vesting date of restricted stock awarded in 1991 and 1992 under the
Kemper Corporation 1989 Senior Executive Long-Term Incentive Plan.
(b) Compensation income reported for Mr. Greene of $21,468 which resulted
from commission incentives earned in 1994.
(6) Amounts reported for 1994 were awarded under Kemper's restricted stock
plans. The values shown are based on the closing price of Kemper common
stock on the date any restricted stock was awarded multiplied by the
number of shares awarded. A five-year restriction period on transfers or
other dispositions applied to all awards of restricted stock when made.
All shares reflected in the table which were awarded in 1992 vested in
full when the approval of the merger agreement among Kemper, Conseco,
Inc., an Indiana corporation ("Conseco"), and a wholly owned subsidiary of
Conseco, pursuant to which Kemper would have been acquired by Conseco (the
"Conseco Merger Agreement") in June 1994, activated certain "change of
control" acceleration provisions under the Kemper Corporation 1989 Senior
Executive Long-Term Incentive Plan. In June 1994, Mr. Boris vested in an
aggregate 5,700 shares, Mr. McConahey vested in an aggregate 5,200 shares
and Mr. Geremia vested in an aggregate 2,200 shares. Until the shares of
restricted stock granted in 1992 or earlier vested, dividend equivalents,
calculated based on the amount of the per share dividend declared and paid
on Kemper common stock, were paid as additional compensation income to the
named individuals when dividends were paid to Kemper's stockholders.
Participants were also entitled to settle their tax obligations on the
vesting of restricted shares by utilizing a portion of the award shares.
Due to the June 1994 vesting of all outstanding shares of restricted stock
granted in 1992 or earlier and the cancellation of shares awarded in 1993
and 1994, no shares of restricted stock were held by any of the named
executive officers at December 31, 1994.
(7) Stock options displayed for 1994 were granted under Kemper's stock option
plans and relate to Kemper common stock. The options were granted at an
exercise price of $58 per share and were out of the money at the time of
the completion of the merger transaction among Kemper and Zurich Insurance
Company and its affiliates; therefore they were not exercised or cashed
out and expired as worthless.
52
<PAGE>
(8) For 1994, and unless otherwise specifically noted, the amounts disclosed
in this column relate solely to compensation based on Kemper long-term
compensation programs and include:
(a) The amounts of employer contributions and forfeitures allocated to the
accounts of the named persons under profit sharing plans (including the
supplemental plan) maintained by EVEREN Securities, Kemper Financial
Services, Inc. and Kemper in the case of Mr. Boris, and Kemper in the
case of Messrs. McConahey, Geremia, Reedy and Greene. In 1994, $172,366
was allocated to the account of Mr. Boris, and Messrs. McConahey,
Geremia, Greene and Reedy received allocations of $120,000, $108,750,
$73,720 and $56,400, respectively. All named executives commenced
participation in Kemper's profit sharing plan on January 1, 1994.
Messrs. Boris, Geremia, Greene and Reedy previously participated in the
EVEREN Securities profit sharing plan through 1993. Mr. Boris also
vested in additional amounts under the Kemper Financial Services, Inc.
plan in 1994 (included in his preceding total).
(b) Distributions from the Kemper supplemental plan. The supplemental plan
provided for an accelerated lump sum distribution of vested amounts
credited to the plan which were attributable to the underlying profit
sharing plan upon a "change of control" under the plan. In the third
quarter of 1994, distributions of $145,995, $39,968, $57,605, $30,957
and $23,152 were made to Messrs. Boris, McConahey, Geremia, Reedy and
Greene. These distribution totals include sums earlier contributed by
the named executives over their respective years of plan participation,
together with employer contributions, as well as investment returns on
both types of contributions.
(c) Amounts representing a portion of the executives' income tax payments
arising from the June 1994 vesting of shares of restricted stock of
Kemper due to the approval of the Conseco Merger Agreement. The
Committee on Compensation and Organization of the Kemper Board of
Directors (the "Kemper Committee") authorized such payments to 16 senior
executives of Kemper or the Company who were precluded under pertinent
securities law limitations or discouraged as a matter of appearance from
subsequently selling their vested shares of restricted stock prior to
the closing of the then-planned Conseco merger transaction. The
executives' tax liabilities were based on the $61.375 fair market value
of the restricted stock on the vesting date. Kemper's payments to the
executives were derived from a formula based on certain relative stock
values but approximated one-third of the executives' total income tax
liabilities from the imputed income on vesting. Mr. Boris received
$51,310, and Messrs. McConahey and Geremia received $46,809 and $19,804,
respectively, under this tax liability payment arrangement.
(9) Mr. Geremia ceased to be an employee on April 30, 1996 upon consummation
of the sale of BETA.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
OF
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM(4)
------------------------------------ -----------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO
SHARES EMPLOYEES
UNDERLYING IN EXERCISE OR
OPTIONS FISCAL BASE PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James R. Boris.......... 30,000 3.0% $6.8405 December 19, 2005 $129,060 $327,060
Stephen G. McConahey.... 22,500 2.3% $6.8405 December 19, 2005 $ 96,795 $245,295
David M. Greene......... 17,000 1.7% $6.8405 December 19, 2005 $ 73,134 $185,334
Thomas R. Reedy......... 17,000 1.7% $6.8405 December 19, 2005 $ 73,134 $185,334
Frank V. Geremia........ 13,000 1.3% $6.8405 December 19, 2005 $ 55,926 $141,726
</TABLE>
OPTION GRANTS IN 1995
- --------
(1) Each of the options reflected in this table, when granted, were subject to
cliff vesting provisions whereby the underlying stock would become
eligible for exercise after the fifth anniversary of the date of the
grant.
The options disclosed in this table, if not fully exercised, automatically
become fully exercisable upon a change of control of the Company, as
defined in the award document, and are currently subject to certain stock
transfer restrictions imposed on the underlying shares.
(2) Based on 994,075 shares, the total number of shares granted under options
in 1995.
(3) The option exercise price assigned by the Compensation Committee was the
value of Common Stock held by the KSOP on the date of the respective
grants. In 1995, this was the same as the per share price paid by the KSOP
at the time the KSOP acquired shares of Common Stock from Kemper.
(4) The assumed annual rates of stock price appreciation are prescribed in the
rules of the SEC and should not be construed to forecast any future
appreciation in the value for the Common Stock.
53
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND OPTION VALUES AT YEAR-END 1995
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT
ON FY-END(#)(2) FY-END($)(2)(3)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
---- -------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
James R. Boris....... -- -- 43,218/30,000 470,967/117,885
Stephen G. McConahey. -- -- 48,562/22,500 492,351/ 88,414
David M. Greene...... -- -- 9,224/17,000 74,720/ 66,802
Thomas R. Reedy...... 6,100(/4/) $45,725(/4/) 5,282/17,000 7,340/ 66,802
Frank V. Geremia..... -- -- 18,147/13,000 183,533/ 51,084
</TABLE>
- --------
(1) Based on the amount by which the last sale price of Kemper common stock on
the exercise date exceeds the exercise price.
(2) Exercisable options relate to options for Kemper common stock granted
under the Kemper Corporation 1990 Stock Option Plan. Unexercisable options
relate to options for Common Stock granted under the EVEREN Capital
Corporation 1995 Stock Plan.
(3) The value of exercisable options is based on the amount, if any, by which
the last sale price of Kemper common stock of $49.625 at December 31, 1995
exceeds the exercise price; the value of unexercisable options is based on
the amount by which the valuation of Common Stock of $10.77 at December
31, 1995 made by the independent financial advisor to the KSOP trustee
exceeds the exercise price.
(4) Mr. Reedy exercised a non-qualified stock option to purchase Kemper common
stock previously granted to him under the Kemper Corporation 1990 Stock
Option Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with nine of its current
senior executives (each a "Senior Executive"), including each of Messrs.
Boris, McConahey, Greene and Reedy, that provide for them to be employed as
executive officers of the Company. The following is a summary of the main
features of the employment agreements.
The employment agreements provide for each Senior Executive to receive a
base salary and annual bonus (as a percentage of base salary) based
principally on the Company's achievement of such performance standards as the
Board of Directors may determine. The Board of Directors has the right to
increase such base salaries and annually reviews and re-establishes bonus
levels for the following year. Certain portions of such bonuses may be paid in
restricted stock or other securities of the Company subject to applicable
vesting requirements as the Board of Directors may determine. Under their
employment agreements, Messrs. Boris and McConahey received special KSOP loan
payoff bonuses of $2.5 million and $2.0 million, respectively, when the KSOP
loans were repaid in full in May 1996.
Pursuant to the employment agreements, the Senior Executives are employed at
will. However, if the Company were to terminate a Senior Executive other than
for Cause (as defined), or if a Senior Executive were to resign his or her
employment for Good Reason (as defined), the Senior Executive would be
entitled to receive a severance payment (in lieu of any benefits to which he
or she might otherwise be entitled under any severance or similar plan or
program of the Company) as follows:
Messrs. Boris and McConahey would be entitled to receive a severance payment
equal to the sum of (i) two times their annual base salary plus two times
their target bonus at the time of such termination; plus (ii) a pro rata
target bonus for the year in which such termination takes place; plus (iii)
any unpaid annual bonus attributable to any prior year, provided that for such
purposes Mr. Boris' target bonus will be not less than 150% of his base salary
and Mr. McConahey's target bonus will not be less than 125% of his base
salary.
54
<PAGE>
Each of the other Senior Executives would be entitled to receive an amount
equal to the sum of (i) twelve months' base salary as of the date of the
Senior Executive's termination (or as of any date within the preceding twelve
months, if higher); provided, however, that if the Senior Executive has
completed more than twelve years of service with the Company, the Senior
Executive shall receive one additional month of base salary for each year of
service in excess of twelve years not to exceed a total of twenty-four months'
base salary; plus (ii) the Senior Executive's target bonus at the date of such
termination; plus (iii) a pro-rated target bonus for the year in which the
termination occurs; plus (iv) any unpaid bonus attributable to the preceding
year.
If any Senior Executive's employment is terminated by the Company other than
for Cause or is terminated by the Senior Executive for Good Reason or is
terminated due to the Senior Executive's death, any stock options, restricted
stock or other equity interests in the Company's stock previously granted to
the Senior Executive shall become fully vested on the Senior Executive's
termination date provided that such accelerated vesting is not prohibited by
law.
If Mr. Boris' or Mr. McConahey's employment is terminated by that Senior
Executive for Good Reason or by the Company other than for Cause within two
years following a Change of Control, (as defined) or if Mr. Boris' or Mr.
McConahey's employment is terminated by the Company other than for Cause prior
to a Change of Control involving the acquisition of the Company and the
termination is made at the request of the buyer, the Company will pay an
amount equal to the sum of (i) three years' base salary as of the date of such
termination (or as of any date within the preceding twelve months, if higher);
plus (ii) three times their respective maximum bonus at the date of such
termination, provided that for such purposes, Mr. Boris' maximum bonus will be
not less than 300% of his base salary and Mr. McConahey's maximum bonus will
be not less than 275% of his base salary; plus (iii) a pro-rated target bonus
for the year in which the termination occurs; plus (iv) any unpaid annual
bonus attributable to the preceding year.
If any of the other Senior Executives' employment is terminated by that
Senior Executive for Good Reason or by the Company other than for Cause within
two years following a Change of Control, or if any of the other Senior
Executives' employment is terminated by the Company other than for Cause prior
to a Change of Control involving the acquisition of the Company and the
termination is made at the request of the buyer, the Company will pay to that
Senior Executive an amount equal to the sum of (i) two years' base salary as
of the date of that Senior Executive's termination (or as of any date within
the preceding twelve months, if higher); plus (ii) two times that Senior
Executive's maximum bonus at the date of such termination; plus (iii) a pro-
rated target bonus for the year in which the termination occurs; plus (iv) any
unpaid annual bonus attributable to the preceding year.
In the case of death, the Senior Executive's estate would receive payments
under the employment agreements of an amount equal to three month's base
salary (six months in the case of Messrs. Boris and McConahey) plus a pro-
rated target bonus through the date of death.
COMPANY STOCK PLANS
THE KSOP
In order to continue to foster a culture that encourages strong employee
performance and provides ownership incentives to the Company's employees, the
Company has taken certain steps to provide employees with equity participation
in the Company. On September 13, 1995 the KSOP purchased 10,437,781 shares of
Common Stock, representing 96.6% of the then outstanding shares, from Kemper
in the Buy-Out for an aggregate purchase price of $71.4 million or $6.8405 per
share, with the remainder being acquired by members of management. As of June
30, 1996, the KSOP owned 11,088,040 shares of Common Stock representing 93.5%
of the shares of Common Stock then outstanding. As part of the Transactions,
all of the Common Stock held in the KSOP has been specifically allocated to
employee participants' accounts (excluding forfeitures). The KSOP is an
employee stock ownership plan which is intended to be qualified under Sections
401(a) and 401(k) of the Code and to meet the requirements of Section
4975(e)(7) of the Code.
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<PAGE>
In general, each full-time employee of EVEREN Capital and its subsidiaries
that have adopted the KSOP (individually, a "Participating Employer" and
collectively, the "Participating Employers") is eligible to participate in the
KSOP. Each full-time employee of a Participating Employer is eligible to
participate in the KSOP on the first day of the calendar quarter immediately
following the employee's date of hire. (Part-time or temporary employees must
complete at least 1,000 hours of service in a 12-month period before they may
participate.) The executive officers of the Company participate in the KSOP on
the same basis as all other eligible employees.
On an on-going basis, the KSOP provides for contributions to be made by the
Participating Employers as well as KSOP participants, subject to the terms of
the KSOP and applicable Code limitations. A KSOP participant may elect to make
pre-tax contributions ("401(k) Contributions") of between 1% and 10% of the
participant's compensation taken into account under the KSOP. The
Participating Employers make periodic matching contributions to the KSOP equal
to 50% of the first 5% of compensation an eligible participant contributes to
the KSOP as 401(k) Contributions. In addition to these matching contributions,
the Participating Employers may also make discretionary contributions to the
KSOP in an amount determined by the Company, subject to Internal Revenue
Service ("IRS") requirements.
Participants in the KSOP vest on a graduated schedule, and their service
with the Participating Employers prior to the establishment of the KSOP is
taken into account for vesting purposes. Participants are fully vested after
five years of service if they had three or more years of service as of April
1, 1994, or after seven years of service if they had less than three years of
service as of April 1, 1994.
Special provisions apply to distributions of Common Stock from the KSOP.
KSOP participants generally are not entitled to distributions of their
benefits invested in Common Stock until they terminate employment with the
Participating Employer. For participants whose employment terminates for
reasons other than retirement or death, distribution of the vested portion of
their Common Stock accounts generally will not begin until one year after the
end of the plan year that is the fifth plan year following the plan year
during which their employment terminated. Distribution of the vested portion
of the Common Stock held on behalf of participants who retire or die will
begin no later than one year following the end of the plan year in which they
retire or die.
Participants have the right to direct the KSOP trustee (the "KSOP Trustee")
as to the voting (or, in the event of a tender offer, the tendering) of the
shares of Common Stock allocated to their KSOP accounts. If a participant
fails to direct the KSOP Trustee as to how to vote the shares allocated to the
participant's KSOP account, then the KSOP Trustee will vote those shares,
together with unallocated shares, in the same proportion as the KSOP Trustee
was directed by the other participants who gave voting directions. In the
event of a tender offer, if a participant does not direct the KSOP Trustee to
tender those shares allocated to his or her KSOP account, then the KSOP
Trustee will not tender such shares; the KSOP Trustee will tender unallocated
shares in the same proportion as the KSOP Trustee was directed by other
participants to tender allocated shares. Notwithstanding the foregoing, the
KSOP Trustee will in all cases exercise its independent judgment in voting (or
tendering) shares of Common Stock if doing so is necessary to satisfy its
fiduciary obligations under the Employee Retirement Income Security Act of
1974.
1996 EMPLOYEE PERIODIC PAYROLL STOCK PURCHASE PLAN
The purpose of the 1996 Employee Periodic Payroll Stock Purchase Plan (the
"Payroll Stock Purchase Plan") is to provide an opportunity for the employees
of the Company to purchase shares of Common Stock through voluntary automatic
payroll deductions and cash contributions. An aggregate of 500,000 shares of
Common Stock may be sold pursuant to the Payroll Stock Purchase Plan.
1996 RESTRICTED STOCK INCENTIVE PLAN
The Company's 1996 Restricted Stock Incentive Plan (the "Incentive Plan")
provides additional incentives to certain employees of the Company through
awards of shares of Common Stock. The Company has reserved
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<PAGE>
for issuance under the Incentive Plan a maximum of (i) 4,000,000 shares of
Common Stock plus (ii) any shares of Common Stock that may be reserved for
issuance under the 1996 New Employee Restricted Stock Purchase Plan (the "New
Employee Plan"), that are not actually issued pursuant thereto and that the
Compensation Committee instead designates as being reserved for issuance under
the Incentive Plan. All shares awarded pursuant to the Incentive Plan
initially are subject to certain vesting and transfer restrictions.
1996 NEW EMPLOYEE RESTRICTED STOCK PURCHASE PLAN
The purpose of the New Employee Plan is to provide a one-time opportunity
for certain new employees of the Company and its subsidiaries to purchase
shares of Common Stock for cash. All shares purchased pursuant to the New
Employee Plan initially are subject to certain vesting and transfer
restrictions.
The Company has reserved for issuance under the New Employee Plan a maximum
of (a) 500,000 shares of Common Stock plus (b) any shares of Common Stock that
may be reserved for issuance under the Incentive Plan that are not issued
pursuant thereto and that the Compensation Committee instead designates as
being reserved for issuance pursuant to the New Employee Plan.
1995 STOCK PLAN
The purpose of the 1995 Stock Plan (the "1995 Plan") is to provide employees
of the Company with additional incentive to promote the success of the
Company's business, to remain employees of the Company and to acquire equity
interests in the Company. The 1995 Plan provides the Compensation Committee
with the ability to make outright grants of unrestricted Common Stock and to
award restricted stock ("Restricted Stock"), incentive stock options ("ISOs")
within the meaning of Section 422 of the Code, nonqualified stock options
("NSOs"), stock appreciation rights ("SARs"), phantom stock ("Phantom Stock")
and performance units ("Performance Units") (awards of Common Stock,
Restricted Stock, ISOs, NSOs, SARs, Phantom Stock and Performance Units are
collectively referred to as "Awards"). The 1995 Plan permits a total of
1,365,469 shares of Common Stock to be awarded to Participants under the 1995
Plan in the form of outright grants of Common Stock, ISOs, NSOs or Restricted
Stock, or in payment of SARs, Phantom Stock shares or Performance Units. As of
June 30, 1996, Awards had been made under the 1995 Stock Plan covering all but
100 of the shares reserved for issuance thereunder.
1995 NON-EMPLOYEE DIRECTORS PLAN
The Directors Plan, which provides for the issuance of Common Stock and non-
qualified stock options to non-employee directors, enhances the Company's
ability to attract and retain non-employee directors and provides such
directors with additional incentives to improve the Company's performance by
increasing their level of stock ownership. The Directors Plan provides that,
immediately following the date of each meeting of the Board of Directors, each
non-employee director will receive (i) a portion of his or her annual retainer
paid in Common Stock and (ii) $2,500 for attending the meeting, also paid in
Common Stock. The number of shares of Common Stock to be issued to each non-
employee director for each board meeting is determined by dividing the amount
to be paid by the per share fair market value of the Common Stock. In
addition, following the meeting of the Board of Directors held after each
annual stockholders' meeting, each non-employee director receives an NSO to
purchase 1,500 shares of Common Stock. All shares of Common Stock awarded to
participants in the Directors Plan vest immediately, and options awarded to
participants vest based on the amount of time that has elapsed since the
option award date.
Participation in the Directors Plan by non-employee directors is mandatory.
In general, no more than 60,000 shares of Common Stock may be granted outright
or issued upon the exercise of options awarded under the Directors Plan.
DIRECTORS' DEFERRED COMPENSATION ARRANGEMENT
The Company maintains a deferred compensation arrangement that allows non-
employee directors to defer the receipt of any cash payment of fees for the
then-current fiscal year by authorizing an irrevocable election prior to the
beginning of each calendar year. Such fees deferred under this arrangement are
credited with interest at the end of each calendar year at a rate determined
by the Board of Directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Buy-Out, agreements were entered into between Kemper
and EVEREN that among other things, obligate Kemper to indemnify the Company
for the first $20.0 million of employer contributions (other than 401(k)
contributions) made to the KSOP following the Buy-Out. As of June 30, 1996
Kemper had a remaining liability of approximately $3.8 million pursuant to
such indemnification obligation which amount was paid following the August 5,
1996 dividend payment. See "Management's Discussion and Analysis of Financial
Condition and Result of Operations--Equity Participation of Employees."
Also, in connection with the Buy-Out, the Company and Kemper entered into a
Tax Sharing Agreement, pursuant to which the parties made an election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Section 338(h)(10) Election). The Tax Sharing Agreement also provides that
Kemper will be responsible for and receive the benefits of (i) all settlements
with the Internal Revenue Service (the "IRS") for the 1990 and prior year tax
periods, (ii) the impact of all tax items for the 1990 and prior year tax
periods theretofore identified by the IRS that reverse during the period
January 1, 1991 through the date of the Buy-Out and (iii) all tax issues for
the period from January 1, 1991 to the date of the Buy-Out identified by
Kemper and the Company in the Tax Sharing Agreement. The Tax Sharing Agreement
further provides that each party will be responsible for its own taxes for the
periods from January 1, 1991 through the date of the Buy-Out except that (a)
Kemper will not be responsible for reimbursing the Company for the tax
benefits associated with any net loss (and the Company will not be responsible
for reimbursing Kemper for the taxes due on any net income) reported by the
Company for the 1994 tax year and the 1995 tax year to the date of the Buy-Out
and (b) the calculation of the Company's share of taxes shall be determined by
disregarding the divestiture and the Section 338(h)(10) Election. The Tax
Sharing Agreement provides that the Company will be responsible for all audit
adjustments for the tax period from January 1, 1991 through September 13, 1995
that are not referred to in clauses (ii) or (iii) above, and that the Company
will be responsible for and receive the benefits of all tax liabilities and
refunds attributable to the business of the Company after the date of the Buy-
Out.
In addition, in connection with the Buy-Out, EVEREN and Kemper entered into
an assumption agreement under which Kemper is obligated to hold the Company
harmless with respect to certain litigation matters.
Prior to the Buy-Out, the Company provided certain services to a wholly-
owned subsidiary of Kemper. As a result, the Company earned approximately
$14.1 million and $16.7 million, in 1993 and 1994, respectively, in investment
management income for acting as an underwriter and distributor of money market
funds managed by a wholly-owned subsidiary of Kemper. The Company also
received approximately $17.0 million and $22.4 million, in 1993 and 1994,
respectively, in commission revenue for commissions earned from affiliates of
a Kemper subsidiary for the sale of mutual funds and other products. The
management income and commission revenues were standard broker fees and
commission loads earned in the normal course of business. During 1994 a Kemper
subsidiary made an additional capital contribution of $19.0 million to the
Company.
From time to time, the Company uses the services of Mayer Brown & Platt, the
law firm in which director William M. Daley is a partner.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of August 31, 1996, and
as adjusted to reflect the completion of this offering, by (i) each named
executive officer, (ii) each director, (iii) each holder of more than five
percent of the Company's Common Stock and (iv) all current directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF
NUMBER OF COMMON STOCK
SHARES OF BENEFICIALLY
COMMON OWNED
STOCK -----------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
--------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
James R. Boris................................. 289,404 2.5% %
Stephen G. McConahey........................... 203,407 1.7
William M. Daley............................... 3,099 *
William T. Esrey............................... 2,786 *
Homer J. Livingston, Jr........................ 3,099 *
William C. Springer............................ 2,527 *
David M. Greene................................ 46,792 *
Thomas R. Reedy................................ 40,573 *
Comerica Bank--Illinois, not in its individual
or corporate capacity but solely as Trustee of
the KSOP
758 West North Avenue
Chicago, IL 60610............................. 10,765,208 91.6
All directors and executive officers as a group
(14 persons, including the above)............. 740,630 6.3
</TABLE>
- --------
*Less than 1% of the shares outstanding.
(1) Except as otherwise indicated, the address of each of the persons in this
table is as follows: c/o EVEREN Capital Corporation, 77 West Wacker Drive,
Chicago, Illinois 60601.
(2) Except for the following, all shares of the Company's Common Stock
beneficially owned by the Company's directors and executive officers are
owned of record by the KSOP Trustee and are subject to the voting
arrangement described under "Company Stock Plans--The KSOP." The following
directors and executive officers own Common Stock outside of the KSOP: Mr.
Boris, 252,098 shares; Mr. McConahey, 168,200 shares; Mr. Daley, 3,099
shares; Mr. Esrey, 2,786 shares; Mr. Livingston, 3,099 shares; Mr.
Springer, 2,527 shares; and all directors and executive officers as a
group, 528,489 shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Amended and Restated Certificate of Incorporation of EVEREN
Capital (the "Certificate of Incorporation"), EVEREN Capital is authorized to
issue 100,000,000 shares of Common Stock, par value $.01 per share and up to
10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock").
COMMON STOCK
Dividends. Subject to any prior dividend rights of the holders of Preferred
Stock, dividends may be paid on the Common Stock as determined by the Board of
Directors out of funds legally available therefor. EVEREN Capital's ability to
pay dividends is contingent upon the earnings of its subsidiaries, as well as
their ability to declare and pay dividends to EVEREN Capital. Certain
subsidiaries may be limited in their ability to pay dividends by capital and
other rules of regulatory bodies, as well as certain covenants in instruments
governing certain indebtedness.
Voting. Holders of Common Stock are entitled to vote on all matters to be
voted on by the stockholders of EVEREN Capital, including the election of
directors and, except as otherwise required by law or provided in any
resolution adopted by the Board of Directors with respect to any series of
Preferred Stock, the holders of Common Stock exclusively will possess all
voting power. Each share of Common Stock is entitled to one vote on all
matters. Holders of Common Stock do not have cumulative voting rights.
Liquidation Value. After the satisfaction in full of any liquidation
preferences of holders of Preferred Stock, holders of Common Stock are
entitled to ratable distribution of the remaining assets available for
distribution to stockholders in the event of any liquidation, dissolution or
winding up of EVEREN Capital.
Other. The Common Stock is not subject to redemption, whether by operation
of a sinking fund or otherwise. Holders of Common Stock are not entitled to
preemptive rights under the Certificate of Incorporation or under the Restated
By-Laws of EVEREN Capital (the "By-Laws").
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Common Stock is Harris Trust and Savings Bank.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock, in one or more series, and to fix for each such series
such designations, preferences and relative, participating, optional and other
special rights, and such qualifications, limitations and restrictions, as are
stated in the resolution adopted by the Board of Directors providing for the
issue of such series and as are permitted by the DGCL.
PREFERRED SHARE PURCHASE RIGHTS
The Board of Directors declared, conditional upon the effectiveness of the
Registration Statement filed in connection with the offering, a dividend
distribution of one Preferred Share Purchase Right (a "Right") for each share
of outstanding Common Stock. The dividend is payable to stockholders of record
on October 1, 1996, and Rights shall be issued in connection with all shares
of Common Stock issued prior to the Rights Distribution Date. Each Right will
entitle the registered holder to purchase from EVEREN Capital one one-
hundredth of a Share of Series A Preferred Stock (a "Preferred Share") at a
price of $61.25 per one-hundredth of a Preferred Share (the "Purchase Price")
subject to adjustment. The terms of the Rights will be set forth in a Rights
Agreement (the "Rights Agreement") between EVEREN and a Rights Agent.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons, other than the
KSOP (an "Acquiring Person") has acquired beneficial ownership of 15% or more
of the outstanding Common Stock or (ii) 10 business days (or such later date
as may be determined by action of the Board of Directors prior to such time as
any person or group becomes an Acquiring Person) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person
or group, other than the KSOP, of 15% or more of such outstanding Common Stock
(the earlier of such dates being called the "Rights Distribution Date"), the
Rights will be evidenced by the Common Stock certificates.
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<PAGE>
The Rights Agreement will provide that, until the Rights Distribution Date,
the Rights will be transferable with and only with the Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Rights Distribution Date and such separate Rights
Certificates alone will evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on the tenth anniversary of the date of their issuance (the
"Final Expiration Date"), unless the Final Expiration Date is extended or
unless the rights are earlier redeemed by the Company, in each case as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights will be subject
to adjustment from time to time to prevent dilution.
The Preferred Shares' dividend and liquidation rights are designed such that
the value of the one one-hundredth interest in a Preferred Share purchasable
upon exercise of each Right should approximate the value of one share of
Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void),
will thereafter have the right to receive upon the exercise thereof at the
then current Purchase Price of the Right, that number of shares of Common
Stock (or, at the option of the Company, Preference Shares) having a market
value of two times the Purchase Price of the Right. In the event that, at any
time on or after the date that any person or group of affiliated or associated
persons has become an Acquiring Person, EVEREN Capital is acquired in a merger
or other business combination transaction or 50% or more of its consolidated
assets or earning power are sold, proper provision will be made so that each
holder of a Right will thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the exercise price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or
group of 50% or more of the outstanding Common Stock, the Board of Directors
may exchange the Rights (other than Rights owned by such person or group,
which will have become void), in whole or in part, at an exchange ratio of one
share of Common Stock per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock, the Board of Directors may redeem the rights in whole, but not
in part, at a price of $.01 per Right (the "Redemption Price"). Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that (i) from and after such time
as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights and (ii) no supplement or amendment to the Rights
Agreement may be made which changes the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire EVEREN
Capital on terms not approved by the Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by EVEREN Capital at
the Redemption Price prior to the time that a person or group has become an
Acquiring Person.
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<PAGE>
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been filed as an exhibit to the Registration Statement.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation contains several provisions that will make
more difficult the acquisition of control of the Company by various means,
such as a tender offer or open market purchases not approved by the Board of
Directors or a proxy contest. The By-Laws also contain provisions that could
have an anti-takeover effect.
The purposes of these provisions are to discourage certain types of
transactions which may involve an actual or threatened change of control of
the Company and to encourage persons seeking to acquire control of the Company
to consult first with the Board of Directors to negotiate the terms of any
proposed business combination or offer.
Set forth below is a description of certain provisions of the Certificate of
Incorporation and By-Laws. Such description is intended as a summary only and
is qualified in its entirety by reference to the Certificate of Incorporation
and By-Laws. Capitalized terms used and not defined herein are defined in the
Certificate of Incorporation or By-Laws, as the case may be.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate of Incorporation provides that, subject to any rights of
holders of Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed by, or in the manner
provided in, the By-Laws; provided that such number of directors shall not be
more than eleven. The By-Laws provide that, subject to any rights of holders
of Preferred Stock to elect directors under specified circumstances, the
number of directors will be fixed from time to time exclusively pursuant to a
resolution adopted by directors constituting a majority of the total number of
directors which EVEREN Capital would have if there were no vacancies on the
Board of Directors. Accordingly, the Board of Directors could temporarily
prevent any stockholder from enlarging the size of the Board of Directors and
filling the new directorships with such stockholder's own nominees.
Moreover, the Certificate of Incorporation and By-Laws provide that
directors may be removed only for cause and only by the affirmative vote of
holders of at least 75% of the voting power of all the then outstanding shares
of the outstanding capital stock of EVEREN Capital entitled to vote generally
in the election of directors ("Voting Stock"), voting together as a single
class.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation and By-Laws provide that stockholder action
may be taken only at annual or special meetings of stockholders, and prohibit
stockholder action by written consent in lieu of a meeting. Stockholders are
not permitted to call a special meeting or to require that the Board call a
special meeting of stockholders.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The By-Laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to matters to be brought
before an annual meeting of stockholders at the request of a stockholder.
These procedures provide that the notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting
must be in writing and received by the Secretary of EVEREN Capital not less
than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that
in the event that the annual meeting is called for a date that is not within
30 days before or 60 days after such anniversary date, notice by the
stockholder in order to be timely must be received not earlier than the close
of business on the 90th day prior to such meeting and not later than the later
of (i) the close of business on the 60th day prior to such meeting and (ii)
the close of business on the 10th day following the day on which public
disclosure of the date of the annual meeting was first made. The notice of
stockholder nominations must set forth certain information with respect to the
stockholder giving the notice and with respect to each nominee.
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<PAGE>
INDEMNIFICATION; LIMITATION OF LIABILITY
The Certificate of Incorporation and By-Laws provide that EVEREN Capital
shall advance expenses to and indemnify each director and officer of the
Company to the fullest extent permitted by law. EVEREN Capital has entered
into indemnification agreements with each independent director, which require
among other things, EVEREN Capital to indemnify and advance expenses to such
directors to the fullest extent permitted by law. The Certificate of
Incorporation provides, pursuant to authority conferred by Section 102 of the
DGCL, that the directors of EVEREN Capital shall not be personally liable to
EVEREN Capital or its stockholders for monetary damages arising from a breach
of the duty of care.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-
LAWS
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least 75% of the voting power of the outstanding shares of
Voting Stock, voting together as a single class, is required to amend
provisions of the Certificate of Incorporation relating to the prohibition of
stockholder action without a meeting; the number, election and term of EVEREN
Capital's directors; and the removal of directors. The Certificate of
Incorporation further provides that the By-Laws may be amended by the Board of
Directors or by the affirmative vote of the holders of at least 75% of the
outstanding shares of Voting Stock, voting together as a single class.
SECTION 203 OF THE DGCL
EVEREN is subject to Section 203 of the DGCL, which prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder unless: (i)
prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; or (ii) upon becoming an interested stockholder, the
stockholder then owned at least 85% of the voting stock, as defined in Section
203; or (iii) subsequent to such date, the business combination is approved by
both the Board of Directors and by holders of at least 66 2/3% of the
corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an
"interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within the prior three
years, did own) 15% or more of the corporation's voting stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 15,747,897
outstanding shares of Common Stock. Of these shares, the 4,000,000 shares of
Common Stock sold in the offering, 10,765,208 shares sold in the Founders'
Offering and subsequent offering related thereto, any shares issued pursuant
to the Payroll Stock Purchase Plan and any vested shares issued pursuant to
the Incentive Plan or the New Employee Plan will be freely transferable
without restriction under the Securities Act, unless held by an "affiliate" of
the Company (as that term is defined under the rules and regulations of the
Securities Act). Any such affiliate will be subject to the resale limitations
of Rule 144 adopted under the Securities Act. The remaining 398,595 shares of
Common Stock were issued by the Company in private transactions not involving
a public offering, and are thus treated as "restricted securities" for
purposes of Rule 144. All such "restricted" shares are currently held by
members of management. Restricted securities may not be resold in a public
distribution except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom, including that provided
by Rule 144.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned
"restricted securities" for at least two but less than three years, and any
affiliate of the Company who has owned shares for at least two years, is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(157,479 shares upon completion of the Offering) or the average weekly trading
volume in the Common Stock on all national securities exchanges and/or
reported through the automated quotation system of registered securities
associations during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject
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<PAGE>
to certain provisions regarding the manner of sale, notice requirements and
the availability of current public information about the Company. A
stockholder (or stockholders whose shares are aggregated) who is not an
affiliate of the Company for at least 90 days prior to a proposed transaction
and who has beneficially owned "restricted securities" for at least three
years is entitled to sell such shares under Rule 144 without regard to the
limitations described above.
All of the directors and officers of EVEREN Capital have agreed not to
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after
the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated.
The Company has agreed not to transfer, sell, cause the sale or other
disposition of or contract to transfer, sell or otherwise dispose of, directly
or indirectly, or file or cause the Company to file with the Commission a
registration statement under the Securities Act to register, any shares of the
Company's Common Stock, options or any other securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a period of 180
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. The Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. The Common Stock
has been approved for listing on the NYSE under the symbol EVR, subject to
notice of issuance.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any
person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust. This discussion does not address all aspects of
United States federal income and estate taxes and does not deal with foreign,
state and local consequences that may be relevant to such Non-U.S. Holders in
light of their personal circumstances. Furthermore, this discussion is based
on provisions of the Code existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change. EACH PROSPECTIVE PURCHASER OF
COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND
POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
U.S. STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends, if any, paid to a Non-U.S. Holder of Common Stock generally will
be subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the conduct of a trade
or business by the Non-U.S. Holder within the United States are not subject to
the withholding tax, if the Non-U.S. Holder properly files an executed United
States Internal Revenue Service ("IRS") Form 4224 with the payor of the
dividend but instead are subject to United States federal income tax on a net
income basis at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty with a country where the recipient is a qualified resident.
64
<PAGE>
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and, under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Proposed United States
Treasury regulations , if adopted, would modify the forms and procedures for
determining the applicability of a tax treaty rate. Currently, certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exemption
discussed above.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to a gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (ii) in the case of a
Non-U.S. Holder who is an individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, (iii) the Company is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes (which the Company
does not believe that it is or is likely to become) or, (iv) the Non-U.S.
Holder is subject to tax pursuant to the provisions of U.S. tax law applicable
to certain former United States citizens or residents.
An individual Non-U.S. Holder described in clause (i) above will be taxed on
the net gain derived from the sale under regular graduated United States
federal income tax rates. An individual Non-U.S. Holder described in clause
(ii) above will be subject to a flat 30% tax on the gain derived from the
sale, which may be offset by United States capital losses (notwithstanding the
fact that the individual is not considered a resident of the United States).
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain under regular graduated United States
federal income tax rates and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings and profits
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable income tax
treaty.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply to dividends paid to a Non-U.S. Holder
at an address outside the United States (unless the payor has knowledge that
the payee is a U.S. person). Proposed United States Treasury regulations, if
adopted, would modify the procedures for determining the application of backup
withholding to a Non-U.S. Holder at an address outside the United States.
65
<PAGE>
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock by or through a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes a U.S. person, a controlled foreign corporation, or a
foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (i) such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met, or
(ii) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock
could be changed by future regulations.
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
EVEREN Securities, Morgan Stanley & Co. Incorporated and Lehman Brothers Inc.
are serving as U.S. Representatives, have severally agreed to purchase, and
the Company has agreed to sell, and the International Underwriters named
below, for whom EVEREN Securities, Morgan Stanley & Co. International Limited
and Lehman Brothers International (Europe) are serving as International
Representatives (collectively with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell, the respective number of shares of Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. Underwriters:
EVEREN Securities, Inc........................................
Morgan Stanley & Co. Incorporated.............................
Lehman Brothers Inc. .........................................
---------
Subtotal.................................................... 3,200,000
---------
International Underwriters:
EVEREN Securities, Inc........................................
Morgan Stanley & Co. International Limited....................
Lehman Brothers International (Europe)........................
Subtotal.................................................... 800,000
---------
Total....................................................... 4,000,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that
the obligations of the several Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby are subject to the approval of
certain legal matters by counsel and to certain other conditions, including
the conditions that no stop order suspending the effectiveness of the
Registration Statement is in effect and no proceedings for such purpose are
pending before or threatened by the SEC and that there has been no material
adverse change or any development involving a prospective material adverse
change in the earnings, results of operations or financial condition of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement. The Underwriters are obligated to take and pay for all
of the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
66
<PAGE>
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (i) it is not purchasing any U.S. Shares (as defined below) for
the account of anyone other than a United States or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any U.S. Shares or distribute this Prospectus
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement Between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions set forth below, (i) it is not purchasing any
International Shares (as defined below) for the account of any United States
or Canadian Person and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute this
Prospectus within the United States or Canada or to any United States or
Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
Between U.S. and International Underwriters. With respect to EVEREN
Securities, the foregoing representations or agreements (i) made by it in its
capacity as a U.S. Underwriter shall apply only to shares of Common Stock
purchased by it in its capacity as a U.S. Underwriter and (ii) made by it in
its capacity as an International Underwriter shall apply only to shares of
Common Stock purchased by it in its capacity as an International Underwriter.
As used herein, "United States or Canadian Person" means any national or
resident of the United States or Canada or any corporation, pension, profit-
sharing or other trust or other entity organized under the laws of the United
States or Canada or of any political subdivision thereof (other than a branch
located outside of the United States and Canada of any United States or
Canadian Person) and includes any United States or Canadian branch of a person
who is not otherwise a United States or Canadian Person. All shares of Common
Stock to be offered by the U.S. Underwriters and International Underwriters
under the Underwriting Agreement are referred to herein as the "U.S. Shares"
and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency settlement of any shares of Common Stock so sold shall be the public
offering price range set forth on the cover page hereof, in United States
dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of such
shares in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other
dealer to whom it sells any of such shares a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of such shares, if that person is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered
or sold, and will not offer or sell, directly or indirectly, in Japan or to or
for the account of any resident thereof, any shares of Common Stock acquired
in connection with this
67
<PAGE>
offering, except for offers or sales of Japanese International Underwriters or
dealers and except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan. Each International
Underwriter has further agreed to send to any dealer who purchases from it any
of such shares of Common Stock a notice stating in substance that such dealer
may not offer or sell any of such shares, directly or indirectly, in Japan or
to or for the account of any resident thereof, except pursuant to any
exemption from the registration requirements of the Securities and Exchange
Law of Japan, and that such dealer will send to any other dealer to whom it
sells any of such shares a notice to the foregoing effect.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth in the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to other Underwriters or to certain
other dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 600,000 shares of Common Stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number set forth next to such U.S.
Underwriters' name in the preceding table bears to the total number of shares
of Common Stock offered hereby to the U.S. Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from certain
untrue statements or omissions in this Prospectus.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers and directors of the Company have agreed
not to sell or otherwise dispose of Common Stock or convertible securities of
the Company for up to 180 days after the date of this Prospectus without the
prior consent of Morgan Stanley & Co. Incorporated. The Company has agreed in
the Underwriting Agreement that it will not, directly or indirectly, without
the prior written consent of Morgan Stanley & Co. Incorporated, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock, for a period of 180 days
after the date of this Prospectus, except under certain circumstances. The
Company has also agreed, in a separate agreement, that, for this 180 day
period, it will not register under the Securities Act, or agree to register,
any shares of Common Stock on behalf of any third person without the prior
written consent of Morgan Stanley & Co. Incorporated.
Each of the Representatives and certain of their affiliates may from time to
time engage in transactions with, and perform investment banking and other
financial services for, the Company in the ordinary course of business.
PRICING OF THE OFFERING
Prior to the offering there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, revenues, earnings and certain other
financial and operating information of the Company in recent periods and the
price-book ratios, price-earnings ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.
68
<PAGE>
Under the provisions of the Conduct Rules of the NASD, when an NASD member
such as EVEREN Securities participates in the distribution of its parent
company's securities, the public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Morgan Stanley & Co.
Incorporated has agreed to serve in such role and to recommend a price in
compliance with the requirements of the Conduct Rules.
SUBSEQUENT RESTRICTIONS
NYSE Rule 312(g) prohibits a member corporation, after the distribution of
securities of its parent to the public, from effecting any transaction (except
on an unsolicited basis) for the account of any customer in, or making any
recommendation with respect to, any such security. Thus, following the
offering of the shares EVEREN Securities will not be permitted to make
recommendations regarding the purchase or sale of the Common Stock.
The Conduct Rules of the NASD prohibit employees of the Company, their
spouses and, under certain circumstances, other members of their immediate
families who purchase any of the shares offered hereby from selling, pledging,
assigning, hypothecating or transferring such shares for a period of five
months following the effective date of the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Certain legal matters will be passed upon
for the Underwriters by Katten Muchin & Zavis (a partnership which includes
professional corporations), Chicago, Illinois.
CHANGE IN INDEPENDENT ACCOUNTANTS
On October 3, 1995, upon recommendation by the Board of Directors, the
Company appointed Deloitte & Touche LLP as its new independent accountants to
replace KPMG Peat Marwick LLP as the Company's certifying independent
accountant. During the 24 months preceding such replacement of KPMG Peat
Marwick LLP as the auditors, there existed no problems relating to any matter
of accounting principles or practices, financial statement disclosures,
auditing scope or procedures, or compliance with applicable rules of the SEC,
which problems, if not resolved to the satisfaction of KPMG Peat Marwick LLP,
would have caused them to make reference to such problems in their reports. In
addition, for each of the past two fiscal years, the reports of KPMG Peat
Marwick LLP on such financial statements did not include an adverse opinion or
a disclaimer of opinion, nor was it qualified as to uncertainties, audit scope
or accounting principles. The opinion for the fiscal year ended December 31,
1993 was modified to reflect the change in accounting for adoption of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." During the two most recent
fiscal years and through October 3, 1995, the Company had not consulted with
Deloitte & Touche LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements or (ii) concerning the subject matter of a disagreement with the
former auditor, or a reportable event as described in Regulation S-K Item
304(a)(2).
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and for the year then ended, and as of December 31, 1994 and for each of the
two years in the period then ended, included herein and in the Registration
Statement, have been audited by Deloitte & Touche LLP and KPMG Peat Marwick
LLP, independent certified public accountants, respectively, as stated in
their reports appearing elsewhere in this Prospectus and have been so included
in reliance upon such reports given upon the authority of said firms as
experts in accounting and auditing.
69
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the SEC. For further information, reference is hereby
made to the Registration Statement.
The Company is subject to the information requirements of the Exchange Act.
As long as the Company is subject to such periodic and information reporting
requirements, it will file all reports, proxy statements and other information
with the SEC required thereby. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained by mail at prescribed rates from the Public
Reference Branch of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549, or
obtained through the SEC's Internet address at http://www.sec.gov.
In addition, information concerning EVEREN will be available for inspection
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
----------------
For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would
permit a public offering of the Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Common Stock
and the distribution of this Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition--June 30, 1996 and
December 31, 1995...................................................... F-2
Consolidated Statements of Operations--For the three and six months
ended June 30, 1996 and 1995........................................... F-3
Consolidated Statement of Changes in Stockholders' Equity--For the six
months ended June 30, 1996............................................. F-4
Consolidated Statements of Cash Flows--For the six months ended June 30,
1996 and 1995.......................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports........................................... F-8
Consolidated Statements of Financial Condition--December 31, 1995 and
1994................................................................... F-10
Consolidated Statements of Operations--For the three years ended
December 31, 1995, 1994, and 1993...................................... F-11
Consolidated Statements of Changes in Stockholders' Equity--For the
three years ended December 31, 1995, 1994, and 1993.................... F-12
Consolidated Statements of Cash Flows--For the three years ended
December 31, 1995, 1994, and 1993...................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
</TABLE>
F-1
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............................. $ 43,195 $ 14,585
Cash and securities segregated under federal and other
regulations.......................................... 16,139 15,556
Receivables from:
Customers........................................... 734,319 648,659
Brokers and dealers................................. 161,007 145,762
Others.............................................. 44,172 51,496
Securities owned, at market........................... 181,173 141,256
Securities purchased under agreements to resell....... 382,420 1,308,495
Investment in mortgage-backed certificates available-
for-sale, at fair value.............................. 149,069 156,457
Fixed assets, at cost, net............................ 34,771 49,403
Other assets.......................................... 21,120 18,958
---------- ----------
$1,767,385 $2,550,627
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank loans payable.................................. $ 220,000 $ 297,800
Payables to:
Customers......................................... 187,697 223,757
Brokers and dealers............................... 241,190 78,410
Collateralized mortgage obligations................. 143,723 143,878
Securities sold, not yet purchased, at market....... 77,057 91,632
Securities sold under agreements to repurchase...... 389,431 1,282,788
Deferred income taxes............................... 20,612 26,118
Accounts payable, accrued expenses and other
liabilities........................................ 260,242 246,328
---------- ----------
1,539,952 2,390,711
---------- ----------
Exchangeable preferred stock, $.01 par value per
share; 10,000,000 shares authorized; 1,244,168 shares
issued and outstanding at December 31, 1995.......... -- 28,343
Junior subordinated debentures, 13.5%, due 2007....... 31,542 --
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value per share; 40,000,000
shares authorized, 11,875,269 and 11,496,970 shares
issued and 11,854,579 and 11,493,731 outstanding at
June 30, 1996 and December 31, 1995, respectively.. 119 115
Nonvoting Common Stock, $.01 par value per share;
400,000 shares authorized, 216,150 shares issued
and outstanding.................................... 2 1
Additional paid-in capital.......................... 168,638 449,396
Unrealized gain (loss) on available-for-sale
securities, net of income taxes.................... (4,698) 11,497
Unearned KSOP shares................................ (13,611) (22,875)
Unearned restricted stock........................... (1,444) --
Treasury stock, at cost, 20,690 shares and 3,239
shares, respectively............................... (210) (22)
Accumulated deficit................................. -- (306,539)
Retained earnings (since January 1, 1996)........... 47,095 --
---------- ----------
195,891 131,573
---------- ----------
$1,767,385 $2,550,627
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Commissions.......................... $ 60,277 $ 47,189 $ 117,709 $ 89,525
Principal transactions............... 34,469 30,180 65,345 57,595
Investment banking................... 16,540 11,807 26,983 23,353
Asset management..................... 13,231 13,031 27,712 25,790
Other................................ 13,486 12,112 25,209 23,090
Interest and dividends............... 19,278 20,460 37,469 41,228
---------- -------- --------- --------
Total revenues..................... 157,281 134,779 300,427 260,581
Interest expense..................... 9,203 13,368 18,457 27,019
---------- -------- --------- --------
Net revenues....................... 148,078 121,411 281,970 233,562
---------- -------- --------- --------
Expenses:
Compensation and benefits............ 88,893 80,193 175,619 153,994
Brokerage and clearance.............. 3,899 2,729 6,849 5,502
Communications....................... 9,567 10,703 19,888 21,368
Occupancy and equipment.............. 10,052 10,929 20,276 22,083
Promotional.......................... 4,375 3,269 8,357 6,486
Other................................ 10,881 12,568 19,930 28,255
---------- -------- --------- --------
Total expenses..................... 127,667 120,391 250,919 237,688
Gain on sale of subsidiary........... 50,181 -- 50,181 --
---------- -------- --------- --------
Income (loss) before income taxes...... 70,592 1,020 81,232 (4,126)
Income tax (benefit) expense........... 28,173 517 32,007 (1,413)
---------- -------- --------- --------
Net income (loss)...................... $ 42,419 $ 503 $ 49,225 $ (2,713)
========== ======== ========= ========
Dividends on Exchangeable Preferred
Stock................................. $ 1,085 $ 2,130
========== =========
Net earnings applicable to Common
Stock................................. $ 41,334 $ 47,095
========== =========
Weighted average common shares
outstanding........................... 10,082,787 9,454,163
========== =========
Net earnings per share of Common Stock. $4.10 $4.98
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK (LOSS) ON RETAINED
------------- ADDITIONAL UNEARNED AVAILABLE UNEARNED EARNINGS TOTAL
NON- PAID-IN RESTRICTED FOR SALE ESOP TREASURY ACCUMULATED (SINCE STOCKHOLDERS'
VOTING VOTING CAPITAL STOCK SECURITIES SHARES STOCK DEFICIT 1/1/96) EQUITY
------ ------ ---------- ---------- ---------- -------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............. $115 $ 1 $ 449,396 $ -- $ 11,497 $(22,875) $ (22) $(306,539) $ -- $131,573
Quasi-
reorganization
adjustments at
January 1, 1996:
Restatement of
assets and
liabilities to
estimated fair
value........... (3,675) (3,675)
Transfer of
deficit and
unrealized gain
at January 1,
1996 to
additional paid
in capital...... (295,042) (11,497) 306,539
Amount received
from former
parent under
indemnification
agreement........ 2,811 2,811
Release of KSOP
shares........... 7,368 9,264 16,632
Issuance of
additional
nonvoting
restricted stock. 1 1,515 (1,444) 72
Issuance of
additional common
stock............ 4 4,179 4,183
Accretion of
exchangeable
preferred stock
to redemption
value............ (14) (14)
Permanent tax
benefit related
to stock options. 2,100 2,100
Dividends on
exchangeable
preferred stock.. (2,130) (2,130)
Unrealized gain
(loss) on
available for
sale securities
for the period... (4,698) (4,698)
Purchase of
treasury stock... (188) (188)
Net Income........ 49,225 49,225
---- ---- --------- ------- -------- -------- ----- --------- ------- --------
Balance at June
30, 1996......... $119 $ 2 $ 168,638 $(1,444) $ (4,698) $(13,611) $(210) $ -- $47,095 $195,891
==== ==== ========= ======= ======== ======== ===== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 49,225 $ (2,713)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Gain on sale of subsidiary........................... (50,181) --
Depreciation and amortization........................ 6,922 8,432
Release of KSOP shares............................... 7,368 --
Amortization of restricted stock..................... 72 --
Deferred income taxes................................ 1,414 --
Change in assets and liabilities:
Cash and securities segregated under federal and
other regulations................................... (583) (1,520)
Receivables from/payables to:
Customers.......................................... (121,720) 20,309
Brokers and dealers................................ 145,623 56,891
Affiliates......................................... -- (4,222)
Others............................................. (2,957) (4,973)
Securities owned..................................... (39,917) 33,129
Securities purchased under agreements to resell...... 926,075 (243,400)
Other assets......................................... 383 6,199
Securities sold, not yet purchased................... (14,575) (5,487)
Securities sold under agreements to repurchase....... (893,357) 222,622
Accounts payable, accrued expenses, and other
liabilities......................................... 13,909 (23,293)
--------- ---------
Net cash flows from operating activities................. 27,701 61,974
--------- ---------
Cash flows from investing activities:
Net proceeds from sale of subsidiary................... 59,346 --
Collections of principal on investments in mortgage-
backed securities..................................... 9,665 8,747
Purchase of investments in mortgage-backed securities.. (9,505) (35,123)
Proceeds from sale of fixed assets..................... 2,120 --
Acquisition of fixed assets, net....................... (3,998) (3,613)
--------- ---------
Net cash flows from investing activities................. 57,628 (29,989)
--------- ---------
Cash flows from financing activities:
Release of shares related to KSOP loan................. 9,264 --
Amount collected under indemnification agreement....... 9,061 --
Proceeds from the issuance of collateralized mortgage
obligations........................................... 9,422 34,080
Repayment of collateralized mortgage obligations....... (9,577) (7,448)
Decrease in bank loans payable......................... (77,800) (62,053)
Proceeds from issuance of common stock................. 4,183 --
Purchase of treasury stock............................. (188) --
Dividend on exchangeable preferred stock............... (1,084) --
--------- ---------
Net cash flows from financing activities................. (56,719) (35,421)
--------- ---------
Increase (decrease) in cash and cash equivalents......... 28,610 (3,436)
Cash and cash equivalents at beginning of the period..... 14,585 10,522
--------- ---------
Cash and cash equivalents at end of the period........... $ 43,195 $ 7,086
========= =========
Supplemental disclosure of cash flow information--
interest paid........................................... $ 17,978 $ 23,008
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(1) GENERAL INFORMATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of EVEREN Capital
Corporation and its subsidiaries (the "Company"). The consolidated financial
statements are unaudited. However, in the opinion of management, such
financial statements include all adjustments consisting of normal recurring
accruals, necessary for the fair presentation of the consolidated financial
statements. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to Securities and Exchange Commission
rules and regulations. Accordingly, these condensed financial statements
should be read in conjunction with the financial statements and notes included
in the Company's 1995 Annual Report on Form 10-K. All material intercompany
balances and transactions have been eliminated. Accounting measurements at
interim dates inherently involve greater reliance on estimates at year end.
Actual results could differ from those estimates. The results of operations
for interim periods are not necessarily indicative of results for the entire
year.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in prior period financial
statements to conform to the current period financial statement presentation.
(3) NET CAPITAL RULE
EVEREN Securities, Inc. ("ESI") and EVEREN Clearing Corp. ("ECC"), the
Company's broker-dealer subsidiaries, are subject to the Uniform Net Capital
Rule of the Securities and Exchange Commission ("SEC"). Both ESI and ECC
operate under the alternative method, as defined, of computing minimum net
capital. At June 30, 1996 ESI had net capital of approximately $108.1 million
which was approximately $107.1 million in excess of its required minimum net
capital. At June 30, 1996 ECC had net capital of approximately $58.7 million
which was approximately $44.1 million in excess of its required minimum net
capital. Such net capital requirements could restrict the ability of these
subsidiaries to make dividend distributions to their respective parents.
(4) COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in various legal actions in
connection with its securities and commodities business. Some of these
lawsuits involve claims for substantial amounts. Although the ultimate outcome
of these suits cannot be ascertained at this time, it is the opinion of
management, after consultation with outside counsel, that the resolution of
such suits will not have a material adverse effect on the consolidated
financial position of the Company, but may be material to the Company's
operating results for any particular period, depending upon the level of the
Company's income for such period.
In the normal course of business, the Company enters into various
contractual commitments involving future settlement. These include futures,
forwards, options and securities sold, not yet purchased. These transactions
are executed either over-the-counter or are exchange-traded, and are used
primarily to hedge the Company's securities inventory. Many of these products
have maturities that do not extend beyond one year. Transactions relating to
such commitments which were open at June 30, 1996 and subsequently settled had
no material effect on the consolidated financial position of the Company.
F-6
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) QUASI-REORGANIZATION
The Company, with approval from its Board of Directors, implemented a quasi-
reorganization to reflect the emergence of EVEREN as an ongoing, independent
organization and to enable the Company to present more accurately the new
organization's cumulative performance. The quasi-reorganization was effective
January 1, 1996, and all assets and liabilities were adjusted to fair value as
of that date. This resulted in a reduction of net assets of $3.7 million. The
quasi-reorganization also resulted in the transfer of the accumulated deficit
as of January 1, 1996 of $306.5 million to additional paid-in capital. The
balance in retained earnings at June 30, 1996 represents the accumulated net
earnings available to common stockholders arising subsequent to the date of
the quasi-reorganization.
(6) SALE OF SUBSIDIARY
On April 30, 1996 the Company completed the sale of BETA Systems Inc., a
wholly-owned data processing and quote services subsidiary, for $63.5 million.
The sale, which resulted in an after-tax gain of approximately $30.2 million,
has been reported in the Company's second quarter results.
(7) EXCHANGE OF PREFERRED STOCK
On June 17, 1996 the Company exchanged all of its outstanding shares of
Exchangeable Preferred Stock for 13.5% Junior Subordinated Debentures due 2007
(the "Debentures").
(8) SUBSEQUENT EVENTS
On July 22, 1996 the Board of Directors authorized the Company to pay a cash
dividend of $1.18 per share on August 5, 1996 to holders of record as of July
23, 1996. This will allow the KSOP to repay the balance of its loan to the
Company, thereby releasing substantially all remaining unallocated shares to
employee participant accounts.
On July 25, 1996 the Company entered into a joint venture agreement ("JVA")
pursuant to which it will acquire an initial 20% ownership interest in Mentor
Investment Group, Inc. ("Mentor"), an asset management firm, for no direct
cash consideration. The JVA calls for the Company to transfer money market
mutual fund assets held in client accounts to Mentor sponsored funds by
December 31, 1996. The JVA also entitles the Company to earn an additional
equity interest in Mentor, up to a maximum 50% ownership interest, based on
revenues generated by assets attributable to the Company's clients. The
Company will account for the joint venture as an equity investment.
On July 30, 1996 the Company issued a notice calling all of the outstanding
Debentures for redemption on September 16, 1996 at a price of 112% of
principal, plus accrued interest. This redemption will result in an after-tax
extraordinary charge of approximately $3.0 million due to the early
extinguishment of debt which will be included in the Company's third quarter
results of operations.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EVEREN Capital Corporation
We have audited the accompanying consolidated statement of financial
condition of EVEREN Capital Corporation and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in
stockholder's equity, and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of EVEREN Capital Corporation
and subsidiaries as December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 1996
(March 28, 1996, as to the second
paragraph of Note 23)
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EVEREN Capital Corporation, as successor corporation to and parent of EVEREN
Securities Holdings, Inc. (formerly Kemper Securities Holdings, Inc.):
We have audited the accompanying consolidated statement of financial
condition of Kemper Securities Holdings, Inc. and subsidiaries as of December
31, 1994, and the related consolidated statements of operations, changes in
stockholder's equity, and cash flows for each of the years in the two-year
period ended December 31, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kemper
Securities Holdings, Inc. and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, Kemper
Securities Holdings, Inc. and subsidiaries implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Chicago, Illinois
May 5, 1995
F-9
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13, 1995)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ---------- ----------
<S> <C> <C>
Cash and cash equivalents.............................. $ 14,585 $ 10,522
Cash and securities segregated under federal and other
regulations........................................... 15,556 15,066
Receivables from:
Customers............................................ 648,659 642,657
Brokers and dealers.................................. 145,762 81,668
Affiliates........................................... -- 50,231
Other................................................ 51,496 38,170
Securities owned, at market............................ 141,256 178,116
Securities purchased under agreements to resell........ 1,308,495 228,598
Investment in mortgage-backed certificates available-
for-sale, at fair value............................... 156,457 206,377
Fixed assets, at cost, net............................. 49,403 62,882
Other assets........................................... 18,958 40,370
---------- ----------
$2,550,627 $1,554,657
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank loans payable................................... $ 297,800 $ 315,053
Payables to:
Customers.......................................... 223,757 187,502
Brokers and dealers................................ 78,410 78,321
Affiliates......................................... -- 38,246
Collateralized mortgage obligations.................... 143,878 204,833
Securities sold, not yet purchased, at market.......... 91,632 70,334
Securities sold under agreements to repurchase......... 1,282,788 225,177
Deferred income taxes.................................. 26,118 --
Accounts payable, accrued expenses and other
liabilities........................................... 246,328 223,663
---------- ----------
2,390,711 1,343,129
Subordinated debt payable to affiliates................ -- 44,300
Commitments and contingencies
Exchangeable preferred stock, $.01 par value per share;
10,000,000 shares authorized, 1,244,168 shares issued
and outstanding....................................... 28,343 --
Stockholders' equity:
Common Stock, $.01 par value per share; 40,000,000
shares authorized, 11,496,970 shares issued and
11,493,731 outstanding at December 31, 1995;
1,000,000 shares authorized, 995,000 shares issued
and outstanding at December 31, 1994................ 115 10
Nonvoting Common Stock, $.01 par value per share;
400,000 shares authorized, 107,400 shares issued and
outstanding......................................... 1 --
Additional paid-in capital........................... 449,396 457,903
Unrealized gain on available-for-sale securities, net
of income taxes..................................... 11,497 --
Unearned KSOP shares................................. (22,875) --
Treasury stock, at cost, 3,239 shares................ (22) --
Accumulated deficit.................................. (306,539) (290,685)
---------- ----------
131,573 167,228
---------- ----------
$2,550,627 $1,554,657
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13, 1995)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Commissions.................................... $190,303 $180,535 $241,053
Principal transactions......................... 122,127 119,066 158,524
Investment banking............................. 47,093 61,851 105,319
Asset management............................... 53,332 51,468 49,835
Other.......................................... 49,137 43,235 44,909
Interest....................................... 81,177 73,815 74,092
-------- -------- --------
Total revenues............................... 543,169 529,970 673,732
Interest expense............................... 52,527 44,830 46,873
-------- -------- --------
Net revenues................................. 490,642 485,140 626,859
-------- -------- --------
Non-interest expenses:
Compensation and benefits...................... 335,473 328,005 387,131
Brokerage and clearance........................ 11,422 11,533 15,082
Communications................................. 41,759 41,291 49,186
Occupancy and equipment........................ 54,484 46,361 48,733
Promotion...................................... 13,507 18,882 22,360
Other.......................................... 55,976 51,843 105,843
-------- -------- --------
Total non-interest expenses.................. 512,621 497,915 628,335
Income (loss) before taxes....................... (21,979) (12,775) (1,476)
Income tax benefit............................. 6,125 10,537 3,294
-------- -------- --------
Net income (loss) after taxes.................... (15,854) (2,238) 1,818
Cumulative effect at January 1, 1993 of change in
accounting for income taxes..................... -- -- (5,458)
-------- -------- --------
Net loss......................................... $(15,854) $ (2,238) $ (3,640)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13, 1995)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN ON
------------- ADDITIONAL UNAMORTIZED AVAILABLE UNEARNED TOTAL
NON- PAID-IN RESTRICTED FOR SALE ESOP TREASURY ACCUMULATED STOCKHOLDERS'
VOTING VOTING CAPITAL STOCK SECURITIES SHARES STOCK DEFICIT EQUITY
------ ------ ---------- ----------- ---------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1993................... $ 10 $-- $438,903 $ -- $ -- $ -- $-- $(284,807) $154,106
Net loss................ (3,640) (3,640)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1993................... 10 -- 438,903 -- -- -- -- (288,447) 150,466
---- ---- -------- ------- ------- -------- ---- --------- --------
Capital contribution.... 19,000 19,000
Net loss................ (2,238) (2,238)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1994................... 10 -- 457,903 -- -- -- -- (290,685) 167,228
---- ---- -------- ------- ------- -------- ---- --------- --------
Change in equity related
to spinoff adjustments,
net.................... 98 1 6,587 (2,500) (55,000) (50,814)
Deferred tax liability
related to Section 338
election............... (31,919) (31,919)
Common stock offering... 7 4,731 4,738
Amount received from
former parent under
indemnification
agreement.............. 7,124 7,124
Amount due from former
parent under
indemnification
agreement.............. 6,250 6,250
Release of KSOP shares.. 32,125 32,125
Dividends on
exchangeable preferred
stock.................. (1,207) (1,207)
Accretion of preferred
stock to redemption
value.................. (73) (73)
Change in unrealized
gain for the period.... 11,497 11,497
Vesting of restricted
stock.................. 2,500 2,500
Purchase of treasury
stock.................. (22) (22)
Net loss................ (15,854) (15,854)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1995................... $115 $ 1 $449,396 $ -- $11,497 $(22,875) $(22) $(306,539) $131,573
==== ==== ======== ======= ======= ======== ==== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13, 1995)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (15,854) $ (2,238) $ (3,640)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization........... 16,771 16,200 14,333
Deferred income taxes................... (20,926) 5,783 (15,434)
Change in assets and liabilities:
Cash and securities segregated under
federal and other regulations........ (490) 1,093 (557)
Receivables from/payables to:
Customers........................... 30,253 (68,892) (191,348)
Brokers and dealers................. (64,005) 20,570 19,285
Affiliates.......................... 21,798 (36,569) 24,641
Others.............................. (13,326) 1,892 (5,739)
Securities owned...................... 36,860 88,316 (39,315)
Securities purchased under agreements
to resell............................ (1,079,897) (24,131) 219,176
Other assets.......................... 21,605 12,414 (4,280)
Securities sold, not yet purchased.... 21,298 (6,689) 26,603
Securities sold under agreements to
repurchase........................... 1,057,611 43,298 (191,685)
Accounts payable, accrued expenses,
and other liabilities................ 22,590 (35,361) 35,365
----------- -------- ---------
Net cash flows from operating activities.... 34,288 15,686 (112,595)
----------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of investments in
mortgage-backed securities............... 81,808 6,793 --
Collections of principal on investments in
mortgage-backed securities............... 15,743 44,598 110,816
Purchase of investments in mortgage-backed
securities............................... (35,123) (75,389) --
Acquisition of fixed assets, net.......... (2,508) (20,780) (15,796)
----------- -------- ---------
Net cash flows from investing activities.... 59,920 (44,778) 95,020
----------- -------- ---------
Cash flows from financing activities:
Proceeds from common stock offering....... 4,738 -- --
Amount collected under indemnification
agreement................................ 7,124 -- --
Capital contribution...................... -- 19,000 --
Proceeds from the issuance of
collateralized mortgage obligations...... 34,080 72,569 --
Repayment of collateralized mortgage
obligations.............................. (95,035) (48,954) (115,301)
Debt issuance costs paid.................. (977) -- --
Increase (decrease) in bank loans payable. (40,053) (10,011) 124,889
Purchase of treasury stock................ (22) -- --
----------- -------- ---------
Net cash flows from financing activities.... (90,145) 32,604 9,588
----------- -------- ---------
Increase (decrease) in cash and cash
equivalents................................ 4,063 3,512 (7,987)
Cash and cash equivalents at beginning of
year....................................... 10,522 7,010 14,997
----------- -------- ---------
Cash and cash equivalents at end of year.... $ 14,585 $ 10,522 $ 7,010
=========== ======== =========
Supplemental disclosure of cash flow
information - interest paid to unaffiliated
entities................................... $ 48,780 $ 37,410 $ 40,210
=========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL INFORMATION
EVEREN Capital Corporation ("EVEREN") was incorporated in Delaware in May
1995, for the purpose of acquiring all of the outstanding common stock of
Kemper Securities Holdings, Inc. ("KSHI") and its subsidiaries including its
primary subsidiary, Kemper Securities, Inc. ("KSI"); a clearing subsidiary,
Kemper Clearing Corp. ("KCC"); and a data processing subsidiary, BETA Systems
Inc. On September 13, 1995, KSHI, KSI and KCC changed their names to EVEREN
Securities Holdings, Inc. ("ESHI"), EVEREN Securities, Inc. ("ESI") and EVEREN
Clearing Corp. ("ECC"), respectively. Collectively, EVEREN and its
subsidiaries are referred to in these Notes as the "Company". Prior to
September 13, 1995, the consolidated financial statements present the
financial condition, results of operations and cash flows of KSHI and
subsidiaries.
The Company is a financial services holding company, and is engaged
primarily in the retail and institutional brokerage business, including
investment banking and underwriting services. ESI and ECC are both registered
as brokers and dealers in securities under the Securities Exchange Act of 1934
and as futures commissions merchants under the Commodities Exchange Act. ESI
clears all transactions with and for customers on a fully disclosed basis
through ECC. Another subsidiary, Gateway Mortgage Acceptance Corporation
("Gateway"), was formed to issue and sell one or more series of collateralized
mortgage obligations ("CMOs") directly or through one or more beneficially
owned trusts (each, a "Trust").
On September 13, 1995, the Company completed its separation from its former
parent, Kemper Corporation ("Kemper"), and became an independent, employee-
owned company with publicly traded preferred stock. The preferred stock was
issued to Kemper, which in turn distributed the shares to holders of Kemper
common stock and to holders of certain Kemper common stock options and phantom
stock units as a taxable distribution (the "Kemper Distribution").
Simultaneously, 10,437,781 shares of common stock, par value $.01 per share,
of EVEREN, representing approximately 96% of such shares outstanding, were
sold by Kemper to the EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust which is part of the EVEREN Capital Corporation 401(k) and
Employee Stock Ownership Plan (collectively, the "KSOP") for an aggregate
price of $71.4 million or $6.8405 per share (the "KSOP Purchase"). In
accordance with the provisions of Accounting Principles Board Opinion No. 29,
the Company's bases in its assets and liabilities were not adjusted as a
result of the separation from Kemper or the KSOP Purchase.
Following the Kemper Distribution and the KSOP Purchase, the KSOP offered to
KSOP participants up to $25 million of common stock of the Company (3,654,685
shares at $6.8405 per share) as an investment option for a portion of their
current account balances in the KSOP (the "Founders' Offering"). The offering
price per share in the Founders' Offering was equal to the per share price
paid by the KSOP in the KSOP Purchase. As part of the separation from Kemper,
Kemper is obligated to indemnify the Company for the first $20 million of
employer contributions to the KSOP. Of the $20 million to be received from
Kemper, $13.4 million was collected prior to or within 30 days of December 31,
1995 and is recorded as additional paid-in capital.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of EVEREN and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
F-14
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities and Commodities Transactions
Customer receivables and payables are recorded on a settlement date basis.
The related commission revenues and expenses from securities and commodities
transactions are recorded on trade date. Principal securities and commodities
transactions are also recorded on trade date. Securities owned are recorded at
market value, with unrealized gains and losses included in income.
Securities transactions under agreements to resell and repurchase are
collateralized transactions and are carried at the contract amounts at which
the securities will be resold or reacquired, including accrued interest. It is
the policy of the Company to take possession of the securities purchased under
agreements to resell at the time such agreements are entered into. In the
event that the market value of such securities falls below the contract amount
of the related agreement to resell, the Company requests additional
collateral.
Fixed Assets
Fixed assets are recorded at historical cost, net of accumulated
depreciation and amortization. Depreciation on fixed assets is generally
recorded on a straight-line basis over the estimated useful lives of the
assets, which range from four to seven years for furniture and equipment and
up to thirty years for building and improvements. Leasehold improvements are
amortized on a straight-line basis over the lesser of the lease term or the
economic life of the asset.
Investment in Mortgage-backed Certificates/Collateralized Mortgage
Obligations
The CMOs issued by Gateway are collateralized by certain mortgage-related
instruments ("Certificates") and the investment of the proceeds relating to
principal payments and interest on such Certificates. The CMOs are accounted
for as borrowings. The Certificates are classified as "available-for-sale" and
are accounted for at market value with unrealized gains or losses included in
the equity section of the consolidated statement of financial condition.
Market value is determined using current market valuations from an independent
pricing service.
Stock Based Compensation
The Company accounts for stock-based compensation issued to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
which recognizes compensation cost based upon the intrinsic value at the date
of grant of the equity instrument awarded.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. The Company has elected, as permitted by
SFAS No. 123, to adopt the disclosure requirement of that standard but
continue to account for stock-based compensation under APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
Income Taxes
Income taxes are determined using the liability method, under which deferred
tax assets and liabilities are recorded based on differences between the
financial accounting and tax bases of assets and liabilities. Deferred tax
assets and liabilities are measured based on the currently enacted tax rate
expected to apply to taxable income in the period in which the deferred tax
asset or liability is expected to be settled or realized.
The Company and Kemper have each agreed to make an election under Section
338(h)10 of the Internal Revenue Code (the "Section 338 Election") with
respect to the sale by Kemper and purchase by EVEREN of
F-15
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the common stock of ESHI (the "ESHI Purchase"). The impact of the Section 338
Election on the Company is that the assets of ESHI and subsidiaries received a
new, and overall lower, basis for federal income tax purposes. See Note 16 for
a more detailed discussion of the impact of the Section 338 Election on the
Company's financial statements.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109") and has reported the cumulative effect of that change in the
method of accounting for income taxes in the 1993 consolidated statement of
operations.
Supplemental Disclosure of Non-Cash Investing and Financing Activities
The Company's 1995 separation from Kemper and the KSOP Purchase included
non-cash spinoff adjustments which resulted in a net reduction in
stockholders' equity of $50.8 million. The adjustments were comprised
primarily of the following: $44.3 million of subordinated debt and $37.6
million in affiliated payables were converted to equity; $48.2 million in
receivables from affiliates was forgiven as a result of termination of a tax
sharing arrangement theretofore in place; preferred shares valued at $27.1
million were issued to Kemper, and $55 million in unearned KSOP shares were
recorded.
Other significant non-cash transactions in 1995 were as follows: in
connection with the purchase of the common stock of the Company, $55.0 million
in bank loans were incurred (the "KSOP Loans"), and in connection with the
agreement of Kemper and the Company to make the Section 338 Election, a
deferred tax liability of $31.9 million was established and reduced additional
paid-in capital.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1995
financial statement presentation.
(3) CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
The Company is required under the Commodity Exchange Act (the "Act") to
account for and segregate all customer assets as defined by the Act, in
connection with transactions in regulated commodities. As of December 31, 1995
and 1994, cash of approximately $406,000 and $489,000 and securities
(primarily obligations of the U.S. Government) with a market value of
approximately $15.2 million and $14.6 million, respectively, are segregated
pursuant to the Act. At December 31, 1995, the Company was in compliance with
the segregation requirements of the Act and had total segregated funds in
excess of the aggregate required amount by approximately $4.1 million.
(4) RECEIVABLES FROM AND PAYABLES TO CUSTOMERS
The Company extends credit to its customers to finance their purchases of
securities on margin. The Company receives income from interest charged on
such extension of credit. Customer receivables include amounts due on margin
balances. Customer payables include customers' free credit balances.
Securities owned by customers and held by the Company as collateral or as
margin and the market value of commodity option positions owned by customers
are not included in the consolidated statement of financial condition. From
time to time, the Company deposits customers' securities as margin with
clearing organizations. At December 31, 1995 and 1994, such securities
deposited as margin had an aggregate market value of $8.6 million and $11
million, respectively.
F-16
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SECURITIES-AT MARKET VALUE
Securities owned and securities sold, not yet purchased consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
OWNED 1995 1994
- ----- -------- --------
<S> <C> <C>
Obligations of the U.S. Government or its agencies........... $ 62,808 $ 24,258
State and municipal obligations.............................. 22,333 65,171
Corporate obligations........................................ 44,954 45,234
Corporate stocks and warrants................................ 9,205 4,748
Certificates of deposit...................................... -- 37,624
Other........................................................ 1,956 1,081
-------- --------
$141,256 $178,116
======== ========
<CAPTION>
SOLD, NOT YET PURCHASED
- -----------------------
<S> <C> <C>
Obligations of the U.S. Government or its agencies........... $ 70,130 $ 58,094
State and municipal obligations.............................. 601 1,219
Corporate obligations........................................ 13,809 8,615
Corporate stocks and warrants................................ 7,085 2,128
Certificates of deposit...................................... -- 275
Other........................................................ 7 3
-------- --------
$ 91,632 $ 70,334
======== ========
</TABLE>
(6) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 1995 1994
- ----------------------------------------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government and U.S. Government agency obligations
with a market value of $1,339 million ($230 million at
1994)................................................... $1,308,495 $228,598
---------- --------
<CAPTION>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
- ----------------------------------------------
<S> <C> <C>
U.S. Government and U.S. Government agency obligations
with a market value of $1,313 million ($226 million at
1994)................................................... $1,282,788 $225,177
---------- --------
</TABLE>
The Company enters into collateralized transactions to resell and repurchase
securities. These transactions are carried at the contract amounts at which
the securities will be resold or reacquired plus accrued interest. At December
31, 1995, these agreements matured within ninety days. Securities purchased
under agreements to resell averaged $550.1 million and $345.3 million during
1995 and 1994, and the maximum amounts outstanding at any month-end during
1995 and 1994 were $1,308.5 million and $481.0 million, respectively.
Securities sold under agreements to repurchase averaged $538.8 and $320.6
million during 1995 and 1994, and the maximum amounts outstanding at any
month-end during 1995 and 1994 were $1,282.8 million and $447.0 million,
respectively. At December 31, 1995 these agreements to repurchase had a
weighted-average interest rate of 5.96% (4.41% at December 31, 1994).
F-17
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INVESTMENTS IN MORTGAGE-BACKED CERTIFICATES
As required by the related indenture provisions of the CMOs, the
Certificates are held as collateral by a trustee of the Trust. The trustee
collects principal and interest payments from the Certificates, reinvests the
payments in eligible investments, and makes principal and interest payments on
the CMOs. A summary of the Certificates, available-for-sale as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Amortized cost.......................................... $143,949 $206,377
Gross unrealized gains.................................. 12,508 --
-------- --------
Market value............................................ $156,457 $206,377
======== ========
</TABLE>
(8)COLLATERALIZED MORTGAGE OBLIGATIONS
Receipt of principal and interest from the Certificates, including
prepayments, and income earned on the reinvestment of such amounts is applied
to the extent required by the indenture to make monthly payments of principal
on the CMOs. All payments of principal on the CMOs are allocated to the
classes of CMOs in accordance with the terms of the standard indenture
provisions. Interest rates on the CMOs are fixed and range from 7.25% to 9.60%
per year. The stated maturities range from June 1, 2019 through May 31, 2026
and represent the dates on which the CMOs of each class are expected to be
fully paid. The actual maturities of the CMOs will depend on the rate of
principal payments, including prepayments, on the Certificates. The CMOs may
be subject to redemption at the option of Gateway, in the circumstances and at
the redemption price set forth in the related prospectus.
(9) FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Building and improvements.............................. $ 3,811 $ 9,578
Furniture and equipment................................ 116,784 118,499
Leasehold improvements................................. 24,834 24,975
-------- --------
Total cost............................................. 145,429 153,052
Less accumulated depreciation and amortization......... 96,026 90,170
-------- --------
Net fixed assets....................................... $ 49,403 $ 62,882
======== ========
</TABLE>
(10) BANK LOANS PAYABLE
Included in bank loans payable at December 31, 1995 and 1994, are $275
million and $315.1 million in loans drawn from approximately $500 million in
lines of credit extended by seven banks to ECC. The level of these borrowings
fluctuates daily, and at times significantly, depending on market activity and
customer margin activity levels. Under such lines of credit, the Company has
unsecured borrowings totaling $30 million and $20 million at December 31, 1995
and 1994. The remaining borrowings are secured by customers' margin securities
and the Company's securities inventory. The rates on these borrowings are
based on the federal funds rate (6% at December 31, 1995).
F-18
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, bank loans payable also include the KSOP loans
discussed in Note 2. At December 31, 1995, $32.2 million of the original
amounts outstanding have been retired. The remaining $22.8 million is a four-
year secured amortizing term loan with minimum principal repayments due at the
end of each calendar quarter beginning with December 31, 1995. During each
twelve-month period following the borrowing, minimum principal repayments are
due as follows:
<TABLE>
<CAPTION>
PRINCIPAL
PERIOD ENDING REDUCTION
------------- ------------
<S> <C>
December 31, 1996........................................... $6.0 million
December 31, 1997........................................... $8.0 million
December 31, 1998........................................... $8.8 million
</TABLE>
The interest rates on the KSOP loans are currently based on the three-month
LIBOR. At December 31, 1995, the annualized rate of interest on the loan
balance was 7.1%.
(11)NET CAPITAL REQUIREMENTS, DIVIDEND RESTRICTIONS AND COMMON STOCK
REPURCHASE OBLIGATION
In accordance with the rules and regulations of the Securities and Exchange
Commission for registered brokers and dealers, the capital rules of the New
York Stock Exchange and Regulation 1.17 of the Commodity Futures Trading
Commission, ESI and ECC must maintain minimum net capital. Both ESI and ECC
operate under the alternative method, as defined, of computing minimum net
capital. Such net capital requirements could restrict the ability of each
subsidiary to pay dividends to its parent. At December 31, 1995 and 1994, ESI
had net capital of approximately $94.2 million and $60.8 million,
respectively, which was approximately $93.2 million and $59.8 million,
respectively, in excess of its required minimum net capital; and at each date
ECC had net capital of approximately $58.6 million and $53.3 million,
respectively, which were approximately $45 million and $40.3 million,
respectively, in excess of its required minimum net capital.
Under the terms of the agreements for the KSOP loans, the Company may not
pay any dividends on its common stock until the KSOP loans are repaid.
Pursuant to the provisions of the KSOP, the Company is required to
repurchase at fair market value any shares of common stock allocated to the
accounts of retiring or other terminating plan participants who desire to
avail themselves of such KSOP provisions. Such repurchases are generally to be
made within one year following the end of the calendar year during which the
participant retires or six years following the end of the calendar year in
which the participant terminates employment.
(12) DEFINED CONTRIBUTION PLAN
As of September 13, 1995, EVEREN assumed sponsorship of and restated the KSI
Profit Sharing Plan in the form of the KSOP. EVEREN maintains the KSOP to
provide employees with an opportunity to accumulate funds for retirement and
acquire ownership interests in the voting common stock of EVEREN. Participants
are eligible to make pre-tax contributions to the KSOP and share in employer
contributions. Total contribution expense for the years ended December 31,
1995, 1994 and 1993 was approximately $19.4 million, $9.4 million and $8.8
million, respectively.
F-19
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) POSTRETIREMENT BENEFITS
The Company currently sponsors a plan that provides postretirement medical,
dental, and life insurance benefits for substantially all employees. Employees
generally become eligible for the post-retirement benefit plans when they meet
minimum retirement age and service requirements. The cost of providing most of
these benefits is shared with retirees. The Company has reserved the right to
change or eliminate the benefit plan. The Company accrues the expected cost of
providing these post-retirement benefits during the years that the employee
renders the necessary service.
Actuarial assumptions used to determine net periodic post-retirement benefit
cost include an annual discount rate of 7% for 1995 and 1994, and 8% for 1993.
Actuarial assumptions used to determine the accumulated post-retirement
benefit obligation at December 31, 1995 and 1994 include an annual discount
rate of 7% and 8%, respectively.
Net periodic post-retirement benefit cost for the years ended December 31
include the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned.................... $ 618 $ 918 $ 792
Interest cost on accumulated postretirement benefit
obligation........................................ 1,305 1,433 1,315
Amortization of unrecognized loss (gain)........... (149) 14 --
------ ------ ------
Net periodic postretirement benefit cost........... $1,774 $2,365 $2,107
====== ====== ======
</TABLE>
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated statement of financial
condition at December 31 (in thousands):
Accumulated post-retirement benefit obligation:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees................................................. $ 3,637 $ 8,754
Fully eligible active participants....................... 4,255 3,810
Other active participants................................ 7,773 3,746
------- -------
Accumulated post-retirement benefit obligation........... 15,665 16,310
Plan assets at fair value................................ -- --
------- -------
Accumulated post-retirement benefit obligation in excess
of plan
assets.................................................. 15,665 16,310
Unrecognized actuarial gain.............................. 4,902 3,121
------- -------
Accrued post-retirement benefit cost..................... $20,567 $19,431
======= =======
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
health care cost trend rate was assumed for 1996; the rate was assumed to
decrease gradually to 6% by the year 1999 and remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. Increasing the assumed health care cost trend rates by one
percentage point would increase the accumulated post-retirement benefit
obligation as of December 31, 1995 by approximately $2.5 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 by
approximately $327,000.
F-20
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) EXCHANGEABLE PREFERRED STOCK
As discussed in Note 1, on September 13, 1995, EVEREN sold 1,202,805 shares
of Series A Exchangeable Preferred Stock ("Exchangeable Preferred Stock")
having a liquidation preference of $25 per share and a dividend rate of 13.5%
per year. The Exchangeable Preferred Stock must be redeemed by the Company at
a price of $25 per share plus unpaid dividends on September 15, 2007. At the
Company's option, such shares may be redeemed earlier at specified premiums.
The Exchangeable Preferred Stock was recorded at an amount based on the range
at which such shares traded on the issuance date. For the year ended December
31, 1995, dividends on the Exchangeable Preferred Stock were approximately
$1.2 million.
The Company may, at its option subject to certain limitations, exchange up
to $58,750,000 aggregate principal amount of 13.5% Junior Subordinated
Debentures ("Debentures") due 2007 for all outstanding shares of Exchangeable
Preferred Stock at the rate of $25 principal amount of Debentures for each
share of Exchangeable Preferred Stock.
Dividends on the Exchangeable Preferred Stock are cumulative, payable
quarterly beginning on December 15, 1995 and may be paid in cash or in kind,
until September 15, 2000, at which time dividends must be paid in cash.
(15) STOCK OPTIONS
On December 15, 1995, the Company granted options to purchase 994,075 shares
of its common stock to certain of its employees. The options become
exercisable on December 19, 2000, must be exercised within 10 years from the
date of grant, and are exercisable at a price of $6.8405 per share. Management
believes the exercise price of the options granted approximated the fair value
of the Company's common stock as of the date of grant. Accordingly, no
compensation expense was recognized in 1995. All such options were outstanding
at December 31, 1995.
(16) INCOME TAXES
The income tax expense (benefit) for the years ended December 31 was as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal:
Current................................... $ 13,193 $(16,801) $ 11,380
Deferred.................................. (20,926) 5,783 (15,434)
-------- -------- --------
Total................................... (7,733) (11,018) (4,054)
State and Local:
Current................................... 1,922 671 767
Deferred.................................. (314) (190) (7)
-------- -------- --------
Total................................... 1,608 481 760
-------- -------- --------
$ (6,125) $(10,537) $ (3,294)
======== ======== ========
</TABLE>
As a result of the Section 338 Election, ESHI will incur a tax basis
reduction of approximately $97.3 million in its various assets. This reduction
in tax basis will represent future taxable income to ESHI as the individual
assets are converted to cash. Consequently, ESHI and its subsidiaries
established a $31.9 million deferred tax liability as of September 13, 1995.
F-21
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to pretax loss as a result of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax (benefit)............ $(7,694) $ (4,471) $ (516)
Increase (reduction) in income taxes
resulting from:
Tax-exempt interest, net................... (903) (1,604) (1,935)
Prior year deferred compensation
adjustment................................ -- (5,491) --
Adjustment to deferred tax assets and
liabilities for enacted changes in tax
laws and rates............................ -- -- (1,594)
Travel and entertainment................... 457 696 209
State and local income taxes, net of
Federal income tax benefit................ 1,045 313 494
Other, net................................. 970 20 48
------- -------- -------
$(6,125) $(10,537) $(3,294)
======= ======== =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 is
presented below (in thousands).
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Accrued expenses..................................... $ 3,312 $21,666
Deferred compensation................................ 2,035 12,387
Deferred rent........................................ 98 6,939
Other................................................ -- 3,581
-------- -------
Total deferred tax assets.......................... 5,445 44,573
-------- -------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities..... 1,011 --
Section 338 Election unrecognized basis difference... 29,763 --
Plant and equipment, principally due to differences
in depreciation..................................... 30 1,065
Other................................................ 759 249
-------- -------
Total deferred tax liabilities..................... 31,563 1,314
-------- -------
Net deferred tax assets (liabilities).................. $(26,118) $43,259
======== =======
</TABLE>
The net deferred tax assets at December 31, 1994 are included in receivables
from affiliates.
As a result of its separation from Kemper, ESHI will no longer be a member
of Kemper's consolidated tax group for Federal income tax purposes. EVEREN and
Kemper have entered an agreement (the "Tax Sharing Agreement"), which provides
that Kemper will be responsible for and receive the benefits of (i) all
settlements with the Internal Revenue Service (the "IRS") for the 1990 and
prior year tax periods, (ii) the impact of all tax items for the 1990 and
prior year tax periods theretofore identified by the IRS that reverse during
the period January 1, 1991 through September 13, 1995 and (iii) all tax issues
for the period from January 1, 1991 to September 13, 1995 identified by Kemper
and EVEREN in the Tax Sharing Agreement. The Tax Sharing Agreement provides
that EVEREN will be responsible for and receive the benefits of all tax
liabilities and refunds attributable to the business of the Company after
September 13, 1995. Tax returns for the years 1991 through 1993 are currently
under examination by the IRS.
F-22
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Tax Sharing Agreement further obligates both EVEREN and Kemper to make
the Section 338 Election. Though valid as between EVEREN and Kemper, the Tax
Sharing Agreement is not binding on the IRS and does not affect the several
liability of EVEREN, Kemper and their respective subsidiaries to the IRS for
all federal taxes of the consolidated group relating to periods prior to
September 13, 1995.
(17) RELATED-PARTY TRANSACTIONS
Prior to the Company's separation from Kemper, it provided certain services
to a wholly-owned subsidiary of Kemper. As a result, included in investment
management income is approximately $14.1 million and $16.7 million, the
Company received for acting as an underwriter and distributor of money market
funds managed by a wholly-owned subsidiary of Kemper for the years ended
December 31, 1994 and 1993, respectively. Included in commission revenue is
approximately $17 million and $22.4 million representing commission earned
from affiliates of a Kemper subsidiary for the sale of mutual funds and other
products for the years ended December 31, 1994 and 1993, respectively. The
management income and commission revenues represent standard broker fees and
commission loads earned in the normal course of business.
During 1994, a subsidiary of Kemper made an additional capital contribution
of $19 million to the Company.
Additional interest expense incurred on payables to affiliates other than
that incurred on subordinated debt payable to affiliates amounted to $2.3
million and $2.5 million for the years ended December 31, 1994 and 1993,
respectively.
(18) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space under various noncancelable
operating leases with remaining terms greater than one year. Future minimum
payments under noncancelable leases as of December 31, 1995 were approximately
(in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
<S> <C>
1996............................................................ $ 25,176
1997............................................................ 25,427
1998............................................................ 23,428
1999............................................................ 21,498
2000............................................................ 18,734
Thereafter...................................................... 77,510
--------
Total minimum lease payments.................................... $191,773
========
</TABLE>
Certain of the leases are subject to the operating costs of the particular
facilities. Total rental expense for all operating leases, including expenses
related to the abandonment of leased property, was approximately $46.8
million, $40.9 million and $40.1 million for the years ended December 31,
1995, 1994 and 1993, respectively.
The Company is obligated under unsecured letters of credit totaling
approximately $30 million at December 31, 1995. The letters of credit are
issued by banks to provide the required margin for customers' and introducing
brokers' transactions with the Options Clearing Corporation. Such letters of
credit are generally for periods of 6 to 12 months. The Company pays
commitment fees on these letters of credit at an annual rate ranging from .75%
to 2.0%.
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such underwriting commitments, which
were open at December 31, 1995 and subsequently settled, had no material
effect on the consolidated statement of financial condition.
F-23
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(19) LITIGATION
The Company has been named as a defendant in various legal actions in
connection with its securities and commodities business. Some of these
lawsuits involve claims for substantial amounts. Although the ultimate outcome
of these suits cannot be ascertained at this time, it is the opinion of
management, after consultation with counsel, that the resolution of such suits
will not have a material adverse effect on the financial position of the
Company but may be material to the Company's operating results for any
particular period, depending upon the level of the Company's income for such
period.
(20) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK
Certain market and credit risks are inherent in the Company's business,
primarily in facilitating customers' trading and financing transactions in
financial instruments, which include derivatives. The Company also uses
derivative financial instruments to hedge market risk, primarily arising from
fluctuations in interest rates, in its securities inventory. In the normal
course of business, the Company's customer activities include execution,
settlement, and financing of various customer securities and commodities
transactions, which may expose the Company to off-balance sheet risk in the
event the customer is unable to fulfill its contractual obligations.
The Company's customer securities activities are transacted on either a cash
or margin basis. In margin transactions, the Company extends credit to the
customer which is collateralized by cash and/or securities in the customer's
account. In connection with these activities, the Company executes and clears
customer transactions involving securities sold but not yet purchased ("short
sales") and the writing of option contracts. The Company also executes
customer transactions in the purchase and sale of commodity futures contracts
(including options on futures), substantially all of which are transacted on a
margin basis subject to various exchange regulations. The Company seeks to
control the risks associated with its customer activities by requiring
customers to maintain margin collateral in compliance with various regulatory,
exchange, and internal guidelines. The Company monitors required margin levels
daily and, pursuant to such guidelines, requires the customers to deposit
additional collateral or reduce positions when necessary. Such transactions
may expose the Company to significant off-balance sheet risk in the event the
margin is not sufficient to fully cover losses which customers may incur. In
the event the customer fails to satisfy its obligations, the Company may be
required to purchase or sell the collateral at prevailing market prices in
order to fulfill the customer's obligations. In accordance with industry
practice, the Company records customer securities transactions on a settlement
date basis, which is generally three business days after trade date. The
Company is therefore exposed to risk of loss on these transactions in the
event of the customer's or broker's inability to meet the terms of their
contracts in which case the Company may have to purchase or sell financial
instruments at prevailing market prices. The Company believes that the
settlement of these transactions will not have a material effect on the
Company's consolidated statement of financial condition.
The Company's customer financing and securities settlement activities
require the Company to pledge customer securities as collateral in support of
various secured financing sources such as bank loans, securities loaned and
agreements to repurchase. Additionally, the Company pledges customer
securities as collateral to satisfy margin deposits of various exchanges. In
the event the counterparty is unable to meet its contractual obligation to
return customer securities pledged as collateral, the Company may be exposed
to the risk of acquiring the securities at prevailing market prices in order
to satisfy its customer obligations. The Company controls this risk by
monitoring the market value of securities pledged on a daily basis and by
requiring adjustments of collateral levels in the event of excess market
exposures. Additionally, the Company establishes credit limits for such
activities and monitors compliance on a daily basis. The Company also enters
into collateralized financing agreements in which it extends short-term
credit, primarily to major financial institutions. The Company generally
controls access to the collateral pledged by the counterparties, which
consists largely of securities issued by the U.S. government or its agencies.
F-24
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is engaged in various securities trading and brokerage
activities servicing a diverse group of corporations, governments,
institutional and individual investors primarily located in the United States.
A substantial portion of the Company's transactions are collateralized and are
executed with and on behalf of other major brokers and dealers. The Company's
exposure to credit risk associated with the nonperformance of these
counterparties in fulfilling their contractual obligation pursuant to
securities and commodities transactions can be directly impacted by volatile
trading markets which may impair the counterparties' ability to satisfy their
obligations to the Company. The Company monitors credit risk on both an
individual and group counterparty basis.
To hedge interest rate exposure in its securities inventory, the Company
uses exchange-traded futures and option contracts that contain varying degrees
of off-balance-sheet risk, whereby changes in the market values of the
underlying securities or other financial instruments may be in excess of the
amounts reflected in the consolidated statement of financial condition. In
light of this strategy, the Company does not expect any material losses
relating to such derivative instruments that would not be offset with
corresponding gains on the securities hedged. These derivative instruments,
which consist solely of exchange-traded futures and option contracts, are
carried in the consolidated statement of financial condition at December 31,
1995 and 1994 at their quoted market values of $77,000 and $0.8 million,
respectively in aggregate, and have aggregate notional values of approximately
$10.2 million and $33 million, respectively. The average market value of these
derivative instruments during 1995 approximated $199,000.
(21) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are carried at fair value or at amounts
which approximate fair value. Customer receivables, primarily consisting of
floating-rate loans collateralized by margin securities, are charged interest
at rates similar to other such loans made within the industry. Reverse
repurchase/repurchase agreements, securities borrowed/loaned, and notes
payable to banks are carried at contract amount plus accrued interest or at
the amount of cash collateral advanced or received, which approximates fair
value due to their highly liquid nature and short maturity. The Company's
remaining financial instruments are generally short-term in nature and are
typically liquidated at their carrying values.
(22) QUARTERLY INFORMATION (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------
1995 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $125,801 $134,779 $138,704 $143,885
Income (loss) before income taxes....... (5,146) 1,020 (28,504) 10,651
Net income (loss)....................... (3,216) 503 (19,379) 6,238
<CAPTION>
QUARTER
--------------------------------------
1994 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $151,378 $131,756 $119,972 $126,864
Income (loss) before income taxes....... 3,652 (3,974) (7,066) (5,387)
Net income (loss)....................... 2,677 (2,561) (3,117) 763
</TABLE>
F-25
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13,
1995)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(23) SUBSEQUENT EVENTS
Quasi-Reorganization
In February 1996, the Company's Board of Directors authorized senior
management to take the appropriate steps necessary to effect a quasi-
reorganization. Under a quasi-reorganization, the Company is required to
adjust its assets and liabilities to fair value, record any resulting net
write-down and apply its additional paid-in capital to eliminate any
deficiency in accumulated earnings. Management believes any net write-down
will not be material to the consolidated financial statements at December 31,
1995 and therefore will have no material effect on the Company's results of
operations in future periods.
Sale of Subsidiary
On March 28, 1996, the Company entered into an agreement to sell BETA
Systems Inc. ("BETA"), a wholly-owned subsidiary for approximately $63.5
million. The sale is expected to result in an aftertax gain of approximately
$30.0 million. BETA accounted for approximately $15.9 million of the Company's
consolidated revenues for 1995 and $16.5 million of its consolidated assets at
December 31, 1995. BETA will continue to provide data processing and quote
services to the Company pursuant to existing agreements.
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY EVEREN CAPITAL
CORPORATION OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EVEREN CAPITAL COR-
PORATION SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Company History........................................................... 13
Dividend Policy........................................................... 15
Dilution.................................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Selected Historical Consolidated Financial and Operating Data............. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 35
Regulation................................................................ 46
Capital Requirements...................................................... 47
Management ............................................................... 48
Company Stock Plans....................................................... 55
Certain Relationships and Related Transactions............................ 58
Principal Stockholders.................................................... 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Certain U.S. Tax Consequences to Non-U.S. Holders......................... 64
Underwriters.............................................................. 66
Legal Matters............................................................. 69
Change in Independent Accountants......................................... 69
Experts................................................................... 69
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS
October , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
SEPTEMBER 16, 1996
4,000,000 SHARES
EVEREN CAPITAL CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by EVEREN
Capital Corporation. Of the shares being offered, 800,000 shares are being
offered initially outside of the United States and Canada by the International
Underwriters and 3,200,000 shares are being offered initially in the United
States and Canada by the U.S. Underwriters. See "Underwriters." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $17.50 and $19.50 per share. The initial public offering price will be
determined by agreement between the Company and the Underwriters in accordance
with the recommendation of a "qualified independent underwriter" as required by
the Conduct Rules of the National Association of Securities Dealers, Inc. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
listing on the New York Stock Exchange under the symbol EVR, subject to notice
of issuance.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -------------------------------------------------------------------------------
Total(3)............................. $ $ $
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to additional shares
of Common Stock at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
-----------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about October , 1996 at the office
of EVEREN Securities, Inc. in Chicago, Illinois, against payment therefor in
immediately available funds.
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INTERNATIONAL
LEHMAN BROTHERS
October , 1996
LOGO
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY EVEREN CAPITAL
CORPORATION OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EVEREN CAPITAL COR-
PORATION SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Company History........................................................... 13
Dividend Policy........................................................... 15
Dilution.................................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Selected Historical Consolidated Financial and Operating Data............. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 35
Regulation................................................................ 46
Capital Requirements...................................................... 47
Management ............................................................... 48
Company Stock Plans....................................................... 55
Certain Relationships and Related Transactions............................ 58
Principal Stockholders.................................................... 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Certain U.S. Tax Consequences to Non-U.S. Holders......................... 64
Underwriters.............................................................. 66
Legal Matters............................................................. 69
Change in Independent Accountants......................................... 69
Experts................................................................... 69
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INTERNATIONAL
LEHMAN BROTHERS
October , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the Commission and NYSE fees) of
the fees and expenses payable by the Registrant in connection with the
Offering of the Common Stock:
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration fee................................................ $ 29,742
Printing and engraving costs.................................... 150,000
Legal fees...................................................... 350,000
Accountants' fees............................................... 150,000
NYSE listing fee................................................ 86,530
Blue Sky qualification fees and expenses........................ 25,000
Miscellaneous................................................... 108,728
--------
Total....................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for monetary damages for violations of the director's
fiduciary duty, except (i) for any breach of a director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference also is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or other enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses (including attorneys'
fees) which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and the Bylaws of the Company provide for
indemnification of officers and directors to the fullest extent permitted by
applicable law. In addition, the Company has entered into contracts with each
of its independent directors requiring the Company to indemnify such persons
and to advance litigation expenses to such persons to the fullest extent
permitted by applicable law. Delaware law presently permits a Delaware
corporation (i) to indemnify any officer or director in any third-party or
governmental actions against them for expenses, judgments, fines and amounts
paid in settlement and, in derivative actions, for expenses, if the indemnitee
acted in good faith and in the manner he believed to be in or not opposed to
the best interest of such corporation and (ii) to advance expenses in any
action, provided that such officer or director agrees to reimburse the
corporation if it is ultimately determined that he was not entitled to
indemnification. The contracts
II-1
<PAGE>
also require the Company to (i) indemnify such independent directors upon
receipt of an opinion of counsel in certain cases, (ii) pay indemnity demands
pending a determination of entitlement thereto, and (iii) demonstrate, in any
action brought thereunder, that such director was not entitled to
indemnification under applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table lists the recent sales of unregistered securities and
includes the type of security, the person to whom the securities were sold,
the consideration and the exemption from registration.
<TABLE>
<CAPTION>
SECURITIES
TITLE OF DATE OF ACT
SECURITY ISSUANCE PURCHASER AMOUNT EXEMPTION CONSIDERATION
-------- -------- --------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Common 8/13/95 1995 Stock Plan 219,281 4(2) Private None
Stock Placement
8/13/95 1995 Stock Plan 146,188 4(2) Private None
Placement
12/29/95 James R. Boris 13,663 4(2) Private $93,461.75
Placement
12/29/95 Stephen G. McConahey 9,108 4(2) Private $62,303.27
Placement
1/8/96 1995 Non-Employee 4,900 4(2) Private None
Directors Plan Placement
5/8/95 1995 Non-Employee 5,455 4(2) Private None
Directors Plan Placement
7/22/96 1995 Non-Employee 1,156 4(2) Private None
Directors Plan Placement
Non-voting 9/13/95 1995 Stock Plan 107,400 4(2) Private None
Stock Placement
5/8/96 1995 Stock Plan 108,750 4(2) Private None
Placement
Options on 12/19/95 1995 Stock Plan 928,150 4(2) Private None
Common Placement
Stock
5/8/96 1995 Stock Plan 183,750 4(2) Private None
Placement
7/22/96 1995 Non-Employee 6,000 4(2) Private None
Directors Plan Placement
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Certificate of Incorporation of
Company.*
3.2 Restated By-laws of Company.*
4.1 Form of specimen common stock certificate for Common Stock.*
5 Opinion of Simpson Thacher & Bartlett (a partnership which
includes professional corporations) regarding the legality
of the common stock being registered.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.1 Assumption Agreement, dated as of September 13, 1995,
between Kemper Corporation and EVEREN Securities
(incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K dated September 13,
1995 and filed with the Securities and Exchange Commission
on September 27, 1995 ("Form 8-K")).*
10.2 Employment Agreement, dated as of September 13, 1995,
between the Company and James R. Boris, as amended effective
March 28, 1996 (incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 ("Form 10-K")).*
10.3 Employment Agreement, dated as of September 13, 1995,
between the Company and Stephen G. McConahey, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.8 to the Form 10-K).*
10.4 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust (incorporated by reference to Exhibit 10.9
to the Form 8-K).*
10.5 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Plan (incorporated by reference to Exhibit 10.10
to the Form 8-K).*
10.6 The EVEREN Capital Corporation 1995 Stock Plan dated as of
September 13, 1995.*
10.7 Form of Indemnification Agreement, between the Company and
the directors of the Company.*
10.8 Tax Sharing Agreement, dated as of September 13, 1995,
between the Company and Kemper Corporation (incorporated by
reference to Exhibit 10.13 to the Form 8-K).*
10.9 EVEREN Capital Corporation 1995 Non-employee Directors Plan,
as amended.*
10.10 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William M. Daley (incorporated by
reference to Exhibit 10.23 to the Form 10-K).*
10.11 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William T. Esrey (incorporated by
reference to Exhibit 10.24 to the Form 10-K).*
10.12 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and Homer J. Livingston, Jr.
(incorporated by reference to Exhibit 10.25 to the Form
10-K).*
10.13 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William C. Springer (incorporated by
reference to Exhibit 10.26 to the Form 10-K).*
10.14 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.27 to the Form 10-
K).*
10.15 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.28 to the Form 10-
K).*
10.16 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and Homer J. Livingston,
Jr. (incorporated by reference to Exhibit 10.29 to the Form
10-K).*
10.17 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William C. Springer
(incorporated by reference to Exhibit 10.30 to the Form 10-
K).*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.18 Employment Agreement, dated as of February 16, 1996, between
the Company and Stanley R. Fallis (incorporated by reference
to Exhibit 10.31 to the Form 10-K).*
10.19 Employment Agreement, dated as of February 22, 1996, between
the Company and David M. Greene (incorporated by reference
to Exhibit 10.33 to the Form 10-K).*
10.20 Employment Agreement, dated as of February 15, 1996, between
the Company and Arthur J. McGivern (incorporated by
reference to Exhibit 10.34 to the Form 10-K).*
10.21 Employment Agreement, dated as of February 15, 1996, between
the Company and Janet L. Reali (incorporated by reference to
Exhibit 10.35 to the Form 10-K).*
10.22 Employment Agreement, dated as of February 16, 1996, between
the Company and Thomas R. Reedy (incorporated by reference
to Exhibit 10.36 to the Form 10-K).*
10.23 Employment Agreement, dated as of February 20, 1996, between
the Company and John G. Sullivan (incorporated by reference
to Exhibit 10.37 to the Form 10-K).*
10.24 Employment Agreement, dated as of February 15, 1996, between
the Company and Daniel D. Williams (incorporated by
reference to Exhibit 10.38 to the Form 10-K).*
10.25 Joint Venture Agreement dated as of July 25, 1996 among the
Company, Mentor and certain of their affiliates
(incorporated by reference to Exhibit 10.1 to Form 10-Q
dated July 30, 1996 and filed with the Securities and
Exchange Commission on July 30, 1996).*
10.26 Form of Rights Agreement, dated , 1996, between the
Company and .*
10.27 Amendment to the EVEREN Capital Corporation 1995 Stock
Plan.*
10.28 EVEREN Capital Corporation 1996 Employee Restricted Stock
Purchase Plan.**
10.29 EVEREN Capital Corporation 1996 Employee Periodic Payroll
Stock Purchase Plan.**
10.30 EVEREN Capital Corporation 1996 Restricted Stock Incentive
Plan.**
10.31 EVEREN Capital Corporation 1996 Non-Employee Directors'
Voluntary Deferred Compensation Plan.**
10.32 EVEREN Capital Corporation 1996 Non-Employee Directors'
Voluntary Deferred Compensation Plan DEFERRED COMPENSATION
AGREEMENT.**
16.0 Letter re change in certifying accountant.*
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.0 to the
Form 10-K).*
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of KPMG Peat Marwick LLP.**
23.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).**
24 Powers of Attorney (included in the signature pages of this
Registration Statement).
</TABLE>
- --------
*Previously filed.
**Filed herewith.
II-4
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules not included in the
prospectus appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
PAGE SCHEDULE
---- --------
<C> <S>
S-1 Independent Auditors' Report
S-2 Independent Auditors' Report
S-3 Valuation and Qualifying Accounts.
</TABLE>
All other schedules are omitted as the required information is included
in the Registrant's consolidated financial statements or the related notes
or such schedules are not applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14
above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by a registrant of expenses incurred or paid by a director, officer or
controlling person of such registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON THE 16TH DAY OF SEPTEMBER, 1996.
EVEREN Capital Corporation
/s/ James R. Boris
By: _________________________________
James R. Boris
Chairman of the Board and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON SEPTEMBER 16, 1996 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ James R. Boris Chairman of the Board, Chief Executive
___________________________________________ Officer and Director (Principal Executive
(James R. Boris) Officer)
* President, Chief Operating Officer and
___________________________________________ Director
(Stephen G. McConahey)
* Director
___________________________________________
(William M. Daley)
* Director
___________________________________________
(William T. Esrey)
* Director
___________________________________________
(Homer J. Livingston, Jr.)
* Director
___________________________________________
(William C. Springer)
/s/ Daniel D. Williams Senior Executive Vice President, Treasurer,
___________________________________________ and Chief Financial Officer (Principal
(Daniel D. Williams) Financial Officer)
/s/ Thomas M. Mansheim Senior Vice President, Controller and Chief
___________________________________________ Accounting Officer (Principal Accounting
(Thomas M. Mansheim) Officer)
</TABLE>
<TABLE>
<S> <C>
*Janet L. Reali
___________________________________________
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EVEREN Capital Corporation
We have audited the consolidated financial statements of EVEREN Capital
Corporation and subsidiaries as of December 31, 1995, and for the year ended
December 31, 1995, and have issued our report thereon dated February 23, 1996
(March 28, 1996, as to the second paragraph of Note 23); such report is
included elsewhere in this Registration Statement. Our audit also included the
consolidated financial statement schedule, Valuation and Qualifying Accounts
for the year ended December 31, 1995, of EVEREN Capital Corporation, listed in
Item 14 of this Registration Statement. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 1996
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EVEREN Capital Corporation, as successor corporation to and parent of EVEREN
Securities Holdings, Inc.
(formerly Kemper Securities Holdings, Inc.):
Under the date of May 5, 1995, we reported on the consolidated statement of
financial condition of Kemper Securities Holdings, Inc. and subsidiaries as of
December 31, 1994, and the related consolidated statements of earnings,
changes on stockholder's equity and cash flows for each of the years in the
two-year period ended December 31, 1994, included elsewhere in this
registration statement. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as of December 31, 1994 and for each of the years in the
two year period ended December 31, 1994. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
May 5, 1995
S-2
<PAGE>
SCHEDULE II
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
KEMPER SECURITIES HOLDINGS, INC. AND SUBSIDIARIES (PRIOR TO SEPTEMBER 13, 1995)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994 1993
- ----------- ------- ------- -------
<S> <C> <C> <C>
Asset valuation reserves:
Balance at beginning of period....................... $11,797 $12,407 $13,366
Additions-provisions for losses...................... 1,411 702 1,999
Deductions(1)........................................ 3,180 1,312 2,958
------- ------- -------
Balance at end of period............................. $10,028 $11,797 $12,407
======= ======= =======
</TABLE>
- --------
(1) These deductions represent the net effect on the valuation reserves of
write-downs and recoveries.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Certificate of Incorporation of
Company.*
3.2 Restated By-laws of Company.*
4.1 Form of specimen common stock certificate for Common
Stock, par value $.01.*
5 Opinion of Simpson Thacher & Bartlett (a partnership
which includes professional corporations) regarding the
legality of the common stock being registered.**
10.1 Assumption Agreement, dated as of September 13, 1995,
between Kemper Corporation and EVEREN Securities
(incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K dated September
13, 1995 and filed with the Securities and Exchange
Commission on September 27, 1995 ("Form 8-K")).*
10.2 Employment Agreement, dated as of September 13, 1995,
between the Company and James R. Boris, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 ("Form
10-K")).*
10.3 Employment Agreement, dated as of September 13, 1995,
between the Company and Stephen G. McConahey, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.8 to the Form 10-K).*
10.4 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust (incorporated by reference to Exhibit
10.9 to the Form 8-K).*
10.5 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Plan (incorporated by reference to Exhibit
10.10 to the Form 8-K).*
10.6 The EVEREN Capital Corporation 1995 Stock Plan dated as
of September 13, 1995.*
10.7 Form of Indemnification Agreement, between the Company
and the directors of the Company.*
10.8 Tax Sharing Agreement, dated as of September 13, 1995,
between the Company and Kemper Corporation (incorporated
by reference to Exhibit 10.13 to the Form 8-K).*
10.9 EVEREN Capital Corporation 1995 Non-employee Directors
Plan, as amended.*
10.10 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.23 to the Form
10-K).*
10.11 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.24 to the Form
10-K).*
10.12 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and Homer J. Livingston, Jr.
(incorporated by reference to Exhibit 10.25 to the Form
10-K).*
10.13 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William C. Springer
(incorporated by reference to Exhibit 10.26 to the Form
10-K).*
10.14 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.27 to the Form
10-K).*
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.15 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.28 to the
Form 10-K).*
10.16 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and Homer J.
Livingston, Jr. (incorporated by reference to Exhibit
10.29 to the Form 10-K).*
10.17 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William C.
Springer (incorporated by reference to Exhibit 10.30 to
the Form 10-K).*
10.18 Employment Agreement, dated as of February 16, 1996,
between the Company and Stanley R. Fallis (incorporated
by reference to Exhibit 10.31 to the Form 10-K).*
10.19 Employment Agreement, dated as of February 22, 1996,
between the Company and David M. Greene (incorporated by
reference to Exhibit 10.33 to the Form 10-K).*
10.20 Employment Agreement, dated as of February 15, 1996,
between the Company and Arthur J. McGivern (incorporated
by reference to Exhibit 10.34 to the Form 10-K).*
10.21 Employment Agreement, dated as of February 15, 1996,
between the Company and Janet L. Reali (incorporated by
reference to Exhibit 10.35 to the Form 10-K).*
10.22 Employment Agreement, dated as of February 16, 1996,
between the Company and Thomas R. Reedy (incorporated by
reference to Exhibit 10.36 to the Form 10-K).*
10.23 Employment Agreement, dated as of February 20, 1996,
between the Company and John G. Sullivan (incorporated by
reference to Exhibit 10.37 to the Form 10-K).*
10.24 Employment Agreement, dated as of February 15, 1996,
between the Company and Daniel D. Williams (incorporated
by reference to Exhibit 10.38 to the Form 10-K).*
10.25 Joint Venture Agreement dated as of July 25, 1996 among
the Company, Mentor and certain of their affiliates
(incorporated by reference to Exhibit 10.1 to Form 10-Q
dated July 30, 1996 and filed with the Securities and
Exchange Commission on July 30, 1996).*
10.26 Form of Rights Agreement, dated as of , 1996, between
the Company and .*
10.27 Amendment to the EVEREN Capital Corporation 1995 Stock
Plan.*
10.28 EVEREN Capital Corporation 1996 Employee Restricted Stock
Purchase Plan.**
10.29 EVEREN Capital Corporation 1996 Employee Periodic Payroll
Stock Purchase Plan.**
10.30 EVEREN Capital Corporation 1996 Restricted Stock
Incentive Plan.**
10.31 EVEREN Capital Corporation 1996 Non-Employee Directors'
Voluntary Deferred Compensation Plan.**
10.32 EVEREN Capital Corporation 1996 Non-Employee Directors'
Voluntary Deferred Compensation Plan DEFERRED
COMPENSATION AGREEMENT.**
16.0 Letter re change in certifying accountant.*
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.0 to the Form 10-K).*
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of KPMG Peat Marwick LLP.**
23.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).**
24 Powers of Attorney (included in the signature pages of
this Registration Statement).
</TABLE>
- --------
*Previously filed.
**Filed herewith.
2
<PAGE>
EXHIBIT 1
4,000,000 Shares
EVEREN CAPITAL CORPORATION
COMMON STOCK, PAR VALUE $.01
FORM OF UNDERWRITING AGREEMENT
<PAGE>
___________, 1996
EVEREN Securities, Inc.
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
EVEREN Securities, Inc.
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E144 QA
England
Dear Sirs:
EVEREN Capital Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below)
4,000,000 shares of its common stock, par value $0.01 (the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
3,200,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith (the
"International Agreement")), and 800,000 Firm Shares (the "International
Shares") will be sold to the several International Underwriters named in
Schedule II hereto (the "International Underwriters") in connection with the
offering and sale of such International Shares outside the United States and
Canada to persons other than United States and Canadian Persons. EVEREN
Securities, Inc., Morgan Stanley & Co. Incorporated and Lehman Brothers Inc.
shall act as representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and EVEREN Securities, Inc., Morgan Stanley & Co. International
Limited and Lehman Brothers International (Europe) shall act as representatives
(the "International Representatives") of the several International Underwriters.
The U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "Underwriters."
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 600,000 shares of its common stock, par
value $0.01 (the "Additional Shares"), if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of
<PAGE>
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Article II hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of common stock, par value $0.01, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A or
Rule 434 under the Securities Act of 1933, as amended (the "Securities Act"), is
hereinafter referred to as the "Registration Statement"; the U.S. prospectus
(including any prospectus subject to completion and any term sheet meeting the
requirements of Rule 434(b) under the Securities Act, taken together, as the
prospectus provided by the Company to meet the requirements of Section 10(a) of
the Act) and the international prospectus in the respective forms first used to
confirm sales of Shares are hereinafter collectively referred to as the
"Prospectus." If the Company has filed an abbreviated registration statement to
register additional shares of Common Stock pursuant to Rule 462(b) under the
Securities Act (the "Rule 462 Registration Statement"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462 Registration Statement.
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii) the
Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph 1(b) do not
apply to statements or omissions in the Registration Statement or the
Prospectus
-2-
<PAGE>
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(g) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(h) This Agreement has been duly authorized, executed and delivered by
the Company.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law, administrative regulation or ruling or the
certificate of incorporation or by-laws of the Company or any subsidiaries
or any agreement, indenture or other instrument binding upon the Company or
any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, self-regulatory organization, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of or qualification with any governmental body,
self-regulatory organization or agency is required for the performance by
the Company of its obligations under this Agreement, except such as may
-3-
<PAGE>
be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus.
(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(l) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from (collectively, "permits"), and has made all declarations and
filings with, all federal, state, local and other governmental and
regulatory authorities, all self-regulatory organizations and all courts
and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the
Prospectus, except to the extent that the failure to obtain any such permit
or to make any such declaration or filing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole. Neither the
Company nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such permits which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus; and, except as described in
the Prospectus, such permits contain no restrictions that are materially
burdensome to the Company or any subsidiary.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the rules and regulations
of the Commission thereunder and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading.
(n) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the
-4-
<PAGE>
Prospectus, will not be an "investment company" or a company "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
(o) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(p) The Company has complied with all provisions of Section 517.075
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(q) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except in each case as described in the Prospectus.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as described
in or contemplated by the Prospectus.
(s) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real
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<PAGE>
property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries, in each case except as described in or
contemplated by the Prospectus.
(t) The Company and its subsidiaries own or possess all material
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in
connection with the businesses now operated by them, and neither the
Company nor any of its subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
(u) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in or contemplated by the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, service
providers, manufacturers or contractors that could result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
(v) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the
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recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) EVEREN Securities, Inc. is registered as a broker-dealer and an
investment adviser with the Commission, is registered with the Commodity
Futures Trading Commission (the "CFTC") as a futures commission merchant,
is a member of each of the National Association of Securities Dealers, Inc.
(the "NASD"), the New York Stock Exchange[, the American Stock Exchange,
Inc., the Midwest Stock Exchange, Inc., the Pacific Stock Exchange, Inc.,
the Chicago Board of Trade, the National Futures Association, the
Depository Trust Company, the National Securities Clearing Corporation and
the Securities Investor Protection Corporation [list others]], and is in
compliance in all material respects with all applicable laws, rules,
regulations, orders, by-laws and similar requirements in connection with
such registrations and memberships; EVEREN Clearing Corp. is a registered
as a broker-dealer with the Commission, is registered with the CFTC as a
futures commission merchant, is a member of _____________________________,
and is in compliance in all material respects with all applicable laws,
rules, regulations, orders, by-laws and similar requirements in connection
therewith.
(y) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned directly or indirectly by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature, other than the liens [set forth on Schedule III hereto] [described
in the Prospectus].
(z) Neither the Company nor any of its subsidiaries is (i) in
violation of its respective charter or by-laws or (ii) in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, other than defaults that would not,
individually or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(aa) Neither the Company nor any of its subsidiaries has violated any
federal or state law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable federal or state wages and hours laws,
nor any provisions of the Employee Retirement Income Security Act or the
rules and regulation promulgated thereunder, which in each case are
reasonably likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings or business
operations of the Company and its subsidiaries, taken as a whole.
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<PAGE>
(ab) The Company has filed a registration statement pursuant to
Section 12(b) of the Exchange Act to register the Common Stock, has filed
an application to list the Shares on the New York Stock Exchange and has
received notification that the listing has been approved, subject to notice
of issuance of the Shares.
(ac) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the Company
or any subsidiary thereof, except as otherwise disclosed in the
Registration Statement.
(ad) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
(ae) KPMG Peat Marwick LLP and Deloitte & Touche LLP are independent
public accountants with respect to the Company as required by the Act.
(af) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set
forth in the Registration Statement and the Prospectus (and any amendment
or supplement thereto) is, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the
books and records of the Company.
II.
The Company hereby agrees to sell to the several Underwriters, and the
Underwriters, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company the respective numbers of Firm
Shares set forth in Schedules I and II hereto opposite their names at $____ a
share (the "Purchase Price")
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<PAGE>
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 600,000
Additional Shares at the Purchase Price. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date written notice of an election to purchase
Additional Shares is given. If the U.S. Representatives, on behalf of the U.S.
Underwriters, elect to exercise such option, the U.S. Representatives shall so
notify the Company in writing not later than 30 days after the date of this
Agreement which notice shall specify the number of Additional Shares to be
purchased by the U.S. Underwriters and the date on which such Additional Shares
are to be purchased. Additional Shares may be purchased as provided in Article
IV hereof solely for the purpose of covering over allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the U.S. Representatives may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of
such U.S. Underwriter bears to the total number of U.S. Firm Shares. The
Additional Shares to be purchased by the U.S. Underwriters hereunder and the
U.S. Firm Shares are hereinafter collectively referred to as the "U.S. Shares."
The Company hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), it will not, during the period
ending [180] days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing or
described in the Prospectus or [(C) the grant by the Company of options or other
awards or the issuance by the Company of Common Stock pursuant to the employee
stock option and stock purchase plans described in the Prospectus].
III.
The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares
are to be offered to the public initially at U.S.$________ a share (the "Public
Offering Price") and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$_______ a share under the Public
Offering Price, and that any
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<PAGE>
Underwriter may allow, and such dealers may reallow, a concession, not in excess
of U.S.$______ a share, to any Underwriter or to certain other dealers.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
and sixth paragraphs of Article III of the International Agreement of even date
herewith. Each International Underwriter hereby makes to and with the Company
the representations and agreements of such International Underwriter contained
in the seventh, eighth, ninth and tenth paragraphs of Article III of the
International Agreement.
IV.
Payment for the Firm Shares shall be made in Federal or other immediately
available funds [in New York City] against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 A.M., New York City
time, on __________, 1996, or at such other time on the same or such other date,
not later than _____________, 1996, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
Payment for any Additional Shares shall be made in Federal or other
immediately available funds [in New York City] against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 A.M., New York City time, on the date specified in the notice described in
Article II or on such other date, in any event not later than ______________,
1996, as shall be designated in writing by the U.S. Representatives. The time
and date of such payment are hereinafter referred to as the "Option Closing
Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date there shall not have occurred any change, or any development
involving a prospective
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<PAGE>
change, in the condition, financial or otherwise, or in the earnings, business
or operations, of the Company and its subsidiaries, taken as a whole, from that
set forth in the Registration Statement, that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a certificate,
dated the Closing Date and signed by the Chief Executive Officer and the Chief
Financial Officer of the Company, to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
(c) You shall have received on the Closing Date an opinion of Simpson
Thacher & Bartlett, counsel for the Company, dated the Closing Date, to the
effect that
(i) the Company has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the State of Delaware and
has full corporate power and authority to own its property and to conduct its
business as described in the Prospectus;
(ii) all outstanding shares of the Company's Common Stock, including
the Shares, have been duly authorized, and all outstanding shares of Common
Stock have been and, upon payment and delivery in accordance with this
Agreement, the Shares will be validly issued, fully paid and nonassessable;
(iii) the Shares will not be subject to any preemptive rights under
federal or New York law or under the Delaware General Corporation Law to
subscribe for or purchase shares; and there are no preemptive or other rights to
subscribe for or to purchase, any Shares pursuant to the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
filed or incorporated by reference as an exhibit to the Registration Statement;
(iv) this Agreement has been duly authorized, executed and delivered
by the Company;
(v) the Registration Statement has become effective under the Act and
the Prospectus was filed on __________________, 1996 pursuant to Rule 424(b) of
the rules and regulations of the Commission under the Act, no stop order
suspending the effectiveness of the Registration Statement has been issued and,
to our knowledge, no proceeding for that purpose is pending or has been
threatened by the Commission;
(vi) the issue and sale of Shares by the Company and the compliance by
the Company with all of the provisions of this Agreement will not breach or
result in a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed or incorporated by reference as
an exhibit to the Registration Statement, nor will such action violate the
certificate of incorporation or by-laws of the Company or any federal or New
York law or the Delaware General Corporation Law or any rule or regulation that
has been issued pursuant to any federal or New York law or the Delaware General
Corporate Law or, to our knowledge, any order
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<PAGE>
issued by any court or governmental agency or body or court having jurisdiction
over the Company or any of its subsidiaries or any of their properties;
(vii) the statements made in the Registration Statement in Item 14,
insofar as such statements purport to constitute summaries of the Delaware
General Corporation Law, rules and regulations thereunder or contracts and other
documents, fairly present the information called for with respect to such
statutes, rules and regulations, contracts and other documents and fairly
summarize the matters referred to therein;
(viii) the statements made in the Prospectus under the caption
"Company Stock Plans," "Description of Capital Stock," "Certain U.S. Tax
Consequences to Non-U.S. Holders," "Shares Eligible for Future Sale" (except the
last paragraph) and "Underwriters" in each case insofar as such statements
purport to constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein;
(ix) the Company is not an "investment company" or a company
"controlled" by and "investment company" within the meaning of and subject to
regulation under the Investment Company Act of 1940, as amended;
(x) such counsel (A) is of the opinion that the Registration
Statement, as of its effective date, and the Prospectus, as of _________ 1997,
complied as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder, except that in each case such counsel expresses no opinion with
respect to the financial statements or other financial or statistical data
contained in the Registration Statement and (B) such counsel has no reason to
believe that the Registration Statement as of its effective date contained any
untrue statement of material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or that the Prospectus contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that in each case such counsel expresses no belief with
respect to the financial statements or other financial or statistical data
contained in the Registration Statement or the Prospectus; and
(xi) to our knowledge there are no statutes required to be described
in the Prospectus which are not described as required, or any contracts or
documents of a character required to be described in the Registration Statement
which are not described and filed.
(d) You shall have also received on the Closing Date an opinion of [Janet
Reali, Senior Executive Vice President, General Counsel and Secretary of the
Company], dated the Closing Date, to the effect that
(i) the Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good
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<PAGE>
standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole;
(iii) the execution and delivery by the Company of, and the
performance by the company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or of any of its subsidiaries or any agreement,
indenture or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any judgment, or decree of any governmental body, self-regulatory
organization, agency or court having jurisdiction over the Company or any of its
subsidiaries, and no consent, approval, authorization or order of or
qualification with any governmental body, self-regulatory organization, or
agency is required for the performance by the Company of its obligations under
this Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Shares
by the U.S. Underwriters;
(iv) no holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company;
(v) all of the outstanding shares of capital stock of, or other
ownership interest in, each of the Company's subsidiaries have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature [except as described
in the Prospectus];
(vi) the Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations (collectively, "permits") of and from,
and has made such declarations and filings with, governmental or regulatory
authorities, including, without limitation, self regulatory organizations, as
are necessary to own, lease and operate its respective properties and to conduct
its business in the manner described in the Prospectus, except where the failure
to obtain such permits or make such declarations and filings would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
the Company and each of its subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any such permit, subject, in each case, to such qualification as
may be set forth in the Prospectus; and, except as described in the Prospectus,
such permits contain no restrictions that are materially burdensome to the
Company or any of its subsidiaries;
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<PAGE>
(vii) all leases to which the Company or any of its subsidiaries is a
party are valid and binding and no default has occurred or is continuing
thereunder which might result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business, or operations of the
Company and its subsidiaries, taken as a whole, and the Company and its
subsidiaries enjoy peaceful and undisturbed possession under all such leases to
which any of them is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company or such subsidiary;
(viii) the statements (A) in the Prospectus under the captions
"Business -- Legal Proceedings," "Regulation," "Capital Requirements," "Company
Stock Plan," "Certain Relationships and Related Transactions" (except the
penultimate paragraph), "Description of Capital Stock," and "Shares Eligible for
Future Sale" (except the last paragraph) and (B) in the Registration Statement
in Item 15, in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(ix) after due inquiry, such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; and
(x) such counsel has no reason to believe that the Registration
Statement as of its effective date contained any untrue statement of material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading or that the
Prospectus contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that in
each case such counsel expresses no belief with respect to the financial
statements or other financial or statistical data contained in the Registration
Statement or the Prospectus.
(e) You shall have received on the Closing Date an opinion of Katten Muchin
& Zavis, special counsel for the Underwriters, dated the Closing Date, covering
the matters referred to in subparagraphs (ii), (iv) (with regards to
authorization, execution and delivery by the Underwriters), (viii) (but only as
to the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters"), and (x) of paragraph (c) of this Article V.
With respect to subparagraph (x) of paragraph (c) of this Article V,
Simpson Thacher & Bartlett and Katten Muchin & Zavis may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
The opinions of Simpson Thacher & Bartlett and Janet Reali described in
paragraphs (c) and (d), respectively, of this Article V shall be rendered to you
at the request of the Company and shall so state therein.
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<PAGE>
(f) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Deloitte & Touche LLP, independent
public accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
certain of the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from KPMG Peat Marwick LLP, independent
public accountants, containing certain of the statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to certain of the financial information contained in the Registration
Statement and the Prospectus.
(h) The "lock-up" agreements between you and the officers and directors of
the Company relating to sales of shares of common stock of the Company or any
securities convertible into or exercisable or exchangeable for such common
stock, delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
(i) The agreement between you and the Company relating to the registration
of shares of the common stock of the Company or any securities convertible or
exercisable or exchangeable for such common stock, delivered to you on or before
the date hereof, shall be in full force and effect on the Closing Date.
(j) The Redemption and the Transactions (each as defined in the Prospectus)
shall have been completed.
The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on the
Option Closing Date of such documents as they may reasonably request with
respect to the good standing of the Company and its subsidiaries, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, _______ signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. local time on the business day next succeeding the date of this
Agreement and during the period mentioned in paragraph (c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
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<PAGE>
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such rule.
(c) If, during such period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish,
at its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request (provided however, in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction) and to pay all expenses (including fees
and disbursements of counsel) in connection with such qualification and in
connection with any review of the offering of the Shares by the National
Association of Securities Dealers, Inc.
(e) To make generally available to the Company's security holders and to
you as soon as practicable an earning statement covering the twelve-month period
ending ________________, 1997 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
(f) To pay all expenses (including fees and disbursements of counsel)
incurred by Morgan Stanley acting in its capacity as "qualified independent
underwriter."
(g) During the period referred to in paragraph (c), the Company will
furnish to you as soon as available a copy of each report or other publicly
available information of the Company mailed to the holders of Common Stock or
filed with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(h) The Company will use commercially reasonable efforts to list, subject
to notice of issuance, the Shares on the New York Stock Exchange, Inc. (the "New
York Stock Exchange") and to maintain the listing of the Shares on the New York
Stock Exchange for a period of five years after the effective date of the
Registration Statement.
-16-
<PAGE>
VII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses reasonably incurred by any Underwriter or any such
controlling person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
The Company also agrees to indemnify and hold harmless Morgan Stanley and
each person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses reasonably incurred by Morgan Stanley or
any such controlling person in connection with defending or investigating any
such action or claim) incurred as a result of Morgan Stanley's participation as
a "qualified independent underwriter" within the meaning of the Conduct Rules of
the NASD in connection with the offering of the Shares, except for any losses,
claims, damages, liabilities and judgments resulting from Morgan Stanley's, or
such controlling person's, willful misconduct or gross negligence.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the three preceding paragraphs, such person (the
"Indemnified Party") shall promptly notify the person against whom such
indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party
-17-
<PAGE>
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought by Morgan Stanley
pursuant to the second paragraph of this Article VII in respect of an action or
proceeding for which an Underwriter or Underwriters (other than or in addition
to Morgan Stanley) are seeking indemnification pursuant to the first paragraph
of this Article VII, then in addition to such separate firm for the indemnified
parties, the Indemnifying Party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley in its capacity as a "qualified independent underwriter" and
all persons, if any, who control Morgan Stanley within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act.
In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party
from and against any loss or liability by reason of such settlement or judgment.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such proceeding.
If the indemnification provided for in the first, second or third
paragraph of this Article VII is unavailable to an Indemnified Party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Party under such paragraph, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total
-18-
<PAGE>
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative fault of the
Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters and the parties, relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Article VII
are several in proportion to the respective number of Shares they have purchased
hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Article VII are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
The indemnity and contribution provisions contained in this Article VII and
the representations and warranties of the Company contained in this Agreement
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter or by or on behalf of
the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Shares.
VIII.
This Agreement shall be subject to termination by notice given by you to
the Company, if (a) after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State
-19-
<PAGE>
authorities or (iv) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis that,
in your judgment, is material and adverse and (b) in the case of any of the
events specified in clauses (a)(i) through (iv), such event singly or together
with any other such event makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the number of Firm Shares set forth opposite
their respective names in Schedule I or Schedule II bears to the aggregate
number of Firm Shares set forth opposite the names of all such nondefaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to Article II be
increased pursuant to this Article IX by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement (other than the termination of this Agreement pursuant to the
preceding paragraph or Article VIII hereof), the Company will reimburse the
Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
-20-
<PAGE>
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
-21-
<PAGE>
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
Very truly yours,
EVEREN CAPITAL CORPORATION
By:
--------------------------------------
Accepted, ____________, 1996
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO. INCORPORATED
LEHMAN BROTHERS INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
-------------------------------------
-22-
<PAGE>
SCHEDULE I
U.S. Underwriters
-----------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
EVEREN Securities, Inc.
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
---------------
Total U.S. Firm Shares.. 3,200,000
===============
</TABLE>
-23-
<PAGE>
SCHEDULE II
International Underwriters
--------------------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
EVEREN Securities, Inc.
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
---------------
Total International Firm Shares.... 800,000
===============
</TABLE>
-24-
<PAGE>
Exhibit 5
September 16, 1996
EVEREN Capital Corporation
77 West Wacker Drive
Chicago, Illinois 60601-1694
Dear Sirs:
We have acted as counsel to EVEREN Capital Corporation, a Delaware
corporation (the "Company"), in connection with the proposed sale of up to
4,600,000 shares of Common Stock, par value $.01 per share, of the Company (the
"Shares"), as described in the Registration Statement on Form S-1 (File No. 333-
09163), as amended (the "Registration Statement"), filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"). The Shares are to be purchased by certain underwriters
and offered for sale to the public (the "Offering") pursuant to the terms of an
underwriting agreement (the "Underwriting Agreement"), the form of which is
filed as an exhibit to the Registration Statement.
We have examined a copy of the Registration Statement and all exhibits
thereto, including the Certificate of Incorporation of the Company, as amended,
filed with the Secretary of State of the State of Delaware. In addition, we have
examined, and have relied as to matters of fact upon, originals or copies,
certified or otherwise identified to
<PAGE>
EVEREN Capital Corporation -2- September 16, 1996
our satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such other and
further investigations, as we have deemed relevant and necessary as a basis for
the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that the issuance of the Shares has been
duly authorized and, upon payment and delivery as contemplated by the
Underwriting Agreement, the Shares will be validly issued, fully paid and
nonassessable.
We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York, the federal law of the United States and the Delaware General Corporation
Law.
This opinion letter is rendered to you in connection with the above
described transactions. This opinion letter may not be relied upon by you for
any other purpose, or relied upon by, or furnished to, any other person, firm or
corporation without our prior written consent. We hereby consent to the filing
of this opinion letter as an exhibit to the
<PAGE>
EVEREN Capital Corporation -3- September 16, 1996
Registration Statement and the use of our name under the heading "Legal Matters"
in the Prospectus included therein.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 10.28
EVEREN CAPITAL CORPORATION
1996 NEW EMPLOYEE RESTRICTED STOCK PURCHASE PLAN
1. PURPOSE. EVEREN Capital Corporation, a Delaware corporation (the
"Company"), hereby adopts the EVEREN Capital Corporation 1996 New Employee
Restricted Stock Purchase Plan (the "Plan"). The purpose of the Plan is to
provide a one-time opportunity for certain new employees of the Company and
its qualified subsidiaries to purchase shares of common stock, par value $.01
per share ("Common Stock"), of the Company for cash, thereby attracting,
retaining and rewarding such persons and strengthening the mutuality of
interest between such persons and the Company's stockholders. All of the
shares purchased under the Plan will initially be subject to vesting and
transfer restrictions, as more fully described in Section 7 below, so as to
constitute shares of restricted stock ("Restricted Stock").
2. SHARES SUBJECT TO PLAN. There is hereby reserved for issuance under the
Plan a maximum of (i) 500,000 shares of Common Stock of the Company (the
"Shares") and (ii) any Shares which may be reserved for issuance under the
Company's 1996 Restricted Stock Incentive Plan (the "Incentive Plan"), but
which are not actually issued pursuant thereto if the Committee (as defined
below) decides to designate such Shares as being reserved for issuance instead
under this Plan. Any Shares of Common Stock reserved for issuance hereunder
but not actually issued pursuant to the terms of this Plan may at any time be
designated by the Committee as being reserved for issuance under the Incentive
Plan.
The Shares may be authorized but unissued Common Stock, treasury shares or
Common Stock reacquired by the Company or purchased in the open market. If any
shares of Restricted Stock are forfeited in accordance with the provisions of
Section 7 below, such Shares shall again be made available under the Plan.
3. ADMINISTRATION. The committee appointed to administer the Plan (the
"Committee") shall be the Compensation Committee of the board of directors of
the Company (the "Board of Directors" or "Board") or another committee
consisting of not less than two directors of the Company appointed by the
Board of Directors, and, if the Board of Directors has determined that the
Plan shall comply with Securities and Exchange Regulation 17 C.F.R.
(S)240.16b-3 or any successor regulation, none of such persons shall
participate in the Plan and each such person shall qualify as a disinterested
person within the meaning of 17 C.F.R. (S)240.16b-3 or any successor
regulation. The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Shares made available hereunder as it deems necessary or advisable. The
Committee shall have the right to determine prior to any "Offering Period" (as
defined in Section 4 below) the maximum number of shares of Restricted Stock
which may be offered for purchase by each eligible employee during the
Offering Period and, if necessary, the manner of allocating the Shares among
eligible employees.
All determinations and interpretations made by the Committee shall be
binding and conclusive on all participating employees (each a "Participant")
and their legal representatives. No member of the Board, no member of the
Committee and no employee of the Company or any subsidiary shall be liable for
any act or failure to act hereunder, by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated or, except in circumstances involving his or her bad faith,
gross negligence or fraud, for any act or failure to act by the member or
employee.
4. ELIGIBILITY. All regular full-time and part-time salaried employees
regularly scheduled to work 25 hours or more per week, as well as all retail
investment consultants, retail and institutional branch managers,
institutional salespersons and other commissioned employees of the Company and
its qualified subsidiaries, who were hired after July 1, 1995 and for all
practical purposes could not participate in the Company's Founders' Offering,
other than:
(a) salaried employees with annual base salaries less than $50,000 at
their date of hire;
(b) investment consultant employees with trailing twelve months production
of less than $200,000 at their date of hire; and
1
<PAGE>
(c) institutional salespersons, retail and institutional branch managers
and other commissioned employees with prior year W-2 compensation less than
$100,000 at their date of hire,
(i.e. qualifying salaried, investment consultant and institutional
salespersons and other commissioned employees) shall be eligible to
participate in the Plan as of the first day of the "Offering Period" (i.e.,
the sixty-day period beginning on the later of (a) the eligible employee's
initial date of hire or (b) the effective date of the Plan's adoption). For
the purposes of this Plan, the term "qualified subsidiary" means any
subsidiary, 50% or more of the total combined voting power of all classes of
stock in which is now owned or hereafter acquired by the Company or any such
qualified subsidiary.
5. PARTICIPATION. Prior to the last day of the Offering Period, an eligible
employee may elect to participate in the Plan by completing and delivering to
the Company's Compensation and Benefits Department (the "Department") a
participation election form on which the employee elects to invest in (i.e.,
purchase for cash) shares of Restricted Stock at the "Purchase Price"
determined below. Such election form must be accompanied by the employee's
personal check (or, if required by the Department, a certified or cashier's
check or money order) payable to the order of the Company in the amount of
such aggregate Purchase Price. Each qualifying salaried, investment consultant
and other employee eligible to participate in the Plan will have a right (as
the case may be) to invest in Restricted Stock in an amount up to 50% of
his/her base salary (in the case of qualifying salaried employees), 20% of
his/her trailing twelve months production (in the case of investment
consultant employees) or 33 1/3% of his/her prior year W-2 compensation (in
the case of institutional salespersons, retail and institutional branch
managers and other employees paid on a commission basis), provided, however,
that no Participant may invest less than $1,000 or more than $200,000 in
Restricted Stock. The "Purchase Price" for shares of Restricted Stock
purchased under the Plan shall be 85% of the "Fair Value" of such shares as of
11:59 p.m., Chicago time on the first day of the Offering Period (the
"Valuation Date"). For purposes of this Plan, the "Fair Value" of a share of
Restricted Stock means:
(i) if shares of Common Stock are publicly traded, the average closing
price of a share of Common Stock during the ten trading days
immediately preceding the Valuation Date; and
(ii) if shares of Common Stock are not publicly traded, the Common Stock's
appraised value (as determined by the financial advisor to the
Company's employee stock ownership trust (the "KSOP Financial
Advisor")) most recently determined prior to the Valuation Date.
The Committee shall have the authority to establish a different Purchase
Price, from time to time, as it may determine.
1. Example: If new salaried employee ("A") joined the Company at a $100,000
base salary, A would have the right, if A so chose, to invest up to $50,000
for which A would receive Restricted Stock valued at $58,824.
2. Example: If a retail investment consultant ("B") joined the Company with a
trailing twelve months production of $300,000, B would have the right to
invest up to $60,000 for which B would receive Restricted Stock valued at
$70,588.
3. Example: If new institutional salesperson ("C") joined the Company with a
prior year W-2 institutional sales compensation of $150,000, regardless of
the production that gave rise to such $150,000 compensation, C would have
the right, if C so chose, to invest up to $50,000 for which C would receive
Restricted Stock valued at $58,824.
Failure to submit an election form prior to the end of the Offering Period
will constitute an election not to participate in the Plan by an eligible
employee.
6. PURCHASE OF RESTRICTED STOCK SHARES. Regardless of when election forms
and funds are received by the Company, purchases of Restricted Stock by
Participants will be made on or as of the last business day of the month in
which a Participant timely submits a completed election form and tenders
payment of the aggregate Purchase Price (the "Share Purchase Date").
2
<PAGE>
7. TERMS AND CONDITIONS OF RESTRICTED STOCK. All shares of Restricted Stock
sold to Participants under the Plan shall be subject to the following terms
and conditions and to such other terms and conditions, not inconsistent with
the Plan, as shall be prescribed by the Committee in its sole discretion:
(a) GENERAL. The restrictions set forth in this Section 7 shall apply to
all shares of Restricted Stock for the period (the "Restricted Period")
commencing on the Share Purchase Date and ending on the earliest to occur
of the following:
(1) the second anniversary of the Share Purchase Date;
(2) the date of a "Change in Control" (as defined below) of the
Company or the qualified subsidiary that is employing the Participant;
(3) the date, if any, on which the restrictions set forth in this
Section 7 lapse pursuant to the provisions of Section 7(d) below; or
(4) such date as the Committee may designate at the Share Purchase
Date.
The Committee may, at any time hereafter, reduce or terminate the Restricted
Period otherwise applicable to all or any portion of any Restricted Stock
purchased hereunder.
For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred upon the first to occur of any of the following events (or any other
event recognized in writing by the Committee as constituting a "Change in
Control"):
(A) any consolidation or merger of the Company (or a qualified subsidiary
employer) in which the Company (or the qualified subsidiary employer) is
not the continuing or surviving corporation or pursuant to which shares of
the Company's Common Stock (or the qualified subsidiary employer's common
stock) would be converted into cash, securities or other property, other
than any consolidation or merger of the Company (or a qualified subsidiary
employer) in which the holders of the Company's Common Stock (or the
qualified subsidiary employer's common stock) immediately prior to the
consolidation or merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the consolidation or
merger; or
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets
of the Company (or a qualified subsidiary employer), other than any sale,
lease, exchange or other transfer to any entity where the Company (or the
qualified subsidiary employer) owns, directly or indirectly, at least
eighty percent (80%) of the outstanding voting securities of such entity
after any such transfer; or
(C) any liquidation or dissolution of the Company; or
(D) the date any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, hereinafter the "1934 Act"), other than
one or more trusts established by the Company or any subsidiary of the
Company for the benefit of employees of the Company or its subsidiaries,
shall become the beneficial owner (within the meaning of Rule 13d-3 under
the 1934 Act) of twenty percent (20%) or more of the Company's outstanding
Common Stock; or
(E) the failure, during any period of twenty-four (24) consecutive
months, of those individuals who at the beginning of such period constitute
the entire Board for any reason to constitute a majority thereof unless the
election, or the nomination for election by the stockholders of the
Company, of each new director comprising the majority was approved by a
vote of at least a majority of the Continuing Directors as hereinafter
defined, in office on the date of such election or nomination for election
of the new director. For purposes hereof, a "Continuing Director" shall
mean:
3
<PAGE>
(i) any member of the Board immediately following the consummation of
the "KSOP Purchase" (as defined in the prospectus included in the
Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission (File No. 33-92686)) or
(ii) any director elected, or nominated for election by the
stockholders of the Company to fill any vacancy or newly created
directorship on the Board, by a majority of the Continuing Directors
then still in office.
(b) FORFEITURE OF RIGHTS. Subject to the provisions of Section 7(d) below,
if a Participant terminates employment with the Company or a qualified
subsidiary prior to the end of the Restricted Period for any reason, the
Participant will forfeit any shares of Restricted Stock that are not yet
vested. A transfer from the Company to a qualified subsidiary of the
Company or affiliate, or vice versa, is not a termination of employment for
purposes of this Plan. If a Participant's position is eliminated or his/her
employment is terminated for a reason other than "Cause" (as defined
below), the Participant will receive back, without interest, the aggregate
Purchase Price which was paid to purchase any unvested shares of Restricted
Stock. If the Participant resigns voluntarily (other than pursuant to a
"sunset arrangement" (as more fully described in Section 7(d)(iii) below))
or the Participant is terminated for "Cause" (as defined below) such
Participant will forfeit any unvested shares of Restricted Stock purchased
by such Participant. For purposes of this Plan, a termination for "Cause"
shall be defined as (i) Participant's willful malfeasance which is
demonstrably and materially injurious, monetarily or otherwise, to the
Company or any of its subsidiaries, provided, however, that any action or
refusal to act by Participant shall not constitute "Cause" if, in good
faith, Participant believed such action or refusal to act to be in, or not
opposed to, the best interests of the Company, or if Participant shall be
entitled, under applicable law or under the Certificate of Incorporation or
By-Laws of the Company or any subsidiary, as the same may be amended or
restated from time to time, to be indemnified with respect to such action
or refusal to act; (ii) Participant's bar or suspension from the securities
industry for a period in excess of ninety (90) days; (iii) Participant's
conviction of or plea of nolo contendere to a felony; or (iv) Participant's
gross and willful misconduct or act of dishonesty involving the Company or
any of its subsidiaries which reflects adversely on the Company or any of
its subsidiaries.
(c) RESTRICTIONS. A stock certificate representing the number of shares of
Restricted Stock sold to a Participant shall be held by the Company (for
the Participant's account) in Participant's name (or if the Participant so
requests in writing, in the Participant's name jointly with a member of the
Participant's family, with right of survivorship). The Participant shall
have all rights and privileges of a stockholder as to such shares of
Restricted Stock, including (1) the right to receive dividends and (2) the
right to vote such shares of Restricted Stock except that, subject to the
provisions of Section 7(d) below, the following restrictions shall apply:
(i) the Participant shall not be entitled to delivery of a stock
certificate representing the shares of Restricted Stock sold to the
Participant hereunder until the expiration of the Restricted Period;
(ii) none of the shares of Restricted Stock may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the
Restricted Period; and
(iii) except as provided in Section 7(d) below, all of the shares of
Restricted Stock sold to the Participant shall be forfeited and all rights
of the Participant to such shares of Restricted Stock shall terminate
without further obligation on the part of the Company or any subsidiary
unless the Participant has remained an employee of the Company or a
qualified subsidiary for the entire Restricted Period applicable to such
shares of Restricted Stock.
If the Participant has remained an employee of the Company or a qualified
subsidiary for the entire Restricted Period, such restrictions shall lapse at
the end of the Restricted Period. The Participant shall forfeit all shares of
Restricted Stock with respect to which such restrictions do not lapse. Upon
the forfeiture (in whole or in part) of shares of Restricted Stock, such
forfeited shares shall be transferred to the Company without further action by
the Participant. The Participant shall have the same rights and privileges,
and be subject to the same restrictions, with respect to any shares received
pursuant to Section 16 below.
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(d) TERMINATION OF EMPLOYMENT.
(i) DISABILITY. If a Participant ceases to be an employee of the Company
or a qualified subsidiary prior to the end of the Restricted Period by of
disability (as defined below), all unvested shares of Restricted Stock sold
to such Participant shall immediately vest, all restrictions applicable to
such shares shall lapse, and the Restricted Period shall end. A certificate
for such shares shall be delivered to the Participant in accordance with
Section 8. For purposes of this Section 7(d), the term "disability" shall
mean a total disability which continues for twelve (12) months and is of a
character which, in the sole judgment of the Department (or for executive
officers who are subject to Section 16 of the 1934 Act, the Committee) after
receiving competent medical advice, will permanently prevent the Participant
from performing on a full-time basis such duties as the Company or a
qualified subsidiary may reasonably assign to him/her consistent with the
duties which he/she was performing immediately prior to the disability. For
purposes of this Plan, the Participant shall be deemed to have become
disabled on the date on which the Department (or the Committee) makes its
determination.
(ii) DEATH. If a Participant ceases to be an employee of the Company or a
qualified subsidiary prior to the end of the Restricted Period by reason of
the Participant's death, any unvested shares of Restricted Stock sold to
such Participant shall vest, all restrictions applicable to such shares
shall lapse and the Restricted Period shall end. A certificate for such
shares shall be delivered to the Participant's estate in accordance with
Section 8 next below.
(iii) ALL OTHER TERMINATIONS. Subject to the next succeeding sentence, if
a Participant ceases to be an employee of the Company or a qualified
subsidiary prior to the end of the Restricted Period for any reason other
than disability or death, the Participant shall immediately forfeit all of
his/her unvested of Restricted Stock. If the Participant terminates
employment on or after attaining age 65 or attaining age 55 and having been
employed by the Company, a Company predecessor, a qualified subsidiary
and/or Kemper Corporation (or a Kemper affiliate) for ten or more years
("Normal Retirement") and the Participant thereafter remains retired from
the industry (a "sunset arrangement"), each share of Restricted Stock
purchased by the Participant will, following such retirement, continue to
vest during the Restricted Period.
(e) LEGEND ON CERTIFICATES DEPOSITED WITH COMPANY. Each certificate issued
in respect of shares of Restricted Stock purchased under the Plan which is
registered in the name of the Participant and deposited with the Company
shall bear the following (or similar) legend:
"The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture)
contained in the EVEREN Capital Corporation 1996 New Employee Restricted
Stock Purchase Plan and an agreement entered into between the registered
owner and EVEREN Capital Corporation."
(f) RESTRICTED STOCK AGREEMENT. The Participant shall enter into an
agreement with the Company in a form specified by the Committee which
memorializes the sale and purchase of Restricted Stock and describes the
terms and conditions of the Restricted Stock and such other matters as the
Committee shall, in its sole discretion, determine.
8. CERTIFICATES. At the end of the Restricted Period, the restrictions
applicable to a Participant's shares of Restricted Stock shall lapse as
provided in Section 7(c) above or Section 7(d) above, but a stock certificate
for the number of shares of Restricted Stock with respect to which the
restrictions have lapsed shall not automatically be delivered, free of all
such restrictions, to the Participant or the Participant's estate (as the case
may be). Rather, certificates for whole shares of Common Stock (being formerly
shares of Restricted Stock) as to which the restrictions have lapsed shall
thereafter be issued as soon as practicable following a Participant's written
request. The Company may assess or impose a reasonable charge for the issuance
of such certificates. The Company shall not be required to deliver any
fractional share of Common Stock but will pay, in lieu thereof, the Fair Value
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(determined as of the date on which the restrictions lapse or, if no
determination is made for that day, the most recently determined Fair Value)
of such fractional share to the Participant or the Participant's estate.
9. DIVIDENDS OR DISTRIBUTIONS. On each Common Stock dividend or distribution
payment date, each Participant shall be credited with an amount equal to the
dividend or distribution which is payable on that date with respect to a share
of Common Stock multiplied by the number of shares of Restricted Stock held by
the Participant. Such amounts shall be paid to the Participant.
10. RIGHTS NOT TRANSFERABLE. Rights granted under this Plan are not
transferable by a Participant other than by will or the laws of descent and
distribution, and are exercisable during an employee's lifetime only by the
Participant.
11. EMPLOYEES' AND PARTICIPANTS' RIGHTS. No employee or other person shall
have any claim or right to purchase Restricted Stock under the Plan except as
provided in the Plan. Neither participation in the Plan, nor the exercise of
any right granted under the Plan, shall be made a condition of employment, or
of continued employment with the Company or any subsidiary. Participation in
the Plan does not limit the right of the Company or any subsidiary to
terminate a Participant's employment at any time or give any right to a
Participant to remain employed by the Company or any subsidiary in any
particular position or at any particular rate of remuneration.
12. WITHHOLDING TAX AND/OR REQUIRING PAYMENT OF TAXES. The Company shall
have the right to withhold with respect to any payments made to Participants
under the Plan any taxes required by law to be withheld with regard to such
payments and/or to require, prior to the delivery of any shares of
unrestricted Common Stock, payment by Participants of any taxes required by
law with respect to the issuance or delivery of such shares (or any portion
thereof) for which such taxes have not been withheld.
13. SECTION 83(B) ELECTION. Each Participant under the Plan may, but shall
not be required to, make an election under Section 83(b) of the Internal
Revenue Code of 1986, as amended ("Code") with respect to any purchase of
Restricted Stock.
14. AMENDMENTS AND TERMINATION. The Board of Directors may amend the Plan at
any time, provided that no such amendment that materially increases benefits
under the Plan shall be effective unless approved within 12 months after the
date of adoption of any such amendment by the affirmative vote of stockholders
holding the majority of the outstanding shares of Common Stock entitled to
vote if such stockholder approval is required for the Plan to comply with the
requirements of 17 C.F.R. (S)240.16b-3 (for periods during which the Board of
Directors has determined that the Plan shall comply with 17 C.F.R. (S)240.16b-
3). The Board of Directors may suspend the Plan or discontinue the Plan at any
time.
15. APPLICABLE LAWS. Notwithstanding any other provision of the Plan, the
Committee may subject shares of either Common Stock or Restricted Stock
transferred and/or purchased under the Plan to such conditions, limitations or
restrictions as the Committee determines to be necessary or desirable to
comply with any law or regulation or with the requirements of any securities
exchange. The delivery or issuance of any shares of Common Stock or Restricted
Stock may be postponed by the Company for such period as may be required to
comply with the applicable requirements under the Federal and state securities
laws, and any applicable listing requirements of any national securities
exchange (in the event the Company is or becomes subject to such laws or
requirements prior to the termination of this Plan) and with all requirements
under any other law or regulation applicable to the issuance or delivery of
such shares. Further, the Company shall not be obligated to deliver or issue
any shares of Common Stock or Restricted Stock if the delivery or issuance of
such shares shall constitute a violation of any provision of any national
securities exchange (in the event the Company becomes subject to the
provisions of such an exchange prior to the termination of this Plan) or any
law or regulation of any governmental authority. Sales of Shares under the
Plan are subject to, and shall be accomplished only in accordance with, the
requirements of all applicable securities and other laws.
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16. CHANGES IN CAPITALIZATION AND SIMILAR CHANGES. In the event of any
change in the outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change, the maximum aggregate
number and class of shares which may be delivered under the Plan shall be
equitably adjusted by the Committee. Such determination of the Committee shall
be conclusive. Furthermore, if there is an adjustment in the number of shares,
no fraction of a share shall be delivered with respect to any award of
Restricted Stock, although the Company will pay, in lieu thereof, the Fair
Value (measured as of the date the restrictions lapse or, if no determination
is made for that day, the Fair Value most recently determined) of such
fractional share to the Participant or the Participant's estate. Any shares of
stock or other securities credited to a Participant with respect to the
Participant's shares of Restricted Stock will be subject to the same
restrictions and shall be deposited with the Company. Subject to the
provisions of Section 7 above, such stock, securities or other property shall
also be subject to the same restrictions as such Restricted Stock, and shall
bear an appropriate legend similar in form to the legend set forth in Section
7.
17. EXPENSES. Except to the extent provided in Sections 8 and 12 above, all
expenses of administering the Plan, including expenses incurred in connection
with the purchase of Shares in the open market for sale to Participants, shall
be borne by the Company and its subsidiaries.
18. ARBITRATION OF DISPUTES. Any dispute between the Company or any of its
affiliates and any Participant relating to this Plan shall be submitted to
arbitration before the National Association of Securities Dealers, Inc. or the
New York Stock Exchange, Inc. in accordance with its rules and regulations.
19. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. The Plan shall become effective
on April 15, 1996, subject to stockholder approval prior to the sale of any
shares of Restricted Stock under the Plan. The Plan and any action taken
hereunder shall be null and void if stockholder approval is not obtained
within 12 months of the Plan's adoption.
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EXHIBIT 10.29
EVEREN CAPITAL CORPORATION
1996 EMPLOYEE PERIODIC PAYROLL STOCK PURCHASE PLAN
1. PURPOSE. EVEREN Capital Corporation, a Delaware corporation (the
"Company"), hereby adopts the EVEREN Capital Corporation 1996 Employee
Periodic Payroll Stock Purchase Plan (the "Plan"). The purpose of the Plan is
to provide an opportunity for the employees of the Company and any qualified
subsidiaries to purchase shares of the common stock, par value $.01 per share
("Common Stock"), of the Company through voluntary automatic payroll
deductions and cash contributions, thereby attracting, retaining and rewarding
such persons and strengthening the mutuality of interest between such persons
and the Company's stockholders.
2. SHARES SUBJECT TO PLAN. An aggregate of 500,000 shares (the "Shares") of
Common Stock of the Company may be sold pursuant to the Plan. Such Shares may
be authorized but unissued Common Stock, treasury shares or Common Stock
reacquired by the Company or purchased in the open market.
3. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") which shall be the Compensation Committee of the board of
directors (the "Board of Directors" or "Board") or another committee
consisting of not less than two directors of the Company appointed by the
Board of Directors, and, if the Board of Directors has determined that the
Plan shall comply with Securities and Exchange Regulation 17 C.F.R.
(S)240.16b-3 or any successor regulation, none of such persons shall
participate in the Plan and each such person shall qualify as a disinterested
person within the meaning of 17 C.F.R. (S)240.16b-3 or any successor
regulation. The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Shares made available hereunder as it deems necessary or advisable. The
Committee shall have the right to determine prior to any Offering Period (as
defined in Section 8 below) the maximum number of Shares which may be offered
during the Offering Period and the manner of allocating the Shares among
eligible employees.
All determinations and interpretations made by the Committee shall be
binding and conclusive on all participating employees (each a "Participant")
and their legal representatives. No member of the Board, no member of the
Committee and no employee of the Company or any subsidiary shall be liable for
any act or failure to act hereunder, by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated or, except in circumstances involving his or her bad faith,
gross negligence or fraud, for any act or failure to act by the member or
employee.
4. ELIGIBILITY. All regular full and part-time employees of the Company, and
of each qualified subsidiary of the Company, other than:
(a) employees whose customary employment is 20 hours or less per week;
and
(b) any employee who, immediately after any purchase of shares would own
stock possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company
shall be eligible to participate in the Plan as of the first "Enrollment Date"
(as defined in Section 5 below) immediately following the later of (a) the
eligible employee's initial date of hire or (b) the effective date of the
Plan's adoption. For the purposes of this Plan, the term "qualified
subsidiary" means any subsidiary, 50% or more of the total combined voting
power of all classes of stock of which is now owned or hereafter acquired by
the Company or any such qualified subsidiary. For purposes of this Section 4,
the provisions of Section 424(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), shall apply in determining the stock ownership of an
employee, and the shares which an employee may purchase under outstanding
rights or options shall be treated as shares owned by the employee.
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5. PARTICIPATION. Prior to any "Enrollment Date" an eligible employee may
elect to participate in the Plan as of such date. Enrollment Dates shall occur
on the first day of each Offering Period (as defined in Section 8). Any such
election shall be made by completing and delivering to the Company's
Compensation and Benefits Department (the "Department") an enrollment and
payroll deduction authorization form prior to such Enrollment Date,
authorizing payroll deductions in such amounts as the employee may request but
in no event less than any minimum nor more than any maximum amounts specified
from time to time by the Committee. During an Offering Period, a Participant
may at any time, but effective as of the second immediately following payroll
period, increase or decrease his/her payroll deductions with respect to the
Offering Period by completing and delivering to the Department a revised
payroll deduction authorization form; provided, that (a) changes in payroll
deductions shall not be permitted to the extent that they would result in
total payroll deductions below any minimum or above any maximum amounts
specified by the Committee; and (b) an eligible employee who elects not to
participate in the Plan through payroll deductions as of any Enrollment Date
may not participate through payroll deductions in the Plan until the next
Enrollment Date (at which time the filing of a new election form in accordance
with this Section 5 will be required).
Regardless of an eligible employee's election to participate in the Plan
through payroll deductions, any eligible employee may also participate in the
Plan at any time during an Offering Period by making periodic cash
contributions to the Plan during such period through the delivery to the
Department of a personal check for the amount of each contribution. Subject to
the right-to-purchase limitation described in Section 8(b) below, the monthly
cash contribution made by any Participant or eligible employee through a
payroll deduction shall be no less than $50 and no more than $1,650.
6. PAYROLL DEDUCTION AND CASH CONTRIBUTION ACCOUNTS. The Company shall
establish on its books and records a "Payroll Deduction Account" for each
Participant and shall credit to such account all payroll deductions made on
behalf of each Participant and all cash dividends paid on Shares held in the
Participant's Plan Share Account (as described in Sections 10 and 11 below).
No interest shall be credited to any Payroll Deduction Account. All cash
dividends paid on shares of Company Stock held in a Participant's brokerage or
Plan Share Account (as described in Section 10 below) will be deposited into
the Participant's Payroll Deduction Account.
The Company shall also establish on its books and records a separate "Cash
Contribution Account" for each Participant and credit to such account all
voluntary cash contributions made by the Participant during an Offering
Period. No interest shall be credited to any Cash Contribution Account.
7. WITHDRAWAL. The termination of a Participant's employment with the
Company or any designated subsidiary will constitute a withdrawal from the
Plan, and payroll deductions on behalf of the Participant will be discontinued
commencing with the Participant's last payroll period while still employed and
no periodic cash contributions will be accepted following any such termination
of employment. A non-terminated Participant may withdraw from an Offering
Period at any time by completing and delivering a written notice to the
Company. Upon receipt of such notice, payroll deductions on behalf of the
Participant shall be discontinued commencing with the second immediately
following payroll period. Amounts credited to the Payroll Deduction or Cash
Contribution Account of any Participant who withdraws or ceases to participate
in the Plan (including any employee who ceases to participate in the Plan for
a non-termination of employment reason (e.g., a prolonged leave of absence))
shall be used to purchase Shares as described in Section 9 below. An employee
may resume participation in the Plan at the next Enrollment Date, by filing a
new election form in accordance with Section 5.
8. OFFERING PERIODS. The Plan shall be implemented by consecutive three-
month Offering Periods with a new Offering Period commencing on the first day
(or, for periods during which the Board of Directors has determined that the
Plan shall comply with 17 C.F.R. (S)240.16b-3, the first trading day occurring
on or after the first day) of each January, April, July and October during the
term of the Plan, or on such other date as the Committee shall determine, and
continuing thereafter to the end of such period, subject to termination in
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accordance with Section 17 hereof. Notwithstanding the foregoing, the first
Offering Period hereunder shall commence on the first day of the first month
following the effectiveness of a Federal registration statement filed under
the Securities Act of 1933 with respect to securities which may be issued
pursuant to this Plan and shall end on the first to occur of the following
days during such calendar year: June 30th, September 30th or December 31st.
"Trading day" shall mean a day on which the New York Stock Exchange is open
for trading. The Committee shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings. The last day (or trading day, for periods during which the
Board of Directors has determined that the Plan shall comply with 17 C.F.R.
(S)240.16b-3) of each Offering Period prior to the termination of the Plan (or
such other trading date as the Committee shall determine) shall constitute the
purchase date (the "Share Purchase Date") on which each Participant for whom a
Payroll Deduction Account or Cash Contribution Account has been maintained
shall purchase the number of Shares determined under Section 9(a).
Notwithstanding the foregoing, the Company shall not permit the exercise of
any right to purchase Shares:
(a) by an employee who, immediately after such purchase would own shares
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company; or
(b) which would permit an employee's rights to purchase shares under this
Plan, or under any other qualified employee stock purchase plan maintained
by the Company or any parent or subsidiary of the Company, to accrue at a
rate in excess of $25,000 of the fair market value of such shares
determined at the time such rights are granted for each calendar year in
which the right is outstanding at any time.
For the purposes of paragraph (a), the provisions of Code Section 424(d) shall
apply in determining the stock ownership of an employee, and the shares which
an employee may purchase under outstanding rights or options shall be treated
as shares owned by the employee.
9. PURCHASE OF SHARES.
(a) Subject to the limitations set forth in Sections 5,7 and 8, each
Participant who is participating in the Plan as of any Enrollment Date
shall purchase from the Company as many whole Shares (plus any fractional
interest in a Share) as may be purchased with the combined amounts credited
to his or her Payroll Deduction and Cash Contribution Accounts as of the
day immediately preceding the applicable Share Purchase Date (or such other
date as the Committee shall determine) (the "Cutoff Date"). Participants
may purchase Shares only through payroll deductions and cash contributions
to such accounts.
(b) The "Purchase Price" for Shares purchased under the Plan from the
Participant's Payroll Deduction Account shall be 92.5% of the fair market
value of shares of Common Stock on the Share Purchase Date. The Purchase
Price for shares purchased from a Participant's Cash Contribution Account
will be 100% of the fair market value of such shares as of the Share
Purchase Date (or such different purchase price established by the
Committee that complies with the provisions of Code Section 423). For this
purpose, the fair market value shall be the value on such date as
determined by the independent financial advisor to the trust of the
Company's employee stock ownership plan (the "KSOP Financial Advisor"),
unless the Board of Directors has determined that the Plan shall comply
with 17 C.F.R. (S)240.16b-3, in which case the fair market value shall be
the closing price for such date as reported in The Wall Street Journal,
Midwest Edition. The Committee shall have the authority to establish a
different Purchase Price as long as any such Purchase Price complies with
(i)the provisions of Section 423 of the Code and (ii) 17 C.F.R. (S)240.16b-
3 if the Board of Directors has determined that the Plan shall comply with
such rule.
(c) On each Share Purchase Date, the amount credited to each Participant's
Payroll Deduction and Cash Contribution Accounts as of the immediately
preceding Cutoff Date shall be applied to purchase as many whole Shares
(plus any fractional interest in a Share) as may be purchased with such
amount at the applicable Purchase Price. Any amounts remaining in a
Participant's Payroll Deduction Account and/or Cash Contribution Account as
of the relevant Cutoff Date in excess of the amount that may properly be
applied to the purchase of Shares shall be refunded to the Participant as
soon as practicable.
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10. BROKERAGE ACCOUNTS OR PLAN SHARE ACCOUNTS. By enrolling in the Plan,
each Participant shall be deemed to have authorized the establishment of a
brokerage account on his or her behalf at any securities brokerage firm
(including, without limitation, any Company affiliate) selected by the
Department. Alternatively, the Department may provide for Plan share accounts
("Plan Share Accounts") for Participants to be established by the Company or
by an outside entity selected by the Department which is not a brokerage firm.
Shares purchased by a Participant pursuant to the Plan shall be held in the
Participant's brokerage or Plan Share Account in street name, or if the
employee so indicates on his or her payroll deduction authorization form, in
the Participant's name or the Participant's name jointly with a member of the
Participant's family, with right of survivorship.
11. RIGHTS AS STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to Shares which may be issued under this Plan until
payment for such Shares has been completed at the close of business on the
relevant Share Purchase Date. Cash dividends paid on Shares held in a
Participant's Plan Share Account will be deposited into the Participant's
Payroll Deduction Account and used to purchase Shares as described in Section
9.
12. CERTIFICATES. Certificates for Shares purchased under the Plan will not
be issued automatically. However, certificates for whole Shares purchased
shall be issued as soon as practicable following a Participant's written
request. The Company may assess or impose a reasonable charge for the issuance
of such certificates. Fractional interests in Shares shall be carried forward
in a Participant's Plan Share Account until they equal one whole Share or
until the termination of the Participant's participation in the Plan, in which
event an amount in cash equal to the value of such fractional interest shall
be paid to the Participant in cash. If a share certificate is issued to a
Participant, the Participant will be required to notify the Company of his/her
disposition of such shares, if his/her disposition occurs within time periods
established by the Company.
13. RIGHTS NOT TRANSFERABLE. Rights granted under this Plan are not
transferable by a Participant other than by will or the laws of descent and
distribution, and are exercisable during an employee's lifetime only by the
Participant.
14. EMPLOYMENT RIGHTS. Neither participation in the Plan, nor the exercise
of any right granted under the Plan, shall be made a condition of employment,
or of continued employment with the Company or any subsidiary. Participation
in the Plan does not limit the right of the Company or any subsidiary to
terminate a Participant's employment at any time or give any right to a
Participant to remain employed by the Company or any subsidiary in any
particular position or at any particular rate of remuneration.
15. APPLICATION OF FUNDS. All funds received by the Company for Shares sold
by the Company on any Share Purchase Date pursuant to this Plan may be used
for any corporate purpose.
16. WITHHOLDING TAX AND/OR REQUIRING PAYMENT OF TAXES. The Company shall
have the right to withhold with respect to any payments made to Participants
under the Plan any taxes required by law to be withheld with regard to such
payments and/or to require, prior to the delivery of any shares of Common
Stock, payment by Participants of any taxes required by law with respect to
the issuance of delivery of such shares (or any portion thereof) for which
such taxes have not been withheld.
17. AMENDMENTS AND TERMINATION. The Board of Directors may amend the Plan at
any time, provided that no such amendment shall be effective unless approved
within 12 months after the date of adoption of such amendment by the
affirmative vote of stockholders holding the majority of the outstanding
shares of Common Stock entitled to vote if such stockholder approval is
required for the Plan to continue to comply with Code Section 423 and/or, for
periods during which the Board of Directors has determined that the Plan shall
comply with 17 C.F.R. (S)240.16b-3, the requirements of 17 C.F.R. (S)240.16b-
3. The Board of Directors may suspend the Plan or discontinue the Plan at any
time. Upon termination of the Plan, all payroll deductions shall cease and all
amounts then credited to the Participants' Payroll Deduction Accounts shall be
equitably applied to the purchase of whole Shares then available for sale, and
any remaining amounts shall be promptly refunded to the Participants.
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18. APPLICABLE LAWS. This Plan, and all rights granted hereunder, are
intended to meet the requirements of an "employee stock purchase plan" under
Code Section 423, as from time to time amended, and the Plan shall be
construed and interpreted to accomplish this intent. The delivery or issuance
of any shares of Common Stock may be postponed by the Company for such period
as may be required to comply with the applicable requirements under the
Federal and state securities laws, and any applicable listing requirements of
any national securities exchange (in the event the Company is or becomes
subject to such laws or requirements prior to the termination of this Plan)
and with all requirements under any other law or regulation applicable to the
issuance or delivery of such shares. Further, the Company shall not be
obligated to deliver or issue any shares of Common Stock if the delivery or
issuance of such shares shall constitute a violation of any provision of any
national securities exchange (in the event the Company becomes subject to the
provisions of such an exchange prior to the termination of this Plan) or any
law or regulation of any governmental authority. Sales of Shares under the
Plan are subject to, and shall be accomplished only in accordance with, the
requirements of all applicable securities and other laws.
19. CHANGES IN CAPITALIZATION AND SIMILAR CHANGES. In the event of any
change in the outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change, the maximum aggregate
number and class of shares available for sale under the Plan shall be
equitably adjusted by the Committee. Such determination of the Committee shall
be conclusive.
20. EXPENSES. Except to the extent otherwise provided herein, all expenses
of administering the Plan, including expenses incurred in connection with any
purchase of Shares in the open market for sale to Participants, shall be borne
by the Company and its subsidiaries.
21. ARBITRATION OF DISPUTES. Any dispute between the Company or any of its
affiliates and any Participant relating to this Plan shall be submitted to
arbitration before the National Association of Securities Dealers, Inc. or the
New York Stock Exchange, Inc. in accordance with its rules and regulations.
22. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. The Plan shall become effective
on April 15, 1996, subject to stockholder approval prior to the sale of any
shares of Common Stock under the Plan. The Plan and any action taken hereunder
shall be null and void if stockholder approval is not obtained within 12
months of the Plan's adoption.
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EXHIBIT 10.30
EVEREN CAPITAL CORPORATION
1996 RESTRICTED STOCK INCENTIVE PLAN
1. PURPOSE. EVEREN Capital Corporation, a Delaware corporation (the
"Company"), hereby adopts the EVEREN Capital Corporation 1996 Restricted Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to provide
opportunities for the transfer of common stock, par value $.01 per share
("Common Stock"), of the Company which is initially subject to vesting and
transfer restrictions to certain employees of the Company and its qualified
subsidiaries, thereby attracting, retaining and rewarding such persons and
strengthening the mutuality of interest between such persons and the Company's
stockholders. All of the shares set aside for transfer to such persons under
the Plan will initially be subject to vesting and transfer restrictions, as
more fully described in Section 7 below, so as to constitute shares of
restricted stock ("Restricted Stock").
2. SHARES SUBJECT TO PLAN. There is hereby reserved for issuance under the
Plan a maximum of (i) 4,000,000 shares of Common Stock of the Company (the
"Shares") and (ii) any shares of Common Stock which may be reserved for
issuance under the Company's 1996 New Employee Restricted Stock Purchase Plan
(the "New Employee Plan"), but which are not actually issued pursuant thereto
if the Committee (as defined below) decides to designate such shares as being
reserved for issuance instead under this Plan. Any shares of Common Stock
reserved for issuance hereunder but not actually issued pursuant to the terms
of this Plan may at any time be designated by the Committee as being reserved
for issuance under the New Employee Plan.
The Shares may be authorized but unissued Common Stock, treasury shares or
Common Stock reacquired by the Company or purchased in the open market. If any
shares of Restricted Stock are forfeited in accordance with the provisions of
Section 7 below, such Shares shall again be made available under the Plan.
3. ADMINISTRATION. The committee appointed to administer the Plan (the
"Committee") shall be the Compensation Committee of the board of directors of
the Company (the "Board of Directors" or "Board") or another committee
consisting of not less than two directors of the Company appointed by the
Board of Directors, and, if the Board of Directors has determined that the
Plan shall comply with Securities and Exchange Regulation 17 C.F.R.
(S)240.16b-3 or any successor regulation, none of such persons shall
participate in the Plan and each such person shall qualify as a disinterested
person within the meaning of 17 C.F.R. (S)240.16b-3 or any successor
regulation. The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Shares made available hereunder as it deems necessary or advisable. The
Committee shall have the right to determine prior to any calendar year the
maximum number of shares of Restricted Stock which may be awarded to each
eligible employee for such calendar year and, if necessary, the manner of
allocating the Shares among eligible employees.
All determinations and interpretations made by the Committee shall be
binding and conclusive on all participating employees (each a "Participant")
and their legal representatives. No member of the Board, no member of the
Committee and no employee of the Company or any subsidiary shall be liable for
any act or failure to act hereunder, by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated or, except in circumstances involving his or her bad faith,
gross negligence or fraud, for any act or failure to act by the member or
employee.
4. ELIGIBILITY. All regular full-time and part-time salaried employees
regularly scheduled to work 25 hours or more per week of the Company and its
qualified subsidiaries who receive or are entitled to receive incentive pay
will participate on a non-voluntary basis, or be eligible to participate on a
voluntary basis, in the Plan as described in Sections 5 and 6 below and
Appendix A attached hereto and incorporated by reference herein ("Appendix A")
with respect to portions of such incentive pay. Employees who desire to
participate voluntarily in the Plan with respect to a portion of the incentive
compensation to which they may become entitled with respect to any entire
calendar year (or, in certain cases, July through December, 1996) must
complete and deliver to the Company's Compensation and Benefits Department
(the "Department") the appropriate participation election form (each, an
"Election Form") not later than the date set forth in Section 6 below. All
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salaries, draws, base grid investment consultant payouts and non-recurring
special purpose bonuses, if any, will be paid solely in cash and will not be
eligible for awards of Restricted Stock under the Plan. For purposes of the
Plan, the term "qualified subsidiary" means any subsidiary, 50% or more of the
total combined voting power of all classes of stock in which is now owned or
hereafter acquired by the Company or any such qualified subsidiary.
5. RESTRICTED STOCK AWARDS. Not later than the last day of February of each
year (each such date, an "Award Date"), each Participant will receive one or
more awards of Restricted Stock (each, an "Award") in place of certain
portion(s) of such Participant's incentive compensation attributable to the
prior calendar year, as described in Section 6 below and Appendix A. The
number of shares of Restricted Stock to be received in any Award will be
determined by (a) dividing (i) the cash amount of the incentive compensation
being replaced by (ii) the "Fair Value" (as defined below) of one share of
Common Stock as of 11:59 P.M., Chicago time, on December 31 of the year
immediately preceding the Award Date (i.e., of the year to which such
incentive compensation is attributable) (the "Determination Date"), (b)
further dividing the resultant quotient by (iii) one minus the discount rate,
if any, applicable to such form of incentive compensation under Section 6
below and (c) rounding to the nearest whole number of Shares.
For purposes of the Plan, the "Fair Value" of one share of Common Stock
means:
(i) if shares of Common Stock are publicly traded, the average closing
price of a share of Common Stock during the ten trading days immediately
preceding the Determination Date; and
(ii) if shares of Common Stock are not publicly traded, the Common
Stock's appraised value (as determined by the financial advisor to the
Company's employee stock ownership trust (the "KSOP Financial Advisor")) as
of the Determination Date.
6. PARTICIPATION AND DISCOUNT RATES. The incentive compensation receivable
by various categories of employees qualifying for participation in the Plan,
and the discount rates, if any, that will be used in calculating the number of
shares of Restricted Stock included in any Award (unless the Committee
determines a different percentage, which it may from time to time do), are as
follows:
(a) INVESTMENT CONSULTANT EMPLOYEES.
(i) The first two percent (2%) of eligible gross commissions
otherwise to be credited to an investment consultant employee as
deferred compensation for 1996 and each subsequent calendar year
shall be paid, on a non-voluntary basis, in Restricted Stock
priced at no discount to (i.e., 100% of) Fair Value.
Notwithstanding the provisions of Section 7, vesting of such
shares of Restricted Stock shall be the same as if such
incentive deferred compensation had continued to be credited in
cash. Any deferred compensation in excess of two percent (2%) of
eligible gross commissions otherwise creditable to an investment
consultant shall continue to be credited in cash as provided for
in the applicable schedule to the Kemper Securities, Inc.
Incentive Deferred Compensation Plan (the "Deferred Compensation
Plan").
(ii) Each investment consultant may voluntarily elect, on a timely basis,
for any entire calendar year (or for July through December, 1996) to
have twenty-five percent (25%) of his/her monthly bonus grid
compensation, if any, withheld, accumulated throughout the year and
paid in Restricted Stock priced at a fifteen percent (15%) discount
to (i.e., 85% of) Fair Value. To be timely, an investment consultant
employee's completed Election Form under this section 6(a)(ii) must
be delivered to the Department not later than December 15 of the
year preceding the entire year to which such election relates (not
later than June 15, 1996 for the July through December, 1996
period).
(b) BONUS ELIGIBLE SALARIED EMPLOYEES.
(i) Each bonus eligible salaried employee whose salary and regular
annual bonus attributable to a calendar year exceeds $100,000 will
receive, on a non-voluntary basis, twenty-five percent (25%) of such
employee's bonus beyond such threshold in Restricted Stock priced at
a twenty percent (20%) discount to (i.e., 80% of) Fair Value.
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(ii) Each bonus eligible salaried employee whose annual base salary is
$50,000 or more but whose combined salary and bonus attributable to
a calendar year may not exceed $100,000 may voluntarily elect, on a
timely basis, to have ten percent (10%) of such employee's bonus, if
any, for the current year paid in Restricted Stock priced at a
twenty percent (20%) discount to (i.e., 80% of) Fair Value. To be
timely, a salaried employee's completed Election Form under this
Section 6(b)(ii) must be delivered to the Department not later than
December 15 of the year to which such bonus is attributable. Any
employee electing under this Section 6(b)(ii) who also qualifies for
an Award of Restricted Stock under Section(6)(b)(i) will receive
only one Award under the Section that produces the greater Award in
terms of the number of shares of Restricted Stock subject to such
Award.
(c) BRANCH OFFICE MANAGER EMPLOYEES.
(i) Each branch office manager employee ("BOM"), retail or
institutional, whose combined BOM salary and BOM bonus(es) (e.g.,
profit bonuses, recruiting bonuses, trainee bonuses and other BOM
bonuses) exceeds $100,000 for any calendar year (exclusive of any
base or bonus grid commissions or incentive deferred compensation
payable or creditable to such employee as an investment consultant
or other institutional sales employee based on such employee's
personal production) will have, on a non-voluntary basis, twenty-
five percent (25%) of any BOM bonuses beyond such threshold
withheld, accumulated throughout the year, and paid in Restricted
Stock priced at a twenty percent (20%) discount to (i.e., 80% of)
Fair Value.
(ii) Each BOM whose combined BOM salary and BOM bonuses attributable to a
particular calendar year may not exceed $100,000 may voluntarily
elect, on a timely basis, to have twenty-five percent (25%) of any
such BOM bonuses for the current year paid in Restricted Stock
priced at a twenty percent (20%) discount to (i.e., 80% of) Fair
Value. To be timely, a BOM's completed Election Form under this
Section 6(c)(ii) must be delivered to the Department not later than
December 15 of the year to which such BOM bonus(es) is(are)
attributable.
(iii) Each BOM eligible to receive one or more Awards of Restricted
Stock as an investment consultant or an institutional sales
employee, on a non-voluntary or voluntary basis under Section
6(a) or 6(d), respectively, with respect to such BOM's
personal production, would continue to be eligible for and to
receive such Awards, regardless of any Awards of Restricted
Stock received under this Section 6(c).
(d) INSTITUTIONAL SALES EMPLOYEES.
(i) The first two percent (2%) of eligible gross commissions otherwise
to be credited to an institutional sales employee as incentive
deferred compensation for 1996 and each subsequent calendar year
shall be paid, on a non-voluntary basis, in Restricted Stock priced
at no discount to (i.e., 100% of) Fair Value. Notwithstanding the
provisions of Section 7, vesting of such shares of Restricted Stock
shall be the same as if such deferred compensation had continued to
be credited in cash. Any incentive deferred compensation in excess
of two percent (2%) of eligible gross commissions otherwise
creditable to an institutional sales employee shall continue to be
credited in cash as provided for in the applicable schedule to the
Deferred Compensation Plan.
(ii) Each institutional sales employee may voluntarily elect, on a timely
basis, for any entire calendar year (or for July through December,
1996), to have twenty-five percent (25%) of any commission
compensation to which such employee becomes entitled that exceeds
$100,000 for the calendar year (including for 1996 commission
compensation attributable to
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January through June, 1996) withheld, accumulated throughout the
year and paid in Restricted Stock priced at a fifteen percent
(15%) discount to (i.e., 85% of) Fair Value. To be timely, an
institutional sales employee's completed Election Form under this
Section 6(d)(ii) must be delivered to the Department not later
than December 15 of the year preceding the year to which such
election relates (not later than June 15, 1996 for the July
through December, 1996 period).
(e) OTHER INCENTIVE ARRANGEMENT EMPLOYEES. Employees not covered by
Sections 6(a) through (d) above with periodic incentive arrangements (each,
an "Other Incentive Arrangement Employee") may voluntarily elect, on a
timely basis, for any entire calendar year (or for July through December,
1996) to have twenty-five percent (25%) of any incentive compensation to
which such employee becomes entitled that, when combined with salary or
draw, exceeds $100,000 for the calendar year (including for 1996 salary and
incentive compensation attributable to January through June, 1996)
withheld, accumulated throughout the year and paid in Restricted Stock
priced at a fifteen percent (15%) discount to (i.e., 85% of) Fair Value. To
be timely, an Other Incentive Arrangement Employee's completed Election
Form under this Section 6(e) must be delivered to the Department not later
than December 15 of the year preceding the year to which such election
relates (not later than June 15, 1996 for the July through December, 1996
period).
7. TERMS AND CONDITIONS OF RESTRICTED STOCK. All shares of Restricted Stock
awarded to Participants under the Plan shall be subject to the following terms
and conditions and to such other terms and conditions, not inconsistent with
the Plan, as shall be prescribed by the Committee in its sole discretion:
(a) GENERAL. Except as provided in Sections 6(a)(i) and 6(d)(i) above,
the restrictions set forth in this Section 7 shall apply to the shares of
Restricted Stock subject to each Award for the period (the "Restricted
Period") commencing on the Award Date and ending on the earliest to occur
of the following:
(1) the second anniversary of the Award Date if, as of the Award
Date, the Participant has at least five "Years of Service" with
the Company, a Company subsidiary, a predecessor of either
and/or Kemper Corporation (or a Kemper affiliate) (or the third
anniversary of such date if the Participant does not have five
Years of Service with one or more of the entities as of such
date);
(2) the date of a "Change in Control" (as defined below) of the
Company or the qualified subsidiary that is employing the
Participant;
(3) the date the Participant's employment terminates because of the
Participant's death or disability; or
(4) such date as the Committee may designate at the Award Date.
For purposes of the Plan, a "Year of Service" shall be determined in the
same manner a "Year of Service" would be determined for vesting purposes
under the Company's 401(k) and Employee Stock Ownership Plan (taking into
account all rules set forth in such document which are applicable to the
determination (e.g., applicable break-in-service rules)). Unless the
Restricted Period has already ended, not later than December 15th of the
calendar year preceding the year in which the Restricted Period is
scheduled to expire pursuant to Section 7(a)(1) above, each Participant
will have the right to deliver to the Department an appropriate form of
written direction to extend such scheduled expiration date for one year
(the "Extended Restricted Period"). If a Participant elects one or more
Extended Restricted Periods, all of the vesting and transfer restrictions
outlined in this Section 7 will apply to the Participant's Restricted Stock
during each Extended Restricted Period. The Committee may, at any time
hereafter, reduce or terminate any Restricted Period or Extended Restricted
Period.
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For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred upon the first to occur of any of the following events (or any other
event recognized in writing by the Committee as constituting a "Change in
Control"):
(A) any consolidation or merger of the Company (or a qualified
subsidiary employer) in which the Company (or the qualified subsidiary)
is not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock (or the qualified subsidiary
employer's common stock) would be converted into cash, securities or
other property, other than any consolidation or merger of the Company
(or a qualified subsidiary employer) in which the holders of the
Company's Common Stock (or the qualified subsidiary employer's common
stock) immediately prior to the consolidation or merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger; or
(B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of
the assets of the Company (or a qualified subsidiary employer) other
than any sale, lease, exchange or other transfer to an entity where the
Company (or the qualified subsidiary employer) owns, directly or
indirectly, at least eighty percent (80%) of the outstanding voting
securities of such entity after any such transfer; or
(C) any liquidation or dissolution of the Company; or
(D) the date any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, hereinafter the "1934 Act"), other
than one or more trusts established by the Company or any subsidiary of
the Company for the benefit of employees of the Company or its
subsidiaries, shall become the beneficial owner (within the meaning of
Rule 13d-3 under the 1934 Act) of twenty percent (20%) or more of the
Company's outstanding Common Stock; or
(E) the failure, during any period of twenty-four (24) consecutive
months, of those individuals who at the beginning of such period
constitute the entire Board for any reason to constitute a majority
thereof unless the election, or the nomination for election by the
stockholders of the Company, of each new director comprising the
majority was approved by a vote of at least a majority of the
Continuing Directors as hereinafter defined, in office on the date of
such election or nomination for election of the new director. For
purposes hereof, a "Continuing Director" shall mean:
(i) any member of the Board immediately following the consummation of the
"KSOP Purchase" (as defined in the prospectus included in the
Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission (File No. 33-92686)) or
(ii) any director elected, or nominated for election by the stockholders
of the Company to fill any vacancy or newly created directorship on
the Board, by a majority of the Continuing Directors then still in
office.
(b) FORFEITURE OF RIGHTS. Subject to Section 7(d) below, if a Participant
terminates employment with the Company or a qualified subsidiary prior to the
end of the Restricted Period or the Extended Restricted Period for any reason,
the Participant will forfeit any shares of Restricted Stock that are not yet
vested. A transfer from the Company to a qualified subsidiary of the Company
or an affiliate, or vice versa, is not a termination of employment for
purposes of this Plan. Except as provided in Sections 6(a)(i) and 6(d)(i)
above, if a Participant's position is eliminated or his/her employment is
terminated for a reason other than "Cause" (as defined below), the Participant
will receive, without interest, the cash compensation that was replaced with
an Award of any unvested shares of Restricted Stock. If a participant resigns
voluntarily (other than pursuant to a "sunset arrangement" (as more fully
described in Section 7(d)(iii) below)) or a Participant is terminated for
"Cause" (as defined below) such Participant will forfeit any unvested shares
of Restricted Stock theretofore awarded to such Participant as well as any
right to claim the cash compensation that was replaced with an Award of
Restricted Stock. For purposes of this Plan, a termination
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for "Cause" shall be defined as (i) Participant's willful malfeasance which
is demonstrably and materially injurious, monetarily or otherwise, to the
Company or any of its subsidiaries, provided, however, that any action or
refusal to act by Participant shall not constitute "Cause" if, in good
faith, Participant believed such action or refusal to act to be in, or not
opposed to, the best interests of the Company or any of its subsidiaries,
or if Participant shall be entitled, under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or any subsidiary,
as the same may be amended or restated from time to time, to be indemnified
with respect to such action or refusal to act; (ii) Participant's bar or
suspension from the securities industry for a period in excess of ninety
(90) days; (iii) Participants conviction of or plea of nolo contendere to a
felony; or (iv) Participant's gross and willful misconduct or act of
dishonesty involving the Company or any of its subsidiaries which reflects
adversely on the Company or any of its subsidiaries.
(c) RESTRICTIONS. A stock certificate representing the number of shares
of Restricted Stock awarded to a Participant shall be held by the Company
in Participant's name (or if the Participant so requests in writing, in the
Participant's name jointly with a member of the Participant's family, with
right of survivorship). The Participant shall have all rights and
privileges of a stockholder as to such shares of Restricted Stock,
including (1) the right to receive dividends and (2) the right to vote such
shares of Restricted Stock except that, subject to the provisions of
Section 7(d) below, the following restrictions shall apply:
(i) the Participant shall not be entitled to delivery of any stock
certificate representing the shares of Restricted Stock awarded to the
Participant hereunder until the expiration of the Restricted Period and
all Extended Restricted Periods;
(ii) none of the shares of Restricted Stock may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the
Restricted Period or any Extended Restricted Period; and
(iii) except as provided in Section 7(d) below, all of the shares of
Restricted Stock awarded to the Participant shall be forfeited and all
rights of the Participant to such shares of Restricted Stock shall
terminate without further obligation on the part of the Company or any
subsidiary unless the Participant has remained an employee of the
Company or a qualified subsidiary for the entire Restricted Period and
any Extended Restricted Periods applicable to such shares of Restricted
Stock.
If the Participant has remained an employee of the Company or a qualified
subsidiary for the entire Restricted Period and all Extended Restricted
Periods, such restrictions shall lapse at the end of the Restricted Period
(or Extended Restricted Period as the case may be). The Participant shall
forfeit all shares of Restricted Stock with respect to which such
restrictions do not lapse. Upon the forfeiture (in whole or in part) of
shares of Restricted Stock, such forfeited shares shall be transferred to
the Company without further action by the Participant. The Participant
shall have the same rights and privileges, and be subject to the same
restrictions, with respect to any shares received pursuant to Section 16
below.
(d) TERMINATION OF EMPLOYMENT.
(i) DISABILITY. If a Participant ceases to be an employee of the
Company or a qualified subsidiary prior to the end of the Restricted
Period, or all Extended Restricted Periods, by reason of disability (as
defined below), all unvested shares of Restricted Stock awarded to such
Participant shall immediately vest, all restrictions applicable such
shares shall lapse, and the Restricted Period (or Extended Restricted
Period) shall end. A certificate for such shares shall be delivered to
the Participant in accordance with Section 8. For purposes of this
Section 7(d), the term "disability" shall mean total disability which
continues for twelve (12) months and is of a character which, in the
sole judgment of the Department (or for executive officers who are
subject to Section 16 of the 1934 Act, the Committee) after receiving
competent medical advice, will permanently prevent the Participant from
performing on a full-time basis such duties as the Company or a
qualified subsidiary may reasonably assign to him/her consistent with
the duties which he/she was performing immediately prior to the
disability. For purposes of this Plan, the Participant shall be deemed
to have become disabled on the date on which the Department (or the
Committee) makes its determination.
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(ii) DEATH. If a Participant ceases to be an employee of the Company
or a qualified subsidiary prior to the end of the Restricted Period or
all Extended Restricted Periods by reason of the Participant's death,
any unvested shares of Restricted Stock awarded to such Participant
shall vest, all restrictions applicable to such shares shall lapse and
the Restricted Period or Extended Restricted Period shall end. A
certificate for such shares shall be delivered to the Participant's
estate in accordance with Section 8 below.
(iii) ALL OTHER TERMINATIONS. Subject to the next succeeding
sentence, if a Participant ceases to be an employee of the Company or a
qualified subsidiary prior to the end of the Restricted Period or
Extended Restricted Period for any reason other than disability or
death, the Participant shall immediately forfeit all of his/her
unvested shares of Restricted Stock. If the Participant terminates
employment on or after attaining age 65 or attaining age 55 and having
been employed by the Company, a Company predecessor, a qualified
subsidiary and/or Kemper Corporation (or a Kemper affiliate) for ten or
more years ("Normal Retirement") and the Participant thereafter remains
retired from the industry (a "sunset arrangement"), each share of
Restricted Stock awarded to the Participant will, following such
retirement, continue to vest during the Restricted Period or Extended
Restricted Period.
(e) LEGEND ON CERTIFICATES DEPOSITED WITH COMPANY. Each certificate
issued in respect of shares of Restricted Stock awarded under the Plan
which is registered in the name of the Participant and deposited with the
Company shall bear the following (or similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) contained in the EVEREN Capital Corporation
1996 Restricted Stock Incentive Purchase Plan and an agreement
entered into between the registered owner and EVEREN Capital
Corporation."
(f) RESTRICTED STOCK AGREEMENT. The Participant shall enter into an
agreement with the Company in a form specified by the Committee which
memorializes the award of Restricted Stock and describes the terms and
conditions of the Award and such other matters as the Committee shall, in
its sole discretion, determine.
(g) OPTION ALTERNATIVE. Any Participant can elect, on an appropriate
election form, to receive up to one-third of the shares he/she would
otherwise receive as Restricted Stock in the form of a non-qualified stock
option (with an option for three shares being given for each share of
Restricted Stock which would otherwise be received). Such option shall be
exercisable at the Fair Value of a share of Common Stock as of the
Determination Date (the "Option Price") for a period of ten years
commencing on the Award Date. The option will vest thirty-three and a third
percent (33 1/3%) on each of the first three anniversaries of the Award
Date if the Participant has at least five Years of Service (as defined
above) with the Company, a Company subsidiary, a predecessor of either
and/or Kemper Corporation (or a Kemper affiliate) as of the Award Date. If
the Participant does not have at least five Years of Service with the
Company, a Company subsidiary, a predecessor of either and/or Kemper
Corporation (or a Kemper affiliate) as of the Award Date, the option will
vest twenty percent (20%) per year for each of the first five anniversaries
of the Award Date.
Example: Employee E becomes entitled to 3,000 shares of Restricted Stock
with a Fair Value of $36,000 ($12.00 per share). E could, if E so chose,
elect to receive 1,000 of such shares (3,000 x 1/3 = 1,000) in the form of
a non-qualified stock option on a 3-for-1 basis. If E so chose, E would
receive 2,000 shares of Restricted Stock having a Fair Value of $24,000 and
an option for 3,000 shares (1,000 x 3 = 3,000) exercisable at $12.00 per
share. Vesting on the Restrictive Stock would occur at the end of the third
anniversary of the Award Date and on the options it would be 20% per year
(600 shares) for five years if E had fewer than five Years of Service as of
the Award Date.
If a Participant terminates his/her employment with the Company or a
qualified subsidiary, he/she will have six months from the effective date
of termination to exercise any vested option(s). If his/her employment is
terminated pursuant to a Normal Retirement, or by death or disability, the
Participant (or
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his/her estate) will have three years from the date at such Normal Retirement,
death or disability to exercise any vested option.
8. CERTIFICATES. At the end of the Restricted Period or the Extended
Restricted Period, the restrictions applicable to a Participant's shares of
Restricted Stock shall lapse as provided in Section 7(c) above or Section 7(d)
above, but a stock certificate for the number of shares of Restricted Stock with
respect to which the restrictions have lapsed shall not automatically be
delivered, free of all such restrictions, to the Participant or the
Participant's estate (as the case may be). Rather, certificates for whole shares
of Common Stock (being formally shares of Restricted Stock) as to which the
restrictions have lapsed shall thereafter be issued as soon as practicable
following a Participant's written request. The Company may assess or impose a
reasonable charge for the issuance of such certificates. The Company shall not
be required to deliver any fractional share of Common Stock but will pay, in
lieu thereof, the Fair Value (determined as of the date on which the
restrictions lapse or, if no determination is made for that day, the most
recently determined Fair Value) of such fractional share to the Participant or
the Participant's estate.
9. DIVIDENDS OR DISTRIBUTIONS. On each Common Stock dividend or distribution
payment date, each Participant shall be credited with an amount equal to the
dividend or distribution which is payable on that date with respect to a share
of Common Stock multiplied by the number of shares of Restricted Stock held by
the Participant. Such amounts shall be paid to the Participant.
10. RIGHTS NOT TRANSFERABLE. Rights granted under this Plan are not
transferable by a Participant other than by will or the laws of descent and
distribution, and are exercisable during an employee's lifetime only by the
Participant.
11. EMPLOYEES' AND PARTICIPANTS' RIGHTS. No employee or other person shall
have any claim or right to be awarded Restricted Stock under the Plan except
as provided in the Plan. Participation in the Plan does not limit the right of
the Company or any subsidiary to terminate a Participant's employment at any
time or give any right to a Participant to remain employed by the Company or
any subsidiary in any particular position or at any particular rate of
remuneration.
12. WITHHOLDING TAX AND/OR REQUIRING PAYMENT OF TAXES. The Company shall have
the right to withhold with respect to any payments made to Participants under
the Plan any taxes required by law to be withheld with regard to such payments
and/or to require, prior to the delivery of any shares of unrestricted Common
Stock, payment by Participants of any taxes required by law with respect to the
issuance or delivery of such shares (or any portion thereof) for which such
taxes have not been withheld.
13. SECTION 83(B) ELECTION. Each Participant under the Plan may, but shall
not be required to, make an election under Section 83(b) of the Internal
Revenue Code of 1986, as amended ("Code"), with respect to any award of
Restricted Stock.
14. AMENDMENTS AND TERMINATION. The Board of Directors may amend the Plan at
any time, provided that no such amendment that materially increases benefits
under the Plan shall be effective unless approved within 12 months after the
date of adoption of any such amendment by the affirmative vote of stockholders
holding the majority of the outstanding shares of Common Stock entitled to
vote if such stockholder approval is required for the Plan to comply with the
requirements of 17 C.F.R. (S)240.16b-3 (for periods during which the Board of
Directors has determined that the Plan will comply with 17 C.F.R. (S)240.16b-
3). The Board of Directors may suspend the Plan or discontinue the Plan at any
time.
15. APPLICABLE LAWS. Notwithstanding any other provision of the Plan, the
Committee may subject shares of either Common Stock or Restricted Stock
transferred and/or awarded under the Plan to such conditions, limitations or
restrictions as the Committee determines to be necessary or desirable to
comply with any law or regulation or with the requirements of any securities
exchange. The delivery or issuance of any shares of Common Stock or Restricted
Stock may be postponed by the Company for such period as may be required to
comply with the applicable requirements under the Federal and state securities
laws, and any applicable listing
8
<PAGE>
requirements of any national securities exchange (in the event the Company is
or becomes subject to such laws or requirements prior to the termination of
this Plan) and with all requirements under any other law or regulation
applicable to the issuance or delivery of such shares. Further, the Company
shall not be obligated to deliver or issue any shares of Common Stock or
Restricted Stock if the delivery or issuance of such shares shall constitute a
violation of any provision of any national securities exchange (in the event
the Company becomes subject the provisions of such an exchange prior to the
termination of this Plan) or any law or regulation of any governmental
authority. Awards of Shares and/or options under the Plan are subject to, and
shall be accomplished only in accordance with the requirements of all
applicable securities and other laws.
16. CHANGES IN CAPITALIZATION AND SIMILAR CHANGES. In the event of any
change in the outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change, the maximum aggregate
number and class of shares which may be delivered under the Plan shall be
equitably adjusted by the Committee. Such determination of the Committee shall
be conclusive. Furthermore, if there is an adjustment in the number of shares,
no fraction of a share shall be delivered with respect to any award of
Restricted Stock, although the Company will pay, in lieu thereof, the Fair
Value (measured as of the date the restrictions lapse or, if no determination
is made for that day, the Fair Value most recently determined) of such
fractional share to the Participant or the Participant's estate. Any shares of
stock or other securities credited to a Participant with respect to the
Participant's shares of Restricted Stock will be subject to the same
restrictions as such Restricted Stock, shall be deposited with the Company and
shall bear an appropriate legend similar in form to the legend set forth in
Section 7.
17. EXPENSES. Except to the extent provided in Sections 7 and 12 above, all
expenses of administering the Plan, including expenses incurred in connection
with any purchase of Shares in the open market for Award to Participants,
shall be borne by the Company and its subsidiaries.
18. ARBITRATION OF DISPUTES. Any dispute between the Company or any of its
affiliates and any Participant relating to this Plan shall be submitted to
arbitration before the National Association of Securities Dealers, Inc. or the
New York Stock Exchange, Inc. in accordance with its rules and regulations.
19. EFFECTIVE DATE AND STOCKHOLDER APPROVAL. The Plan shall become effective
on April 15, 1996, subject to stockholder approval prior to the Award of any
shares of Restricted Stock under the Plan. The Plan and any action taken
hereunder shall be null and void if stockholder approval is not obtained
within 12 months of the Plan's adoption.
9
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
BRANCH OFFICE
INVESTMENT CONSULTANT BONUS ELIGIBLE MANAGER ("BOM") INSTITUTIONAL SALES OTHERS WITH INCENTIVE
OPPORTUNITY/SITUATION ("I/C") EMPLOYEES SALARIED EMPLOYEES EMPLOYEE EMPLOYEES ARRANGEMENTS
- --------------------- --------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Incentive/bonus
compensation
payable in
Restricted Stock.
A. Nonvoluntary All incentive 25% of that portion 25% of that portion All incentive None
participation deferred of annual incentive of all branch deferred
(i.e., incentive compensation bonuses that when manager bonuses compensation
compensation which credits equal to combined with base (e.g., profit credits equal to
will automatically the first two salary results in bonus, recruiting the first two
be awarded in the percent (2%) of total compensation bonus and other percent (2%) of
form of Restricted eligible gross in excess of bonuses) that when eligible gross
Stock). NOTE: The commissions for any $100,000 for year. combined with the commissions for any
examples shown year would be in branch manager's year would be in
reflect the Restricted Stock. Example: Assume base salary results Restricted Stock.
percentage of- Employee A has a in total branch
Fair-Value award base salary of manager
"discounts" $90,000 and is to compensation (non-
detailed in be awarded a production) in
Section 6 of the $20,000 annual excess of $100,000
Plan. bonus. That bonus for year will be
would be paid withheld,
$17,500 in cash accumulated
($10,000 to bring throughout the year
A's salary and cash and then awarded
bonus to $100,000 the following
plus 75% of the February in
remaining $10,000) Restricted Stock.
and $2,500 in
Restricted Stock Example: Branch
having a Fair Value manager C becomes
of $3,125. entitled to a
$10,000 profit
Example: Employee B bonus for one
has a base salary quarter, and a
of $200,000 and is $6,000 bonus for a
awarded a $100,000 second quarter. He
bonus. That bonus also becomes
would be paid entitled to a
$75,000 in cash and $5,000 recruiting
$25,000 in bonus. For the
Restricted Stock first quarter
having a Fair Value $7,500 would be
of $31,250. paid currently in
cash ($10,000 x 75%
= $7,500) and
$2,500 would be
withheld. For the
second quarter
$4,500 would be
paid currently in
cash ($6,000 x 75%)
and $1,500 would be
withheld. The
recruiting bonus
would be paid
$3,750 in cash
($5,000 x 75%) and
$1,250 withheld.
Such aggregate
$5,250 withheld and
accumulated through
the year would be
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRANCH OFFICE
INVESTMENT CONSULTANT BONUS ELIGIBLE MANAGER ("BOM") INSTITUTIONAL SALES OTHERS WITH INCENTIVE
OPPORTUNITY/SITUATION ("I/C") EMPLOYEES SALARIED EMPLOYEES EMPLOYEE EMPLOYEES ARRANGEMENTS
- --------------------- --------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
awarded the
following February
to C in Restricted
Stock having a Fair
Value of $6,563.
Notwithstanding the
above, to the
extent a branch
manager's aggregate
cash compensation
from all sources
other than personal
production as an
I/C (e.g., salary,
recruiting bonuses,
profit bonuses) is
less than $100,000
for a year, any
deferred profit
bonus to which he
or she is entitled
will be paid in
cash rather than
awarded in
Restricted Stock.
Example: For the
year branch manager
D receives a salary
of $15,000, has
$150,000 gross
production that
generates a $60,000
payout, receives a
$5,000 recruiting
bonus and is
entitled to $18,000
in profit bonuses.
Because D's
aggregate cash
compensation as a
manager for the
year is only
$38,000 ($15,000 +
$5,000 + $18,000 =
$38,000), all of
D's deferred profit
and recruiting
bonus would be paid
in cash and none
would be awarded in
Restricted Stock
unless prior to
December 15th of
the year in
question the branch
manager elected to
have such bonus
awarded in
Restricted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRANCH OFFICE
INVESTMENT CONSULTANT BONUS ELIGIBLE MANAGER ("BOM") INSTITUTIONAL SALES OTHERS WITH INCENTIVE
OPPORTUNITY/SITUATION ("I/C") EMPLOYEES SALARIED EMPLOYEES EMPLOYEE EMPLOYEES ARRANGEMENTS
- --------------------- --------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Stock. In such
case, $5,750 of D's
$23,000 aggregate
bonuses would be
awarded in the form
of Restricted Stock
having a Fair Value
of $7,188.
All deferred I/C
compensation equal
to the first two
percent (2%) of
eligible gross
commissions to
which a BOM becomes
entitled would be
awarded in
Restricted Stock.
B. Voluntary Can elect annually If base salary Can elect Can elect annually Can elect annually
participation to have 25% of exceeds $50,000 Restricted Stock to have 25% of any to have 25% of that
monthly bonus grid (but combined base for 25% of branch annual compensation portion of
compensation (i.e., salary and bonus is manager bonuses that exceeds incentive
monthly payout less than even if do not $100,000 withheld, compensation that
determined by the $100,000), the qualify for non- accumulated (when combined with
"bonus grid" employee can elect voluntary throughout the year salary or draw)
(ranging from .5% not later than provisions. and paid the results in total
to 1.75% of December 15 to have following February compensation in
production under 10% of any bonus Can elect in Restricted excess of $100,000
the current bonus awarded for that Restricted Stock Stock. accumulated
grid for qualifying year paid in for 25% of I/C throughout the
I/Cs)) withheld, Restricted Stock. bonus grid Example: remainder of the
accumulated compensation. Institutional sales year and awarded
throughout the year Example: Employee F employee G has the following
and awarded in has a base salary production that February in
Restricted Stock of $60,000 and a results in payouts Restricted Stock.
the following bonus opportunity of precisely
February. of 10% to 20% $15,000 per month Example: Trader H
(i.e., $6,000 to for all 12 months has a base salary
Example: I/C E has $12,000). If F made of the year or of $72,000 per year
production of a 10% election in $180,000 for the ($6,000 per month)
$20,000 for month December and then year. Assuming G and a quarterly
one and $25,000 for became entitled to had made the incentive based on
month two, a $9,000 bonus, voluntary election trading volume that
entitling E under $8,100 would be to participate, for results in
the current bonus paid in cash and the first six incentive payments
grid to a 3% bonus $900 would be paid months of the year of $14,000 for the
payout for month in Restricted Stock nothing would be first quarter,
one ($600) and a 4% having a Fair Value withheld ($15,000 x $16,000 for the
bonus payout for of $1,125. 6 = $90,000) since second, $12,000 for
month two ($1,000). the $100,000 the third and
Assuming E had made threshold had not $24,000 for the
the voluntary been reached. fourth quarter or
election to $138,000 total for
participate, for For the seventh the year. Assuming
month one $150 month, the first Trader H had made
would be withheld $10,000 would be the voluntary
and for month two paid in cash election to
$250 would be ($90,000 + $10,000 participate, none
withheld. Such = $100,000). From of the first three
aggregate the quarters'
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRANCH OFFICE
INVESTMENT CONSULTANT BONUS ELIGIBLE MANAGER ("BOM") INSTITUTIONAL SALES OTHERS WITH INCENTIVE
OPPORTUNITY/SITUATION ("I/C") EMPLOYEES SALARIED EMPLOYEES EMPLOYEE EMPLOYEES ARRANGEMENTS
- --------------------- --------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$400 withheld and remaining $5,000, incentive would be
accumulated through $1,250 would be withheld ($6,000 x
the year would be withheld (25% x 9 = $54,000 +
awarded to F the $5,000). For each $14,000 + $16,000 +
following February of the remaining $12,000 = $96,000)
in Restricted Stock five months $3,750 since the $100,000
having a Fair Value would be withheld threshold had not
of $470. (25% x $15,000). been reached.
The aggregate Because such
$20,000 would be threshold would
accumulated through have been reached
the year and with fourth quarter
awarded the salary, $6,000 of
following February the fourth quarter
in Restricted Stock incentive (25% x
having a Fair Value $24,000) would be
of $23,529. withheld and
awarded the
following February
in Restricted Stock
having a Fair Value
of $7,059.
</TABLE>
<PAGE>
EXHIBIT 10.31
EVEREN CAPITAL CORPORATION
1996 NON-EMPLOYEE DIRECTORS'
VOLUNTARY DEFERRED COMPENSATION PLAN
1. PURPOSE OF PLAN.
The purpose of the EVEREN Capital Corporation 1996 Non-Employee Directors'
Voluntary Deferred Compensation Plan is to provide non-employee directors of
EVEREN Capital Corporation with an opportunity to elect to defer all or a
portion of the cash portion of their annual retainer and/or meeting fee
arrangements. The deferral will be for a period as elected by the non-employee
director and is for the purpose of providing non-employee directors with an
additional opportunity for tax and financial planning.
2. DEFINITIONS.
As used in this document:
"Plan" Means the EVEREN Capital Corporation 1996
Non-Employee Directors' Voluntary Deferred
Compensation Plan as described herein as
the same may hereafter be amended from time
to time.
"Committee" Means the administrative committee
appointed by the Board of Directors,
comprised of one or more employee
directors, to administer the Plan.
"EVEREN" Means EVEREN Capital Corporation, a
Delaware corporation, and its corporate
successors.
"Participant" Means any non-employee director of EVEREN
certified by the Committee as eligible for
participation under the Plan for any year
during which the Plan remains in effect.
"Cash Compensation" Means the cash portion of the non-employee
directors' annual retainer and/or meeting
fee compensation paid during a calendar
year.
"Disability" Means a consecutive twelve month period
during which a Participant is unable to
perform the material duties of his/her
directorship due to illness or injury, as
determined by the Committee, and he/she is
under the regular care of a physician.
<PAGE>
3. ELIGIBLE PARTICIPANTS.
All persons who are elected or appointed to EVEREN's Board of Directors at
or after the 1996 Annual Meeting of Stockholders, and who are not officers or
employees of EVEREN or any of its subsidiaries or affiliates, are eligible to
participate in the Plan; provided, such persons are certified as Participants in
the Plan by the Committee.
4. ADMINISTRATION.
In its sole and absolute discretion, the Committee is authorized, subject
to the provisions of the Plan, to establish such rules and regulations as it
deems necessary or desirable for the proper administration of the Plan and to
make such determinations and interpretations and to take such actions in
connection with the Plan as it deems necessary or desirable.
5. DEFERRED COMPENSATION AND DEFERRAL ELECTIONS.
a. Commencing on the date this plan is adopted, and continuing through
the date on which a Participant's directorship terminates for any reason, the
Participant and EVEREN agree that the Participant shall be entitled to elect to
defer into a deferred compensation account maintained on the books of EVEREN
solely for accounting purposes a percentage of his/her Cash Compensation earned
as a non-employee director of EVEREN (the "Deferred Amount").
b. Subject to Section 6 (a), a Participant may at any time prior to
the first day of any calendar year file an appropriate election form with EVEREN
directing that the payment of all or any portion of Cash Compensation for that
calendar year be deferred until a later year (as specified in the Participant's
election form) or until termination of directorship, or death or disability.
c. Participants who are first elected or appointed after the beginning
of the calendar year may file an appropriate election with EVEREN no later than
60 days of the effective date of their initial directorship with EVEREN;
provided, however, that any Cash Compensation earned or accrued prior to the
date of filing such election shall not be eligible for deferral.
d. Any election filed by a Participant with the Committee directing
deferral of Cash Compensation as set forth above shall be irrevocable with
respect to all Cash Compensation to be paid in the calendar year to which the
election relates.
2
<PAGE>
e. The maximum amount of compensation that may be deferred under this
Plan in any particular year is one hundred percent (100%) of the total Cash
Compensation to be earned as a non-employee director of EVEREN for that year.
f. For 1996, each Participant shall be entitled to elect to defer a
portion of the Participant's Cash Compensation in such partial calendar year. To
be effective for 1996, the Participant's election must be made no later than 60
days following the Plan's adoption date. For 1996, the election to defer a
Participant's Cash Compensation shall be applied to any Cash Compensation which
the Participant may be eligible to receive following the Plan's adoption date;
provided, however, that any Cash Compensation earned or accrued prior to the
date of filing such election shall not be eligible for deferral.
g. The Participant's initial election to defer Cash Compensation shall
continue in effect for subsequent years, pursuant to the terms of the election
of deferral, unless and until the Participant files with EVEREN a notice of
discontinuance or a subsequent election of deferral specifying a different
amount of deferral. Each election of deferral filed subsequent to the initial
election of deferral shall similarly continue in effect for subsequent years
until the Participant files a notice of discontinuance or new election of
deferral. Any new election of deferral, to be effective, must be filed prior to
the beginning of the calendar year for which deferral is elected. Similarly, a
notice of discontinuance shall be effective only if filed prior to the beginning
of a calendar year for which the discontinuance is effective. Such filing of the
notice of discontinuance or election of deferral, whichever applies, shall apply
only to the Participant's Cash Compensation attributable to services performed
after the date of such notice or election.
6. DEFERRAL PERIOD.
a. Subject to the distribution provisions described in Section 8 and 9
below, all Cash Compensation deferred under the Plan must be deferred for a
period of at least four (4) years from the end of the calendar year for which
the deferral was effective.
7. ACCRUAL OF INTEREST.
There shall be credited to the bookkeeping account of each Participant
as of the last day of each calendar year an amount of interest based on EVEREN
Clearing Corp.'s broker call rate in effect at the time interest is credited.
Interest will be credited on the balance as of the first day of each calendar
year plus amounts credited to such Participant during that year. Interest will
compound annually.
3
<PAGE>
8. DISTRIBUTION.
Pursuant to the written election of the Participant as filed with the
Committee, the Committee shall instruct EVEREN to pay the Deferred Amount, and
all accrued interest thereon, to the person entitled thereto in accordance with
one of the following methods:
a. In a lump sum, OR
b. In quarterly or annual installments to be paid in one or more
years (not in excess of four years), if so specified in the election filed by
the Participant.
Notwithstanding anything else in this Plan to the contrary, unless a Participant
has specifically directed that Cash Compensation be deferred until a particular
date or event, all Deferred Amounts and accrued interest thereon shall be
payable in full to the Participant in a lump sum at the later of (a) four years
from the end of the calendar year for which the deferral was effective or (b)
upon termination of his/her directorship with EVEREN for any reason at any time.
In the event the Participant suffers a financial hardship, as the Committee
defines in its sole discretion, EVEREN may, if it deems advisable in its sole
and absolute discretion, distribute to or utilize on behalf of the Participant
as a hardship benefit any portion of the deferred compensation bookkeeping
account attributable to the Participant's initial Deferred Amount, without
consideration of any interest credited to the bookkeeping account.
9. DEATH OF PARTICIPANT.
Each Participant may file with the Committee a written designation of
one or more beneficiaries and also a written designation of one or more
contingent beneficiaries to whom there shall be paid the balance of voluntary
deferred compensation held for the benefit of the Participant in the event of
such Participant's death. The written designation of beneficiaries may be
changed by the Participant from time to time, and any such change shall
supersede and revoke any and all prior beneficiary designations made by the
Participant. The amounts thus to be paid to such beneficiaries shall, upon
decision by the Committee, be paid (i) in accordance with the Participant's
election to receive such distribution; (ii) by immediate distribution to the
beneficiaries of all of such voluntary deferred compensation, together with all
interest accrued thereon; or (iii) by installment payments, starting
immediately, over a period of years determined by the Committee. In the event no
beneficiary is designated by a Participant, that portion of such Participant's
voluntary deferred compensation in the Plan to which he/she may be entitled
shall be paid in accordance with one of
4
<PAGE>
the methods specified in this Section 9, as determined by the Committee, to such
Participant's estate.
ANY BENEFICIARY DESIGNATION UNDER THE PLAN MAY BE AFFECTED BY THE LAWS OF
VARIOUS STATES. PARTICIPANTS ARE ADVISED TO CONSULT WITH THEIR LEGAL ADVISOR
REGARDING THE POTENTIAL EFFECT OF SUCH LAWS.
10. NONASSIGNMENT.
The interest of any Participant or beneficiary under this Plan shall
not be assignable, either by voluntary or involuntary assignment or by operation
of law. All voluntary deferred compensation and any related accrued interest
thereon under this Plan shall be non-forfeitable and shall not be subject to any
claim or setoff for any obligation which may be due and owing by the Participant
to EVEREN.
11. INDEMNIFICATION.
EVEREN or officers or employees of EVEREN (including former officers
and employees), members (or former members) of the Committee or directors (or
former directors) of EVEREN shall have no liability whatsoever for any decision
or action if done in good faith, nor for any error or miscalculation unless such
error or miscalculation is the result of fraud. EVEREN shall indemnify each
director, member of the Committee and employee acting in good faith pursuant to
this Plan against any loss or expense arising therefrom (including former
employees and directors).
12. MODIFICATION OR SUSPENSION OF PLAN.
While it is contemplated that this Plan will be continued, the
Committee shall have the right from time to time to modify, amend, supplement,
suspend or terminate this Plan; provided, however, that subject to all of the
terms and conditions of the Plan, no modification, amendment, supplementation,
suspension or termination of the Plan shall alter or diminish any amount
credited to the bookkeeping account of any Participant prior to such action.
13. EXPENSES OF ADMINISTRATION.
Expenses of administration of this Plan shall be borne by EVEREN.
5
<PAGE>
14. INTERPRETATION OF THE PLAN.
a. The decision of the Committee on any question concerning the
interpretation or administration of the Plan shall be final and conclusive on
all parties, and nothing in the Plan shall be deemed to give any Participant or
his/her beneficiaries, legal representatives or assigns any rights therein
except to such extent, if any, as the Committee may have determined, and then
only subject to all the terms and conditions in the Plan.
b. Nothing in the Plan shall be deemed to give any Participant a
right to be retained as a director or as an employee of EVEREN, nor shall the
Plan affect or impair the rights or obligations of EVEREN or any Participant
under any other pension, profit sharing or other compensation plan of EVEREN.
c. Except to the extent superseded by federal law, the law of
Illinois shall be controlling in all matters relating to the Plan.
15. EFFECTIVE DATE.
This Plan shall be effective for the year ending December 31, 1996 and
shall continue in force during subsequent years unless amended or terminated by
the Board of Directors of EVEREN.
16. UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANTS
a. The payments to a Participant or his/her designated beneficiary or
any other beneficiary hereunder shall be made from the general assets of EVEREN
which shall continue, for all purposes, to be part of the general, unrestricted
assets of EVEREN; no person shall have any interest in any such assets by virtue
of the provisions of the Plan. EVEREN's obligation hereunder shall be an
unfunded and unsecured promise to pay money in the future.
b. To the extent that any person acquires a right to receive payments
from EVEREN under the provisions hereof, such right shall be no greater than the
right of any unsecured general creditor of EVEREN; no such person shall have nor
require any legal or equitable right, interest or claim in or to any property or
assets of EVEREN.
6
<PAGE>
17. ARBITRATION OF DISPUTES.
Any dispute between the Committee or EVEREN and any Participant or
beneficiary (or any other person) relating to this Plan that is not resolved by
agreement of the parties shall be submitted to arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or under the Code of Arbitration Procedures of the
National Association of Securities Dealers, Inc., as the Participant or the
beneficiary (or other person) may elect. Arbitration must be commenced by
service upon the other party or a written demand for arbitration or a written
notice of intent to arbitrate, therein electing the arbitration tribunal. In the
event the Participant or beneficiary (or other person) does not make such an
election within 5 days of such demand or notice, then the Participant or
beneficiary (or other person) authorizes the Committee to do so on behalf of the
Participant or beneficiary (or other person).
* * *
May 8, 1996
7
<PAGE>
EXHIBIT 10.32
EVEREN Capital Corporation
1996 Non-Employee Directors' Voluntary Deferred Compensation Plan
DEFERRED COMPENSATION AGREEMENT
ELECTION OF DEFERRAL
--------------------
I hereby elect to defer ________% of my annual cash compensation to be paid to
me as a non-employee director of EVEREN Capital Corporation.
I further authorize EVEREN Capital Corporation to credit all amounts so deferred
to a bookkeeping account established pursuant to the EVEREN Capital Corporation
1996 Non-Employee Directors' Voluntary Deferred Compensation Plan.
I understand that this authorization shall remain in effect until revoked or
amended. I understand that I may revoke my deferral election for any future
calendar year if I file a notice of discontinuance with EVEREN Capital
Corporation prior to any January 1st to which the deferral election applies. I
further understand that I may file an amended Election of Deferral prior to the
beginning of a calendar year, effective on the first day of the following
calendar year.
PAYMENT ELECTION
----------------
I hereby direct that any compensation so deferred under the EVEREN Capital
Corporation 1996 Non-Employee Directors' Voluntary Deferred Compensation Plan
and all interest accrued thereon pursuant to the Plan be paid to me in the
following manner:
A.[ ] The sum so deferred and accrued interest thereon shall be paid to me in a
lump sum on December 31,__________, not earlier than the fourth
anniversary of December 31st of the year the sum was so deferred;
B.[ ] The sum so deferred and accrued interest thereon shall be paid to me in
substantially equal (elect one: quarterly or annual) installments over a
period of (elect one: 1, 2, 3, 4 years) with the first installment to be
paid in the same month each year beginning during the month of
______________ in the year ______________, not earlier than the fourth
anniversary of the year the sum was so deferred;
C.[ ] The sum so deferred and accrued interest thereon shall be paid to me in
substantially equal (elect one: quarterly or annual) installments over a
period of (elect one: 1, 2, 3, 4 years) commencing with the year in which
my directorship with EVEREN Capital Corporation terminates;
Unless otherwise stated above, the amount so deferred shall be paid to me in
accordance with the distribution provisions of the Plan.
________________________________________
Signature
________________________________________
Print Name
________________________________________
Dated
Return form to:
Stanley R. Fallis, EVEREN Capital Corporation, 77 W. Wacker, 31st Floor,
Chicago, IL 60601
<PAGE>
EVEREN Capital Corporation
1996 Non-Employee Directors' Voluntary Deferred Compensation Plan
DEFERRED COMPENSATION AGREEMENT
NOTICE OF DISCONTINUANCE
------------------------
I hereby give notice of my election to discontinue deferral of my cash
compensation under my Deferred Compensation Agreement under the EVEREN Capital
Corporation 1996 Non-Employee Directors' Voluntary Deferred Compensation Plan,
dated ___________________, 19_____. This notice has been submitted prior to
January 1st, 19____ and shall be effective as of such date.
__________________________________________
Signature
__________________________________________
Print Name
__________________________________________
Dated
Return form to:
Stanley R. Fallis, EVEREN Capital Corporation, 77 W. Wacker, 31st Floor,
Chicago, IL 60601
<PAGE>
CONSENT OF SPOUSE
-----------------
(Required in Community Property States)
I hereby consent to the designation of the above beneficiary(ies) to
receive the benefits payable under the EVEREN Capital Corporation 1996 Non-
Employee Directors' Voluntary Deferred Compensation Plan as the result of the
death of the above non-employee director and waive any and all rights necessary
to provide the payment of such benefits to such beneficiary(ies).
Dated at ____________________, State of _______________ on _________________,
19_____.
----------------------------------
(Signature of Spouse)
----------------------------------
(Print Name)
Witness:
- -------------------------------
FILING ACKNOWLEDGMENT
---------------------
Filed with the records of EVEREN Capital Corporation this _______ day of
________________, 19_____.
By
-------------------------------
Name Title
Return form to:
Stanley R. Fallis, EVEREN Capital Corporation, 77 W. Wacker, 31st Floor,
Chicago, IL 60601
<PAGE>
EVEREN CAPITAL CORPORATION
1996 NON-EMPLOYEE DIRECTORS' VOLUNTARY DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
- --------------------------------------------------------------------------------
(Print or Type)
Participant's
Name___________________________________ SS#____________________________________
As a participant in the above Plan, I hereby designate the following
individual(s) as my Primary and Contingent Beneficiary(ies) in the event of my
death prior to the date on which my benefits have been fully paid under the
Plan. If my Beneficiary is an estate or trust, I have provided the complete
legal name.
================================================================================
PRIMARY BENEFICIARY
Beneficiary(ies) ________________________ _____________________________
Address/Zip Code ________________________ _____________________________
Birth Date ________________________ _____________________________
Social Security No. ________________________ _____________________________
Relationship ________________________ _____________________________
Percentage ________________________ _____________________________
================================================================================
CONTINGENT BENEFICIARY
If all my Primary Beneficiary(ies) is(are) deceased at my death, I designate the
following as my Contingent Beneficiary(ies) under the terms of the above Plan.
Beneficiary(ies) ________________________ _____________________________
Address/Zip Code ________________________ _____________________________
Birth Date ________________________ _____________________________
Social Security No. ________________________ _____________________________
Relationship ________________________ _____________________________
Percentage ________________________ _____________________________
================================================================================
- --------------------------------------------------------------------------------
ANY BENEFICIARY DESIGNATION UNDER THE PLAN MAY BE AFFECTED BY THE LAWS OF
VARIOUS STATES. PARTICIPANTS ARE ADVISED TO CONSULT WITH THEIR LEGAL ADVISOR
REGARDING THE POTENTIAL EFFECT OF SUCH LAWS.
- --------------------------------------------------------------------------------
SIGNATURE OF PARTICIPANT_______________________________ DATE_________________
Return form to:
Stanley R. Fallis, EVEREN Capital Corporation, 77 W. Wacker, 31st Floor,
Chicago, IL 60601
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
EVEREN Capital Corporation
We consent to the use in this Registration Statement on Form S-1 of EVEREN
Capital Corporation ("EVEREN") of our report dated February 23, 1996 (March
28, 1996, as to the second paragraph of Note 23), appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated February
23, 1996, relating to the 1995 financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
September 16, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
EVEREN Capital Corporation:
We consent to the use of our reports included herein, dated May 5, 1995
relating to the consolidated statement of financial condition of Kemper
Securities Holdings, Inc. and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, changes in stockholders'
equity, cash flows and financial statement schedules for each of the years in
the two-year period ended December 31, 1994 and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
September 16, 1996
