<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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
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<S> <C> <C>
Common Stock, $.01 par value per share.............. $86,250,000 $29,742
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</TABLE>
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(1)Estimated solely for the purpose of calculating the registration fee.
----------------
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)
ISSUED JULY 30, 1996
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, shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
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 $ and $ 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 Company has applied for the listing of
its Common Stock on the New York Stock Exchange under the symbol EVR.
-----------
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 CON-
TRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(3)................................ $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(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 , 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
, 1996
LOGO
<PAGE>
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 leading, 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 $320,000 for the six months ended June 30,
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 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. ("ECC"), 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). As a result, the Company is currently employee-owned, with
approximately 92% of the Company's current employees having an ownership
interest. 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 in the fourth quarter of 1994. For
the six months ended June 30, 1996, the Company generated net income of $19.0
million, exclusive of 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 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 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 shares
Company...........................
U.S. Offering.................... shares
International Offering........... shares
Common Stock to be outstanding shares (1)
after the offering................
Dividend policy.................... The Board of Directors intends to pay
quarterly dividends of $ . 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.
Proposed New York Stock Exchange EVR
symbol............................
</TABLE>
- --------
(1) Based on shares outstanding at , 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 are
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
Pro forma income per
share(/5/).............
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(/6/) ADJUSTED(/7/)
--------- ---------- -------------
<S> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets................................ $ 1,767.4 $ 1,765.1 $
Long-term obligations(/8/).................. 175.2 143.7
Stockholders' equity........................ 195.9 190.9
Book value per share of Common Stock
outstanding................................ $ 16.23 $ 16.25 $
</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; excluding this gain, net income was $19.0 million. 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; excluding these charges,
net income was $6.1 million. 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) Pro forma net income per share of Common Stock is calculated by dividing
net income for the six months ended June 30, 1996, 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 for the
full number of shares of Common Stock sold in the offering. Pro forma net
income per share of Common Stock is not presented for periods other than
the most recent period as such presentation would not be meaningful.
(6) Reflects the Transactions. See "Company History" and "Capitalization".
(7) Reflects the sale of shares of Common Stock offered hereby at an
assumed initial price to the public of $ per share (net of estimated
underwriting discounts and commissions and offering expenses) and the
application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(8) 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 $19.0 million excluding 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. ECC 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. ("ESI") and ECC 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 ESI or ECC, even in circumstances where ESI
or ECC 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. Given the limited use by the Company of derivatives, the
Company believes that any material losses relating to its derivative
investments would be substantially offset by gains on the securities hedged.
There can be no assurance, however, 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 % 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 shares of Common Stock
outstanding immediately after completion of this offering, 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 -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 $ per share, based on an assumed
initial public offering price of $ 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").
Following the Buy-Out, shares of Common Stock held in the KSOP were
reoffered and sold to the Company's employees. Approximately two-thirds of all
eligible employees participated in the two offerings, 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
13
<PAGE>
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 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 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."
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 ESI and ECC. EVEREN Capital conducts
business primarily through ESI 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 ESI
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.
14
<PAGE>
DIVIDEND POLICY
Following consummation of this offering, the Company's Board of Directors
intends to pay a quarterly dividend of $ . 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 $190.9 million, or approximately $16.25 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
$ 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 $ , or approximately $
per share. This represents an immediate increase of $ per share to
existing stockholders and an immediate dilution of $ 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)....... $
Pro forma net tangible book value per share as of June
30, 1996................................................. $
Increase in net tangible book value per share
attributable to new investors...........................
-------
Pro forma net tangible book value per share after the
offering.................................................
-------
Dilution in net tangible book value per share to new
investors................................................ $
=======
</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 TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------- -------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. % $ % $
New investors.....................
----- ---- ------ ---- -----
Total.........................
===== ==== ====== ==== =====
</TABLE>
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.
15
<PAGE>
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
$ per share and after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $
($ 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.
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 ) is the
London Interbank Offered Rate ("LIBOR") plus 1.75%. 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 $ 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/) (/5/)
Nonvoting common stock, $.01 par
value per share.................... 2 -- (/4/) --
Additional paid-in capital.......... 168,638 173,090(/6/) (/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 28,966(/1//0/) 28,966
-------- -------- --------
Total stockholders' equity....... 195,891 190,947
-------- -------- --------
Total capitalization.......... $447,433 $446,947 $
======== ======== ========
</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 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 $0.6 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.
(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 anticipated 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 $1.2 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
======== ======== ======== ======== ======== ======== ========
Pro forma net income per
share(/4/).............
========
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(/5/)....... 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(/6/)........ $ 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; excluding this gain, net income was $19.0 million. 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; excluding these charges,
net income was $6.1 million. 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) Pro forma net income per share of Common Stock is calculated by dividing
net income for the six months ended June 30, 1996, 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 from the beginning of the period, adjusted for the full number
of shares of Common Stock sold in the offering. Pro forma net income per
share of Common Stock is not presented for periods other than the most
recent period as such presentation would not be meaningful.
(5) Consists of the Debentures and collateralized mortgage obligations backed
by investment in mortgage-backed certificates. See "Company History."
(6) 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 certain 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 will not have a significant impact on the future 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. Management believes that
effecting a quasi-reorganization as of January 1, 1996 was appropriate in
order to
19
<PAGE>
reflect the emergence of the Company as a new organization and signal the end
of its transition from a wholly-owned subsidiary to a fully independent
company.
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. 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 will pay a cash dividend of $1.18 per share on
its shares outstanding as of July 23, 1996. This dividend will allow the KSOP
to repay its remaining loan balance to the Company, incurred in connection
with the Buy-Out, and will allow 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 to the Company
pursuant to such agreement. The Company expects to receive the remaining $3.8
million in connection with the August 5, 1996 dividend payment.
Immediately following the Buy-Out, 3,654,685 shares of Common Stock were
reoffered to KSOP participants as an investment option for a portion of their
current KSOP account balances, in an aggregate amount not to exceed $25.0
million (the "Founders' Offering"). The price per share in the Founders'
Offering
20
<PAGE>
of $6.8405 was equal to the price per share paid by 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 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. 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 $30.2 million after-tax gain on sale of BETA; excluding this
gain, net income was 6.7% of net revenues.
(2) Includes $22.0 million after-tax of non-recurring charges incurred in
connection with the Buy-Out; excluding these charges, net income was 1.2%
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 was due in part to a 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 ECC 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. Excluding the $30.2 million after-tax gain on the sale of BETA, net
income increased $21.7 million to $19.0 million for the six months ended June
30, 1996.
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 an ECC correspondent firm. While the Company believes that the failure of
this ECC correspondent firm 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."
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.
Excluding the $22.0 million (after-tax) of non-recurring charges recorded in
the third quarter of 1995 related to the Buy-Out, the Company generated net
income of $6.1 million, an increase of $8.3 million when compared to the $2.2
million net loss 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.
26
<PAGE>
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.
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; excluding this gain, net income was $12.2 million.
(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;" excluding these charges,
net-income was $2.6 million. 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. Excluding this gain, net income was 8.3%
of net revenues.
(2) Excluding the $33.3 million pre-tax or 26.5% ($22.0 million after-tax or
17.4%) of net revenues of non-recurring charges incurred in connection
with the Buy-Out discussed under "Results of Operations--1995 Compared to
1994," net income was 2.1% of net revenues. 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
29
<PAGE>
million (after-tax) of non-recurring charges discussed previously. After
adjustment for these non-recurring charges and the gain in the second quarter
1996 on the sale of BETA, the quarterly net income reflects a positive trend
in the Company's net operating results.
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 ESI and ECC, 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.
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
30
<PAGE>
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 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.
31
<PAGE>
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.
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.
32
<PAGE>
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 does not expect any 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>
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.
33
<PAGE>
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 leading, 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 $320,000 for the six
months ended June 30, 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. As a result, the Company is currently
employee-owned, with approximately 92% of the Company's current employees
having an ownership interest. 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 $19.0 million, exclusive of 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.
35
<PAGE>
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 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/).... $320,000(/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 June 30, 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 on an industry source, management believes that the average production
generated by the Company's investment consultants exceeded the industry
average of $235,000 for regional firms in 1995 and approximated the industry
average of $285,000 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, which management believes exceeded the industry
averages for both regional and national firms. 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. 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 a higher level of
support staff per investment consultant and a greater breadth of product and
service offerings than that provided by most regional firms 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."
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.
40
<PAGE>
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 22 professionals located predominantly in New York City, as
well as a group of 15 public finance investment bankers that provide
underwriting and financial advisory services. As part of its cost reduction
strategy, the Company has realigned and downsized its municipal business as of
July 1, 1996, eliminating 10 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 CORP.
The Company, through ECC, 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 ESI and other non-affiliated broker-dealers.
ECC was incorporated in Delaware in 1984 to service the clearing needs of
the broker-dealers then affiliated with Kemper. ECC expanded its clearing
services to outside broker-dealers in order to leverage its clearing
structure, thereby reducing ESI's clearing costs. As of June 30, 1996, ECC
provided clearing services for approximately 30 non-affiliated broker-dealers.
Over the past several years, enhancements in systems and procedures have
allowed ECC 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
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 ECC. 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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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 ESI, 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 on the
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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. ESI 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 ESI,
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 ESI, 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 ESI and the other defendants. The
complaint also alleges fraud, misrepresentation and violation of the Ohio
securities law by three defendants other than ESI 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. ESI 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.
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.
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<PAGE>
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. ESI and ECC are registered as
broker-dealers, and ESI 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. ESI 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.
ESI and ECC 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. ESI's 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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CAPITAL REQUIREMENTS
As registered broker-dealers, ESI and ECC 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. ESI
and ECC each compute net capital under the alternative method which requires
minimum net capital equal to the greater of $1.0 million for ESI and $1.5
million for ECC 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.
ESI receives flow-through capital benefits from ECC, to the extent
available, in accordance with the Net Capital Rule. At June 30, 1996 and
December 31, 1995, ESI 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, ECC 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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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
as of June 30, 1996 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 44 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 50 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) 47 Director
William T. Esrey(1)(2) 56 Director
Homer J. Livingston Jr.(1)(2) 60 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 ESI, 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 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 ESI 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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<PAGE>
Vice President and Chief Administrative Officer of ESI. 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 ESI 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 ESI. From October 1992 until January 1994, he was ESI's
national sales director. From August 1991 to October 1992 he was Regional
Director of ESI's branch offices in Wisconsin, Iowa, Florida and Minnesota.
Prior thereto, he was branch manager of the Madison, Wisconsin branch office
of an ESI 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 ESI. 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 ESI: 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 ESI after
having been Executive Vice President, Corporate Counsel and Corporate
Secretary since December 1993. She was Senior Vice President and Associate
General Counsel of ESI from July 1991 to December 1993. Before joining ESI,
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 ESI 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 ESI 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 ESI 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
ESI. 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 ESI.
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 ESI.
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<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. ESI 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 ESI. 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 ESI and Kemper in
the case of Mr. Boris, Kemper, KFC and ESI in the case of Mr. Geremia, and
ESI 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 ESI, 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 ESI 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.
55
<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
56
<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 is expected to be paid in
connection with 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 ESI 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.
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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 July 22, 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................................. 282,789 2.5% %
Stephen G. McConahey........................... 197,165 1.7
William M. Daley............................... 13,799 *
William T. Esrey............................... 2,786 *
Homer J. Livingston, Jr........................ 3,099 *
William C. Springer............................ 2,527 *
David M. Greene................................ 40,686 *
Thomas R. Reedy................................ 35,570 *
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 93.3
All directors and executive officers as a group
(14 persons, including the above)............. 703,013 6.1
</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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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 is considering adopting a Shareholder Rights Plan
prior to the consummation of the offering and causing to be issued one
Preferred Share Purchase Right (a "Right") to each share of outstanding Common
Stock following consummation of the offering. If adopted by the Board of
Directors, 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 $ 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 outstanding
shares of Common Stock. Of these shares, the shares of Common Stock
sold in the offering, 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 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
( 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.
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
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 Company
expects the Common Stock to be approved for listing on the NYSE under the
symbol EVR.
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.
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.
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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.
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
65
<PAGE>
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
ESI, 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 ESI,
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....................................................
International Underwriters:
EVEREN Securities, Inc........................................
Morgan Stanley & Co. International Limited....................
Lehman Brothers International (Europe)........................
Subtotal....................................................
--------
Total.......................................................
========
</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.
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.
66
<PAGE>
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 ESI, 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,
(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 and (iii) shall not restrict its ability to
distribute this Prospectus to any person. 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 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
67
<PAGE>
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 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 Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
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 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 days
after the date of this Prospectus, except under certain circumstances. The
Company has also agreed, in a separate agreement, that, for this 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.
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.
Under the provisions of the Conduct Rules of the NASD, when an NASD member
such as ESI 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.
68
<PAGE>
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 ESI 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 three
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.
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
69
<PAGE>
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--(CONCLUDED)
(5) QUASI-REORGANIZATION
The Company, with approval from its Board of Directors, implemented a quasi-
reorganization effective January 1, 1996 and revalued certain assets and
liabilities to fair value as of that date. This revaluation 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 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
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
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
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
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
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".
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").
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.
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
F-14
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
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.
F-15
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplemental Disclosure of Non-Cash Investing and Financing Activities
In 1995, in connection with the separation of the Company from Kemper, $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;
and preferred shares valued at $27.1 million were issued to Kemper. In
connection with the purchase of the common stock of the Company, $55 million
of bank loans was incurred (the "KSOP loans") and $55 million in unearned KSOP
shares were recorded. 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
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
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
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
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
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
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
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
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
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(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.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS
, 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JULY 30, 1996
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, shares are being
offered initially outside of the United States and Canada by the International
Underwriters and 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 $ and $ 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 Company has applied for the listing of
its Common Stock on the New York Stock Exchange under the symbol EVR.
-----------
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 CON-
TRARY 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.
(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 , 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
, 1996
LOGO
<PAGE>
ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INTERNATIONAL
LEHMAN BROTHERS
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
<PAGE>
DESCRIPTION OF GRAPHIC
The top two-thirds of page two of the Prospectus consists of a map of the
United States labeled "EVEREN Branch Offices", which gives the locations of the
Company's retail and capital market offices. The key to the map shows that the
Company's retail offices are indicated by a dot, the Company's capital markets
offices are indicated by a triangle and offices with both retail and capital
markets operations are indicated by a square.
<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
See "Management" for a description of recent sales of unregistered
securities made pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
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.*
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, as amended.*
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
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).
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 .*
11.0 Statement regarding computation of per share earnings.*
16.0 Letter re change in certifying accountant (incorporated by
reference to Exhibit 16.0 to the Registrant's Current Report
on Form 8-K/A Amendment No. 1 dated October 5, 1995 and
filed with the Securities and Exchange Commission on October
5, 1995).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
22 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.0 to the
Form 10-K).
24.1 Consent of Deloitte & Touche LLP.**
24.2 Consent of KPMG Peat Marwick LLP.**
24.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).
25 Powers of Attorney (included in the signature pages of this
Registration Statement).
</TABLE>
- --------
*To be filed by Amendment.
**Filed herewith.
(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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON THE 30TH DAY OF JULY, 1996.
EVEREN Capital Corporation
/s/ James R. Boris
By: _________________________________
James R. Boris
Chairman of the Board and Chief
Executive Officer
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF EVEREN CAPITAL CORPORATION,
AND EACH OF US, DO HEREBY CONSTITUTE AND APPOINT EACH AND ANY OF JAMES R.
BORIS, DANIEL D. WILLIAMS, ARTHUR J. MCGIVERN, AND JANET L. REALI OUR TRUE AND
LAWFUL ATTORNEY AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION,
TO DO ANY AND ALL ACTS AND THINGS IN OUR NAME AND BEHALF IN ANY AND ALL
CAPACITIES AND TO EXECUTE ANY AND ALL INSTRUMENTS FOR US IN OUR NAMES IN ANY
AND ALL CAPACITIES, WHICH ATTORNEY AND AGENT MAY DEEM NECESSARY OR ADVISABLE
TO ENABLE SAID CORPORATION TO COMPLY WITH THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY RULES, REGULATIONS, AND REQUIREMENTS OF THE SECURITIES AND
EXCHANGE COMMISSION, IN CONNECTION WITH THIS REGISTRATION STATEMENT, INCLUDING
SPECIFICALLY, BUT WITHOUT LIMITATION, POWER AND AUTHORITY TO SIGN FOR US OR
ANY OF US IN OUR NAMES IN THE CAPACITIES INDICATED BELOW, ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) HERETO; AND WE DO HEREBY
RATIFY AND CONFIRM ALL THAT SAID ATTORNEY AND AGENT, OR HIS SUBSTITUTE, SHALL
DO OR CAUSE TO BE DONE BY VIRTUE THEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON JULY 30, 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)
/s/ Stephen G. McConahey President, Chief Operating Officer and
___________________________________________ Director
(Stephen G. McConahey)
/s/ William M. Daley Director
___________________________________________
(William M. Daley)
/s/ William T. Esrey Director
___________________________________________
(William T. Esrey)
/s/ Homer J. Livingston, Jr. Director
___________________________________________
(Homer J. Livingston, Jr.)
/s/ William C. Springer 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>
II-5
<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 and Stockholders
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
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, as amended.*
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 .*
11.0 Statement regarding computation of per share earnings.*
16.0 Letter re change in certifying accountant (incorporated
by reference to Exhibit 16.0 to the Registrant's Current
Report on Form 8-K/A Amendment No. 1 dated October 5,
1995 and filed with the Securities and Exchange
Commission on October 5, 1995).
22 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.0 to the Form 10-K).
24.1 Consent of Deloitte & Touche LLP.**
24.2 Consent of KPMG Peat Marwick LLP.**
24.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).
25 Powers of Attorney (included in the signature pages of
this Registration Statement).
</TABLE>
- --------
*To be filed by Amendment.
**Filed herewith.
2
<PAGE>
EXHIBIT 24.1
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
July 30, 1996
<PAGE>
EXHIBIT 24.2
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
July 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,195,000
<SECURITIES> 181,173,000
<RECEIVABLES> 939,498,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,771,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,767,385,000
<CURRENT-LIABILITIES> 0
<BONDS> 31,542,000
<COMMON> 121,000
0
0
<OTHER-SE> 195,770,000
<TOTAL-LIABILITY-AND-EQUITY> 1,767,385,000
<SALES> 0
<TOTAL-REVENUES> 300,427,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 250,919,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,457,000
<INCOME-PRETAX> 81,232,000
<INCOME-TAX> 32,007,000
<INCOME-CONTINUING> 49,225,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,225,000
<EPS-PRIMARY> 4.98
<EPS-DILUTED> 0
</TABLE>
